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Inappropriate Use of Foreign Contribution by Trust Not Compliant With Trust’s Goals: Reassessment

Last Updated on November 15, 2023 by News Desk

The case’s facts: Recently, the Delhi High Court maintained reassessment proceedings against a trust that was suspected to have employed foreign funds illegally and against its declared purpose. The petitioner, Enviornics Trust, which is committed to social development and environmental research, was under examination following a survey done under Section 133 of the Income Tax Act. The government argued that the trust’s objectives under the Income Tax Return (ITR) and the Foreign Contribution (Regulations) Act 1976 (FCRA) did not coincide.

Reasons Put Forward by the Parties: Denying any wrongdoing, the petitioner argued against the reassessment. They contended that a roaming investigation without hard data was what led to the department’s actions. In support of justifiable environmental concerns, the trust has highlighted its partnership with the Legal Initiative for Forest and Environment. However, pointing to disparities between FCRA disclosures and ITR filings, the agency claimed that the trust had used a different technique in stating its objectives.

Rationale for the Decision: The Delhi High Court, headed by Chief Justice Satish Chandra Sharma and Justice Tushar Rao Gedela, issued its verdict based on significant facts, such as the managing trustee’s declaration and the trust deed. The Income Tax Act’s Sections 11 and 12 exemptions, when applied erroneously to overseas gifts, the court noted, may give rise to the idea that revenue was avoided as a consequence of fraudulently claimed exclusions.

The legitimacy of the reassessment procedures under Section 149(1) and the assessing officer’s competence to give enough evidence of an income escapement were the two key factors that the court addressed. The AO’s possession of crucial papers, including accounts with deposits over INR 50,000, was noted, along with the 10-year reassessment restriction.

Conclusion: The reassessment procedures were confirmed by the court’s ruling in favor of the department. It said that Enviornics Trust, the petitioner, had not demonstrated genuine intentions while demanding equitable jurisdiction from the court. The court admonished the trust for omitting crucial data about the Income Tax Act’s Sections 12A, 12AA, and 12AB termination of its registration. The ruling underlines the need of retaining trust standards and maintaining openness in financial operations, particularly with regard to donations from outside.

Case Title: Environmental Trust v. Department of Revenue Commissioner

Written By: Nikita Shankar @nikitaashankar

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