Case Details: D.L. Shah Trust for Applied Science, Technology, Arts and Philoso vs. Income-tax Officer (Exemp.) - [2026] 187 taxmann.com 547 (Mumbai - Trib.)
Judiciary and Counsel Details
- Siddhartha Nautiyal, Judicial Member & Vikram Singh Yadav, Accountant Member
- Madhur Agarwal for the Appellant.
- Sandeep Lakra, CIT DR for the Respondent.
Facts of the Case
Assessee-trust had accumulated income under section 11(2). During the year, the assessee paid certain amounts from accumulated income to two institutions registered under section 12AA. Contending that the payments were for project implementation and services rendered by recipient institutions under the assessee’s supervision and control, the assessee filed the returns of income for the relevant assessment year.
During the assessment proceedings, the Assessing Officer (AO) treated said payments as deemed income of the assessee and added to the assessee’s income. On appeal, CIT(A) confirmed the additions made by the AO and the matter reached the Mumbai Tribunal.
ITAT Held
The Tribunal held that section 11(1) grants exemption in respect of income applied for charitable purposes. Section 11(2) creates a limited exception permitting the accumulation of income beyond the prescribed limits, subject to the fulfilment of stringent statutory conditions. Such an accumulation is a conditional benefit, not an unrestricted exemption. Section 11(3)(d) specifically provides that where any income referred to in section 11(2) is paid or credited to any trust or institution registered under section 12AA, such amount shall be deemed to be the income of the transferor trust in the year in which it is so paid or credited.
The language employed by Parliament is explicit and unqualified. Notably, the Legislature has used the words ‘paid or credited’ rather than ‘donated’, ‘contributed’, ‘granted’, or any other restrictive expression.
Therefore, once the accumulated income is transferred to another institution that enjoys charitable registration, the deeming fiction automatically becomes operative. The Statute does not confer any discretion upon the AO to examine whether such payment was made as a donation, grant, project expenditure, consultancy charges, research fees, implementation cost or under any other nomenclature. The provision is recipient-centric and not purpose-centric. The only facts required to attract section 11(3)(d) are whether the source of funds is accumulation under section 11(2) and the recipient is another institution registered under section 12AA.
Thus, payments made by assessee out of accumulated income under section 11 to institutions registered under section 12AA, though described as project/implementation, would constitute amounts ‘paid or credited’ to another trust within the meaning of section 11(3)(d) and would be taxable as deemed income.
List of Cases Reviewed
- Maharaja Ranjit Singh War Museum Society, Ludhiana v. CIT [2020] 121 taxmann.com 90/275 Taxman 640 (Punjab & Haryana) (para 31) followed
- CIT v. M.CT. Muthiah Chettiar Family Trust [2001] 114 Taxman 69/[2000] 245 ITR 400 (Madras) (para 31) distinguished
List of Cases Referred to
- Commissioner of Customs (Import), Mumbai v. Dilip Kumar & Company [2018] 95 taxmann.com 327/69 GST 239/361 ELT 577 (SC) (para 19),
- CIT v. Tara Agencies [2007] 162 Taxman 337/292 ITR 444 (SC) (para 19),
- Sumati Dayal v. CIT [1995] 80 Taxman 89/214 ITR 801 (SC) (para 27),
- CIT v. Durga Prasad More [1971] 82 ITR 540 (SC) (para 27),
- Mc Dowell & Co. Ltd. v. Commercial tax Officer [1985] 22 Taxman 11/154 ITR 148 (SC) (para 27),
- CIT v. M.CT. Muthiah Chettiar Family Trust [2001] 114 Taxman 69/[2000] 245 ITR 400 (Madras) (para 31)
- Maharaja Ranjit Singh War Museum Society, Ludhiana v. CIT [2020] 121 taxmann.com 90/275 Taxman 640 (Punjab & Haryana) (para 31).
The post Accumulated Income Paid to Another Trust Taxable | ITAT appeared first on Taxmann Blog.
