On May 2, 2025, the Income Tax Appellate Tribunal (ITAT) in Mumbai delivered a landmark ruling against journalist Rana Ayyub, affirming that the Rs 2.7 crore she raised through online crowdfunding campaigns during the COVID-19 pandemic constitutes taxable income under Indian law. The Tribunal, presided over by Hon’ble Vice President Shri Saktijit Dey and Hon’ble Accountant Member Shri Narendra Kumar Billaiya, dismissed Ayyub’s appeals for the assessment years 2021-22 and 2022-23, classifying the funds as “income from other sources” under Section 56(2)(x) of the Income Tax Act, 1961.
Additionally, the ITAT upheld the invocation of Section 175, citing suspicions of asset concealment to evade tax liabilities. The ruling exposed a web of financial irregularities, including the misuse of foreign funds, commingling of personal and donated funds, and violations of the Foreign Contribution Regulation Act (FCRA), 2010.
Rana Ayyub, a prominent journalist and columnist for The Washington Post, launched three crowdfunding campaigns on the Ketto platform between 2020 and 2021. These campaigns, purportedly aimed at providing COVID-19 relief, supporting migrant workers, and aiding flood victims, collectively raised Rs 2.69 crore, including Rs 80.5 lakh in foreign donations.
However, an investigation by the income tax department, triggered by public complaints, revealed significant discrepancies in the handling and utilisation of these funds. The ITAT’s ruling not only upheld the tax department’s assessment but also highlighted a pattern of personal enrichment, regulatory violations, and lack of transparency in Ayyub’s financial dealings.
Background of the Case
The crowdfunding campaigns between 2020 and 2021, Ayyub initiated three crowdfunding campaigns on Ketto, a popular online fundraising platform in India. The campaigns were marketed as efforts to provide relief during the COVID-19 pandemic, support migrant workers displaced by lockdowns, and assist victims of natural disasters such as floods. The campaigns garnered significant public support, raising Rs 2.69 crore, including substantial contributions from foreign donors.
Income Tax Department’s Investigation
Following public complaints about the potential misuse of funds, the income tax department launched an investigation into Ayyub’s financial activities. The probe revealed several alarming irregularities:
1. Commingling of Funds: The funds raised through the campaigns were transferred into personal savings accounts belonging to Ayyub, her father, Mohammed Ayyub Shaikh, and her sister, Iffat Shaikh. No separate accounts were maintained to segregate donation funds from personal finances.
2. Limited Relief Expenditure: Of the Rs 2.69 crore raised, only approximately Rs 28 lakh could be directly traced to relief activities, raising questions about the utilisation of the remaining funds.
3. Personal Use of Funds: The investigation uncovered that Rs 19 lakh was spent on personal expenses, and a fixed deposit of Rs 50 lakh was created in Ayyub’s name, suggesting personal financial gain.
4. Unused Funds: Over Rs 2.4 crore remained unutilised, lying dormant in personal accounts without any documented plan for deployment in charitable activities.
5. Foreign Contributions: The inclusion of Rs 80.5 lakh in foreign donations raised concerns about potential violations of the FCRA, which prohibits journalists from receiving foreign contributions.
These findings prompted the income tax department to classify the entire Rs 2.69 crore as taxable income and invoke Section 175 of the Income Tax Act to ensure immediate tax assessment.
The ITAT’s Ruling
The ITAT bench, comprising Vice President Shri Saktijit Dey and Accountant Member Shri Narendra Kumar Billaiya, delivered a comprehensive judgment in the case titled Rana Ayyub Shaikh Vs. Deputy Commissioner of Income Tax (Central Circle) – 6(2), Mumbai. The Tribunal upheld the tax department’s assessment and dismissed Ayyub’s appeals for the assessment years 2021-22 and 2022-23. The key legal findings are summarised below:
1. Taxability Under Section 56(2)(x): The Tribunal classified the Rs 2.69 crore as “income from other sources” under Section 56(2)(x) of the Income Tax Act, 1961. This section applies to income not covered under other heads of income, such as salaries or business profits. The ITAT rejected Ayyub’s claim that the funds were charitable donations exempt from taxation, noting the lack of evidence demonstrating their exclusive use for charitable purposes.
2. Invocation of Section 175: The Tribunal supported the tax department’s use of Section 175, which allows for immediate tax assessment when there is a reasonable suspicion that the taxpayer may transfer or dispose of assets to evade tax liabilities. The commingling of funds, creation of a personal fixed deposit, and lack of transparency in fund utilisation provided sufficient grounds for invoking this provision.
3. FCRA Violations: The Tribunal flagged potential violations of the FCRA, 2010, which prohibits journalists from receiving foreign contributions. Ayyub’s transfer of foreign funds into her family members’ accounts, followed by routing them back to herself, was seen as an attempt to bypass FCRA regulations. Although Ayyub returned nearly Rs 70 lakh in foreign contributions after receiving a tax summons, the Tribunal viewed this as a reactive measure rather than evidence of compliance.
4. Lack of Charitable Intent: The ITAT emphasised that genuine charitable activities require transparency and accountability, including the maintenance of separate accounts and clear documentation of fund utilisation. Ayyub’s failure to produce such documentation, coupled with the creation of a personal fixed deposit and expenditure on personal expenses, undermined her claim of charitable intent.
Rejection of Legal Precedents
Ayyub’s legal counsel cited Supreme Court rulings in unrelated cases involving charitable donations and income diversion to argue that the funds should not be taxed. The Tribunal dismissed these precedents as inapplicable, noting that in those cases, funds were maintained in separate accounts and transparently used for public benefit, conditions not met in Ayyub’s case.
Analysis of Financial Irregularities
The ITAT’s ruling exposed a complex web of financial irregularities that raise serious questions about Ayyub’s handling of the crowdfunding campaigns. The following points highlight the key issues:
1. Commingling of Funds: The transfer of donation funds into personal accounts belonging to Ayyub and her family members violated basic principles of financial accountability. By failing to maintain separate accounts, Ayyub created opportunities for misuse and obscured the traceability of funds.
2. Limited Relief Expenditure: The fact that only Rs 28 lakh of the Rs 2.69 crore was used for relief work suggests that the campaigns were not primarily driven by charitable intent. The Tribunal noted that a genuine relief effort would have prioritised the deployment of funds to assist those in need.
3. Personal Enrichment: The creation of a Rs 50 lakh fixed deposit in Ayyub’s name and the expenditure of Rs 19 lakh on personal expenses indicate that a significant portion of the funds was diverted for personal gain. These actions directly contradict the stated purpose of the crowdfunding campaigns.
4. Unused Funds: The presence of over Rs 2.4 crore in unutilized funds in personal accounts, without a clear plan for their deployment, further undermines Ayyub’s claims of charitable intent. The Tribunal viewed this as evidence of mismanagement and potential intent to hoard funds for personal use.
5. FCRA Violations: The handling of foreign contributions was particularly problematic. Ayyub’s transfer of funds to family members’ accounts to circumvent FCRA restrictions suggests a deliberate attempt to evade regulatory oversight. The subsequent return of Rs 70 lakh after receiving a tax summons does not absolve her of the initial violation.
Broader Implications
The ITAT’s ruling has significant implications for crowdfunding and charitable fundraising in India:
Need for Regulatory Oversight: The case highlights the lack of stringent oversight over online crowdfunding platforms like Ketto. Such platforms must implement robust mechanisms to ensure that funds are used for their stated purposes and comply with legal regulations.
Accountability for Public Figures: The ruling serves as a reminder that public figures, including journalists, are not exempt from legal and financial accountability. The misuse of public generosity under the guise of charity can have severe legal and reputational consequences.
Strengthening FCRA Compliance: The case underscores the importance of enforcing FCRA regulations to prevent the misuse of foreign contributions. Stricter monitoring of foreign donations to individuals and organizations is necessary to ensure compliance.
Public Trust in Crowdfunding: The exposure of financial irregularities in Ayyub’s campaigns may erode public trust in crowdfunding initiatives, particularly those tied to sensitive issues like disaster relief. Restoring confidence will require greater transparency and accountability from both fundraisers and platforms.
The ITAT’s ruling against Rana Ayyub marks a significant milestone in addressing financial irregularities in crowdfunding campaigns. By classifying the Rs 2.69 crore as taxable income and upholding the invocation of Section 175, the Tribunal has sent a clear message that misuse of public funds under the pretext of charity will not be tolerated.
Beyond its legal implications, the ruling highlights the need for stronger regulatory frameworks to govern crowdfunding platforms and ensure accountability. As Ayyub faces substantial tax liabilities and reputational damage, this case serves as a cautionary tale for individuals and organisations engaging in public fundraising, emphasising the importance of transparency, accountability, and compliance with the law.
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