C.A.@ SLP(C)No.17428/18

    NON-REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 1381 OF 2019 [Arising out of S.L.P.(C)No. 17428 of 2018]

Commissioner of Income Tax          ... Appellant (Exemptions), Kolkata

Versus

Jagannath Gupta Family Trust     ... Respondent

J U D G M E N T

R. Subhash Reddy, J.

1. Leave granted.

2. This civil appeal is filed by the appellant, i.e.,

the  Commissioner  of  Income  tax  (Exemptions),  Kolkata,

aggrieved by the Order dated 18.09.2017 passed by the High

Court of Calcutta in I.T.A No.7 of 2017.

3. The  respondent  herein,  M/s.  Jagannath  Gupta  Family

Trust,  is  a  registered  Trust  under  Section  12AA  of  the

Income  Tax  Act,  1961,  (for  short  ‘the  Act’)  and  also

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approved  under  Section  80G(5)(vi)  of  the  Act  vide

proceedings dated 16.08.2010. The trust was created with an

avowed object of public and charitable purposes, namely,

medical  relief,  education,  any  other  causes  of  public

utility  etc.  It  is  stated  that  the  respondent-trust  is

running an Engineering College.

4. A survey was conducted under Section 133A of the Act,

in the premises of School of Human Genetics and Population

Health  (SHGPH),  Kolkata  by  the  Investigation  Wing  on

27.01.2014.  It  appears,  during  the  said  survey  the

appellant has noticed a donation entry of Rs.37,00,000/-

(Rupees Thirty-Seven Lacs) in two tranches in the months of

February  and  March,  2013.  It  is  the  allegation  of  the

appellant that such donation given to the respondent-trust

is bogus and sham. It is the case of the appellant that the

donor did not actually donate such amount, such entry was

shown by receiving the amount in cash from the respondent,

by retaining commission.  

5. In view of such allegation, the appellant herein has

initiated the proceedings for cancellation of registration

and  issued  a  show-cause  notice  to  the  respondent

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on 04.12.2015. The respondent has replied to the same and

contested the proceedings. The main plank of the defence

was  that  the  procedure  adopted  by  the  appellant  was

contrary to the principles of natural justice. It was also

the case of the respondent, that though a statement of the

representative of the donor was recorded and on the said

basis  proceedings  were  initiated  for  cancellation  of

registration,  but  the  respondent  was  not  given  any

opportunity, to cross examine such representative.

6. After receipt of the explanation to the show-cause

notice,  alleging  that  the  activities  of  the  respondent-

trust are neither genuine nor as per the objects of the

trust, further alleging that the transaction in question

was only a money laundering, therefore, receipt of donation

in lieu of cash was never the object of the trust and as

such it is to be treated as ingenuine and illegal activity.

It is also held that such activities are carried out by the

respondent-assessee not only in one year but in several

years.

7. By  recording  the  aforesaid  findings,  the  primary

authority, by order dated 15.03.2016, in exercise of power

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under  Section  12AA(3)  of  the  Act,  has  cancelled  the

registration of the respondent-trust. The inference drawn

and as mentioned in paragraphs 7.3 and 8 of the order reads

as under:

“7.3  Based  on  the  facts  and  circumstantial evidences as discussed in Para 1 to 6, it can be inferred:

a)The  assessee  trust  had  allegedly  received huge sum over a period of seven years starting from A.Y. 2009-10 to A.Y. 2015-16 in the garb of corpus/non-corpus donation. In reality the donors were returned back the money in cash. This  was  done  through  web  of  financial transactions. All evidences show that through these  alleged  donations  the  assessee  trust actively helped in pumping unaccounted money of its  group  concerns  into  the  trust  and simultaneously also allowing individual donors to  claim  benefit  u/s.80G  on  such  alleged donation.  

b)  Further,  the  assessee  trust  has  paid commission to the agents to lure prospective students to take admission in its college. This is  not  disallowed  as  per  AICTE  rules. Therefore, in this respect also the assessee trust has violated the law of the land.  

c) By doing these things the assessee trust has participated  actively  in  ingenuine  activities and also acted beyond the stated objectives of the trust.

d) They have violated the objects of the trust by channelizing unaccounted cash through bogus donations.

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e) Donations received whether corpus or non- corpus are not voluntary, merely accommodation entries and fictitious.  

f)  Society/Trust  has  grossly  misused  the provision of Section 12AA and 80G(5)(vi). These approvals  were  not  for  cash  channelizing through donations.  

g) Activities of the trust are not genuine as well  as  not  being  carried  out  in  accordance with its declared objects, Assessee’s case is covered  within  the  both  limbs  of  Section 12AA(3).  

h)  Even  ingenuine  and  illegal  activities carried on by assessee through money laundering do not come within the conceptual framework of charity  vis-a-vis  activity  of  general  public utility envisaged by the Income Tax Act as laid down in Section-2(15).  

8. Keeping  in  view  the  above,  provision  of Section  12AA(3)  is  invoked  and  registration granted u/s 12AA is withdrawn/cancelled w.e.f 01.04.2008 from the starting of financial year, when the society was found to be involved in money  laundering  through  receipt  of  bogus donation, ingenuine activities and not carrying out activities as per object of the trust.”

8. Aggrieved  by  the  order  of  cancellation  dated

15.03.2016,  the  respondent-assessee  has  filed  an  appeal

before the Income Tax Appellate Tribunal, at Kolkata ‘B’

Bench in Income Tax Appeal No.597/KOL/2016. The appellate

authority,  by  recording  a  finding  that,  though  the

statement  of  the  donor was  made  basis  for initiating

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proceedings  for  cancellation  of  registration  of  the

respondent-trust,  but  the  respondent  was  not  given  an

opportunity to cross-examine the representative, has held

that  an  opportunity  of  cross-examination  of  the

representative  of  the  donor  is  to  be  given  to  the

respondent.  By  recording  the  aforesaid  finding,  the

appellate-authority  has  set  aside  the  order  dated

15.03.2016 and remanded the matter for fresh consideration

by primary authority.

9.   Aggrieved  by  the  order  of  the  appellate  authority

dated  10.04.2017,  the  respondent-assessee  has  filed  an

appeal, i.e., Income Tax Appeal No. 7 of 2017 before the

High Court of Calcutta. By the impugned order, the High

Court has allowed the appeal by order dated 18.09.2017 and

quashed  the  order  of  cancellation  of  registration. The

High  Court  has  held  that  while  it  is  possible  that  a

particular donation may be bogus or fictitious and, the

assessee may be assessed to tax therefor and other steps

can be taken but the single donation which is allegedly

bogus,  would  not  establish  that  the  activities  of  the

trust  are  not  genuine  and  not  being  carried  out  in

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accordance with the objects of the trust. It is also held

that if there are multiple bogus transactions of similar

kind,  it  may  lead  to  reasonable  assessment  for  the

Competent Authority to hold that the trust is engaged in

such activities which can be said to be not genuine or not

in conformity with the objects of the trust.

10. In  this  appeal,  we  have  heard  Mr.  S.A.  Haseeb,

learned counsel for the appellant and Mr. N.K. Poddar,

learned Senior counsel for the respondent.

11. It  is  contended  by  the  learned  counsel  for  the

appellant that there is a serious allegation against the

respondent-assessee in indulging in money laundering. It

is  submitted  that  the  alleged  donation  from  School  of

Human  Genetics  and  Population  Health  (SHGPH)  is

absolutely  bogus  and  it  is  clear  from  the  evidence

gathered during the survey that the said donation is made

by  collecting  the  amount  in  cash  from  the  respondent-

assessee. It is submitted that in view of the allegations

made by the respondent-assessee that it was not given the

opportunity  to  cross-examine  the  representative  of  the

donor  whose  statement  was  relied  upon  in  cancellation

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proceedings, only to give an opportunity, the appellate

tribunal  has  remanded  the  matter  to  the  primary

authority.  Inspite  of  such  an  order  passed  by  the

appellate tribunal, the respondent has further filed an

appeal before the High Court and the High Court has set

aside the order of cancellation only on the ground that

one bogus donation would establish that the activities of

the trust are not genuine and the finding recorded by the

High Court is erroneous and the High Court has committed

error in recording such a finding which will run contrary

to the plain language of Section 12AA(3) of the Act. It

is submitted by learned counsel that the said revolving

transaction of money through donor is nothing but money

laundering which will run contrary to the objects of the

trust.

12.  On the other hand, it is contended by learned senior

counsel for the respondent-assessee that merely based on

the  survey  conducted  in  the  office  of  the  donor,

proceedings  are  initiated  for  cancellation  of

registration.  It  is  contended  that  though  there  was  a

survey conducted on the respondent-assessee, but nothing

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adverse was found during such survey. It is submitted,

based on the ex-parte statement of the representative of

the  donor,  proceedings  were  initiated  and  order

cancelling the registration was passed. Further, it is

contended that reasons, as assigned by the High Court,

are valid and there are no grounds to interfere with such

an order passed by the High Court. Learned counsel has

also  brought  to  our  notice  the  various  relevant

provisions  in  the  Income  Tax  Act,  1961,  pleading  that

every  donation  is  not  exempted  and  the  respondent-

assessee has used all the donations for the purpose of

promoting the objects of the trust.

13.  Having heard the learned counsel for the parties, we

have  perused  the  order  passed  by  the  Commissioner  of

Income Tax (Exemptions), Kolkata; the appellate-authority

and the order impugned in this appeal. In the proceedings

initiated for the cancellation of registration, mainly it

was the case of the respondent-assessee that proceedings

for  cancellation  were  initiated  only  on  the  ex-parte

statement  of  the  representative  of  the  donor,  without

giving  any  opportunity  to  the  assessee.  It  is  further

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submitted that though a survey was also conducted on the

respondent-assessee, but nothing adverse was found during

such  survey  to  support  the  case  of  the  appellant,  to

cancel the registration. Learned counsel also brought to

our notice the various provisions of the Act but, at the

same time, in support of the arguments that all donations

are  not  exempted,  but  having  regard  to  the  reasons

recorded in the impugned order, it is not necessary for

us to delve deep at this stage. From the perusal of the

order passed by the High Court, it is clear that the High

Court has allowed the Writ Petition mainly on one ground,

namely, that one bogus donation would not establish that

the activities of the trust are not genuine.

14.  We are of the view that such a reason assigned by

the  High  Court  is  erroneous  and  runs  contrary  to  the

plain language of Section 12AA(3) of the Act. In view of

the  serious  allegations  made  against  the  respondent

trust, it is a matter for consideration of the issue,

after giving opportunity as pleaded by the respondent but

the High Court has committed error in entertaining the

appeal against the remand order passed by the appellate-

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authority, and in quashing the order of cancellation of

registration.

15.  For the aforesaid reasons, we are of the view that

the order impugned is liable to be set aside and the same

is, accordingly, hereby quashed and set aside. However,

it is made clear that we have not expressed any opinion

on merits, and it is open to the Commissioner of Income

Tax (Exemptions), Kolkata to consider all the issues on

its own merit, uninfluenced by the observations made by

the appellate authority, the High Court or in this order

by this Court.

16.  This appeal is allowed, with directions as indicated

above, with no order as to costs.

 .....................J.    [R. Banumathi]

.....................J.   [R. Subhash Reddy]

New Delhi February 01, 2019.

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