Section 11 of Income-Tax Act, 1961

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Section 11 of Income-Tax Act, 1961 deals with Income from property held for charitable or religious purposes

Contents

From the Act

Section 11(1)

(1) Subject to the provisions of sections 60 to 63, the following income shall not be included in the total income of the previous year of the person in receipt of the income—

[(a) income derived from property held under trust wholly for charitable or religious purposes, to the extent to which such income is applied to such purposes in India; and, where any such income is accumulated or set apart for application to such purposes in India, to the extent to which the income so accumulated or set apart is not in excess of [fifteen] per cent of the income from such property;

(b) income derived from property held under trust in part only for such purposes, the trust having been created before the commencement of this Act, to the extent to which such income is applied to such purposes in India; and, where any such income is finally set apart for application to such purposes in India, to the extent to which the income so set apart is not in excess of [fifteen] per cent of the income from such property;

(c) income [derived] from property held under trust—

(i) created on or after the 1st day of April, 1952, for a charitable purpose which tends to promote international welfare in which India is interested, to the extent to which such income is applied to such purposes outside India, and

(ii) for charitable or religious purposes, created before the 1st day of April, 1952, to the extent to which such income is applied to such purposes outside India:

Provided that the Board, by general or special order, has directed in either case that it shall not be included in the total income of the person in receipt of such income;

[(d) income in the form of voluntary contributions made with a specific direction that they shall form part of the corpus of the trust or institution.]

[Explanation.—For the purposes of clauses (a) and (b),—

(1) in computing the [fifteen] per cent of the income which may be accumulated or set apart, any such voluntary contributions as are referred to in section 12 shall be deemed to be part of the income;

(2) if, in the previous year, the income applied to charitable or religious purposes in India falls short of [eighty-five] per cent of the income derived during that year from property held under trust, or, as the case may be, held under trust in part, by any amount—

(i) for the reason that the whole or any part of the income has not been received during that year, or

(ii) for any other reason, then—

(a) in the case referred to in sub-clause (i), so much of the income applied to such purposes in India during the previous year in which the income is received or during the previous year immediately following as does not exceed the said amount, and

(b) in the case referred to in sub-clause (ii), so much of the income applied to such purposes in India during the previous year immediately following the previous year in which the income was derived as does not exceed the said amount, may, at the option of the person in receipt of the income (such option to be exercised in writing before the expiry of the time allowed under sub-section (1) [* * *] of section 139 [* * *] for furnishing the return of income) be deemed to be income applied to such purposes during the previous year in which the income was derived; and the income so deemed to have been applied shall not be taken into account in calculating the amount of income applied to such purposes, in the case referred to in sub-clause (i), during the previous year in which the income is received or during the previous year immediately following, as the case may be, and, in the case referred to in sub-clause (ii), during the previous year immediately following the previous year in which the income was derived.]

Section 11(1A)

[(1A) For the purposes of sub-section (1),—

(a) where a capital asset, being property held under trust wholly for charitable or religious purposes, is transferred and the whole or any part of the net consideration is utilised for acquiring another capital asset to be so held, then, the capital gain arising from the transfer shall be deemed to have been applied to charitable or religious purposes to the extent specified hereunder, namely:—

(i) where the whole of the net consideration is utilised in acquiring the new capital asset, the whole of such capital gain ;

(ii) where only a part of the net consideration is utilised for acquiring the new capital asset, so much of such capital gain as is equal to the amount, if any, by which the amount so utilised exceeds the cost of the transferred asset;

(b) where a capital asset, being property held under trust in part only for such purposes, is transferred and the whole or any part of the net consideration is utilised for acquiring another capital asset to be so held, then, the appropriate fraction of the capital gain arising from the transfer shall be deemed to have been applied to charitable or religious purposes to the extent specified hereunder, namely:—

(i) where the whole of the net consideration is utilised in acquiring the new capital asset, the whole of the appropriate fraction of such capital gain;

(ii) in any other case, so much of the appropriate fraction of the capital gain as is equal to the amount, if any, by which the appropriate fraction of the amount utilised for acquiring the new asset exceeds the appropriate fraction of the cost of the transferred asset.

Explanation.—In this sub-section,—

(i) “appropriate fraction” means the fraction which represents the extent to which the income derived from the capital asset transferred was immediately before such transfer applicable to charitable or religious purposes;

(ii) “cost of the transferred asset” means the aggregate of the cost of acquisition (as ascertained for the purposes of sections 48 and 49) of the capital asset which is the subject of the transfer and the cost of any improvement thereto within the meaning assigned to that expression in sub-clause (b) of clause (1) of section 55;

(iii) “net consideration” means the full value of the consideration received or accruing as a result of the transfer of the capital asset as reduced by any expenditure incurred wholly and exclusively in connection with such transfer.]

Section 11(1B)

[(1B) Where any income in respect of which an option is exercised under clause (2) of the Explanation to sub-section (1) is not applied to charitable or religious purposes in India during the period referred to in sub-clause (a) or, as the case may be, sub-clause (b), of the said clause, then, such income shall be deemed to be the income of the person in receipt thereof—

(a) in the case referred to in sub-clause (i) of the said clause, of the previous year immediately following the previous year in which the income was received; or

(b) in the case referred to in sub-clause (ii) of the said clause, of the previous year immediately following the previous year in which the income was derived.]

Section 11(2)

[(2) [Where [eighty-five] per cent of the income referred to in clause (a) or clause (b) of sub-section (1) read with the Explanation to that sub-section is not applied, or is not deemed to have been applied, to charitable or religious purposes in India during the previous year but is accumulated or set apart, either in whole or in part, for application to such purposes in India, such income so accumulated or set apart shall not be included in the total income of the previous year of the person in receipt of the income, provided the following conditions are complied with, namely:—]

(a) such person specifies, by notice in writing given to the [Assessing] Officer in the prescribed manner, the purpose for which the income is being accumulated or set apart and the period for which the income is to be accumulated or set apart, which shall in no case exceed ten years;

[(b) the money so accumulated or set apart is invested or deposited in the forms or modes specified in sub-section (5)]:]

[Provided that in computing the period of ten years referred to in clause (a), the period during which the income could not be applied for the purpose for which it is so accumulated or set apart, due to an order or injunction of any court, shall be excluded:]

[Provided further that in respect of any income accumulated or set apart on or after the 1st day of April, 2001, the provisions of this sub-section shall have effect as if for the words “ten years” at both the places where they occur, the words “five years” had been substituted.]

[Explanation.—Any amount credited or paid, out of income referred to in clause (a) or clause (b) of sub-section (1), read with the Explanation to that sub-section, which is not applied, but is accumulated or set apart, to any trust or institution registered under section 12AA or to any fund or institution or trust or any university or other educational institution or any hospital or other medical institution referred to in sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) of clause (23C) of section 10, shall not be treated as application of income for charitable or religious purposes, either during the period of accumulation or thereafter.]

Section 11(3)

[(3) Any income referred to in sub-section (2) which—

(a) is applied to purposes other than charitable or religious purposes as aforesaid or ceases to be accumulated or set apart for application thereto, or

[(b) ceases to remain invested or deposited in any of the forms or modes specified in sub-section (5), or]

(c) is not utilised for the purpose for which it is so accumulated or set apart during the period referred to in clause (a) of that sub-section or in the year immediately following the expiry thereof,

[(d) is credited or paid to any trust or institution registered under section 12AA or to any fund or institution or trust or any university or other educational institution or any hospital or other medical institution referred to in sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) of clause (23C) of section 10,]

shall be deemed to be the income of such person of the previous year in which it is so applied or ceases to be so accumulated or set apart or ceases to remain so invested or deposited or [credited or paid or], as the case may be, of the previous year immediately following the expiry of the period aforesaid.]

Section 11(3A)

[(3A) Notwithstanding anything contained in sub-section (3), where due to circumstances beyond the control of the person in receipt of the income, any income invested or deposited in accordance with the provisions of clause (b) of sub-section (2) cannot be applied for the purpose for which it was accumulated or set apart, the [Assessing] Officer may, on an application made to him in this behalf, allow such person to apply such income for such other charitable or religious purpose in India as is specified in the application by such person and as is in conformity with the objects of the trust; and thereupon the provisions of sub-section (3) shall apply as if the purpose specified by such person in the application under this sub-section were a purpose specified in the notice given to the [Assessing] Officer under clause (a) of sub-section (2):]

86[Provided that the Assessing Officer shall not allow application of such income by way of payment or credit made for the purposes referred to in clause (d) of sub-section (3) of section 11:]

[Provided further that in case the trust or institution, which has invested or deposited its income in accordance with the provisions of clause (b) of sub-section (2), is dissolved, the Assessing Officer may allow application of such income for the purposes referred to in clause (d) of sub-section (3) in the year in which such trust or institution was dissolved.]

Section 11(4)

(4) For the purposes of this section “property held under trust” includes a business undertaking so held, and where a claim is made that the income of any such undertaking shall not be included in the total income of the persons in receipt thereof, the [Assessing] Officer shall have power to determine the income of such undertaking in accordance with the provisions of this Act relating to assessment; and where any income so determined is in excess of the income as shown in the accounts of the undertaking, such excess shall be deemed to be applied to purposes other than charitable or religious purposes [* * *].

Section 11(4A)

[(4A) Sub-section (1) or sub-section (2) or sub-section (3) or sub-section (3A) shall not apply in relation to any income of a trust or an institution, being profits and gains of business, unless the business is incidental to the attainment of the objectives of the trust or, as the case may be, institution, and separate books of account are maintained by such trust or institution in respect of such business.]

Section 11(5)

(5) The forms and modes of investing or depositing the money referred to in clause (b) of sub-section (2) shall be the following, namely :—

(i) investment in savings certificates as defined in clause (c) of section 293 of the Government Savings Certificates Act, 1959 (46 of 1959), and any other securities or certificates issued by the Central Government under the Small Savings Schemes of that Government;

(ii) deposit in any account with the Post Office Savings Bank;

(iii) deposit in any account with a scheduled bank or a co-operative society engaged in carrying on the business of banking (including a co-operative land mortgage bank or a co-operative land development bank).

Explanation.—In this clause, “scheduled bank” means the State Bank of India constituted under the State Bank of India Act, 1955 (23 of 1955), a subsidiary bank as defined in the State Bank of India (Subsidiary Banks) Act, 1959 (38 of 1959), a corresponding new bank constituted under section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 (5 of 1970), or under section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980 (40 of 1980), or any other bank being a bank included in the Second Schedule to the Reserve Bank of India Act, 1934 (2 of 1934);

(iv) investment in units of the Unit Trust of India established under the Unit Trust of India Act, 1963 (52 of 1963);

(v) investment in any security for money created and issued by the Central Government or a State Government;

(vi) investment in debentures issued by, or on behalf of, any company or corporation both the principal whereof and the interest whereon are fully and unconditionally guaranteed by the Central Government or by a State Government;

(vii) investment or deposit in any [public sector company]:

[Provided that where an investment or deposit in any public sector company has been made and such public sector company ceases to be a public sector company,—

(A) such investment made in the shares of such company shall be deemed to be an investment made under this clause for a period of three years from the date on which such public sector company ceases to be a public sector company;

(B) such other investment or deposit shall be deemed to be an investment or deposit made under this clause for the period up to the date on which such investment or deposit becomes repayable by such company;]

(viii) deposits with or investment in any bonds issued by a financial corporation which is engaged in providing long-term finance for industrial development in India and 96[which is eligible for deduction under clause (viii) of sub-section (1) of section 36 ];

(ix) deposits with or investment in any bonds issued by a public company formed and registered in India with the main object of carrying on the business of providing long-term finance for construction or purchase of houses in India for residential purposes and [which is eligible for deduction under clause (viii) of sub-section (1) of section 36];

[(ixa) deposits with or investment in any bonds issued by a public company formed and registered in India with the main object of carrying on the business of providing long-term finance for urban infrastructure in India.

Explanation

For the purposes of this clause,—

(a) “long-term finance” means any loan or advance where the terms under which moneys are loaned or advanced provide for repayment along with interest thereof during a period of not less than five years;

(b) “public company” shall have the meaning assigned to it in section 3 of the Companies Act, 1956 (1 of 1956);

(c) “urban infrastructure” means a project for providing potable water supply, sanitation and sewerage, drainage, solid waste management, roads, bridges and flyovers or urban transport;]

(x) investment in immovable property.

Explanation.—“Immovable property” does not include any machinery or plant (other than machinery or plant installed in a building for the convenient occupation of the building) even though attached to, or permanently fastened to, anything attached to the earth;]

[(xi) deposits with the Industrial Development Bank of India established under the Industrial Development Bank of India Act, 1964 (18 of 1964);]

1[(xii) any other form or mode of investment or deposit as may be prescribed.2]

Recent Cases / Related Cases / Case Laws

  • Commissioner of Income Tax-II Vs M/s Krishi Utpadan Mandi Samiti, Civil Appeal No.7040 of 2012, Supreme Court of India judgement delivered on September 27, 2012
  • February 2012: Karnataka: Where donation received by assessee-trust is kept in deposit account and income earned therefrom is utilized for charitable purposes, assessee is entitled to benefit of exemption under section 11(1)(d) in respect of said income - [2012] 18 LNIN 37
  • January 2012: In view of section 11(1)(a), expenditure incurred in earlier year can be met out of income of subsequent year - [2012] 17 LNIN 164 (Madhya Pradesh)
  • June 2011: High Court of Gujarat at Ahmedabad: CIT v Gujarat Safai Kamdar Vikas Nigam: Assessee entitled to benefit of section 11 even if certain grant is received from Government for specific purpose but purpose not stated expressly to set up a corpus fund
  • June 2011: Punj. & Har.: Grant of exemption to assessee-trust under section 11 would not affect assessee's right of claming depreciation - 11-242
  • June 2011: AP: Investment in a chit fund is not one of modes and forms specified in section 11(5) - 11-211
  • Delhi ITAT: Exemption of income from property held under: If the assessee-trust either itself uses any part of its income for charitable purposes or donates the same to any other charitable trust, such income is exempt from inclusion in the total income of the assessee trust for the relevant year - [2011] 10 128
  • J.K. Trust v. CIT/CEPT [1957] 32 ITR 535 (SC):‘Property’ signifies every possible interest and includes business - ‘Property’ is a term of the widest import, and subject to any limitation or qualification which the context might require, it signifies every possible interest which a person can acquire, hold and enjoy. ‘Business’ would undoubtedly be ‘property’, unless there is something to the contrary in the enactment. There is nothing in the language of section 11 which restricts in any manner the normal and accepted meaning of the word ‘property’ and which excludes business from its connotation.
  • CIT v. Trustees of Sreeram-Surajmull Charity Trust [1971] 79 ITR 649 (Cal.): Book debt is ‘property’ - A credit in the books of account can be ‘property’ with regard to which a trust can be created.
  • Swami Narsingh Giri v. CIT [1971] 79 ITR 544 (All.): Religious offerings are not ‘property’ - Offerings received by a religious teacher from his disciples would not constitute “property held under trust”.
  • A.J. Patel v. CIT [1974] 97 ITR 683 (Bom.): Exploitation rights are ‘property’ - The right to exploit space on either side of an overbridge for advertisements is a “property”.
  • Vallabhdas Karsondas Natha v. CIT [1947] 15 ITR 32 (Bom.)/Sree Sree Iswar Gopal Jew v. CIT [1950] 18 ITR 743 (Cal.): Settlement of income in favour of another trust is covered - The words ‘or other legal obligation’ cover a case in which the trustees of the original settlement are bound to pay income to other trustees who in their turn are bound to apply it for purposes which are religious or charitable.
  • CIT v. P.K. Barooah [1970] 77 ITR 967 (Assam): ‘Legal obligation’ cannot be separated from ‘property’ - Section 11 does not apply to a case where a trust or legal obligation is not created on any property, but only the income derived from any particular property or source is set apart and charged for a charitable or religious purpose. The expression ‘legal obligation’ cannot be separated from “property” itself, inasmuch as law enjoins that such property must be held under a trust or other legal obligation, and not the fund derived therefrom.
  • CIT v. Sri Jagannath Jew [1977] 107 ITR 9 (SC): If dedication is total and debutter is absolute, minor expenses on allied aspects are not relevant - Where there is an out-and-out dedication to an idol, the reservation of a moderate portion of the income of the endowed estate for the remuneration of the shebait would not invalidate the endowment either as a whole or to the extent of the income so reserved. The quantum of expenditure on the various items is not so decisive of the character of the debutter as absolute or partial, as the accent on and subjective importance of the purposes, in the setting of the totality of commands and cherishments. If, on a consideration of the totality of terms, on sifting the more essential from the less essential purposes, on sounding the depth of the donor’s wishes to find whether his family or his deity were the primary beneficiaries, and on taking note of the language used, if the vesting is in the idol, an absolute debutter can be spelt out. But if the grant is to the heirs with a charge on the income for the performance of pujas, the opposite inference is inevitable.
  • All India Spinners’ Association v. CIT [1944] 12 ITR 482 (PC): Formal deed is not necessary - A formal deed is not necessary to constitute a trust, still less to constitute a legal obligation binding the trustees, the council and the members inter se.
  • CIT v. Tollygunge Club Ltd. [1977] 107 ITR 776 (SC): No technical words are necessary - A trust may be created by any language sufficient to show the intention and no technical words are necessary and it may even be created by the use of words which are primarily words of condition. The only requisites which must be satisfied are that there should be purposes independent of the donee to which the subject-matter of the gift is required to be applied and an obligation on the donee to satisfy those purposes.

In re [1939] 7 ITR 415 (PC): Wakfs and endowments are included - A trust under the Indian law would include Moslem wakfs and Hindu Endowments - Trustees of the ‘Tribune’.

  • Naresh Sengupta Foundation v. CIT [1994] 207 ITR 340 (Cal.): Power of revocation/alteration should not be incorporated - A deed of trust that qualifies for exemption under section 11 cannot have any stipulation reserving any power to revoke or alter the terms of the trust deed, because that would lend to the trust the character of a revocable trust attracting the provisions of sections 61 and 63.
  • CIT v. Arya Vysya Kalyana Nilaya Sangam [1986] 159 ITR 324 (AP): Registration is not compulsory - For purposes of section 11, there is no requirement under the law that a trust should be registered under the Societies Registration Act.
  • CIT v. Dr. (Miss) Chandrakanta Rohatgi [2006] 150 Taxman 19 (All.): A dedication of property by Hindu renouncing his/her entire right, title or interest in property for religious/charitable purposes for benefit of public at large or for part of it, is sufficient to create such endowment and there is no need to execute registered instrument for such dedication.
  • Smt Ganeshi Devi Rami Devi Charity Trust v. CIT [1969] 71 ITR 696 (Cal.): Who controls the funds is not relevant - The matter of management of the fund is not an essential matter for the purpose of defining ‘charitable purpose’ so far as the Income-tax Act is concerned. What is essential for the Act is whether it ‘enures to the benefit of the public’ or not, whoever may control the fund.
  • Dharmaposhanam Co. v. CIT [1978] 114 ITR 463 (SC): All the objects must be considered - Whether a trust is for charitable purpose is to be determined by reference to all the objects for which the trust has been brought into existence. The proposition that what should be taken into consideration is the activity actually conducted by the assessee and, not what is open to it under the provisions of its memorandum of association cannot be agreed to. If would be a different case where one or more of the stated objects were never intended to be undertaken.
  • CIT v. Kamla Town Trust [1996] 84 Taxman 248/217 ITR 699 (SC): Words used by settlor are decisive - In order to find out whether the relevant clauses of a trust deed create a public charitable trust or not, one has to go by the express words employed in the trust deed.
  • CWT v. H.E.H. The Nizam’s Supplemental & Religious Endowment Trust [1973] 89 ITR 80 (AP): Name given to the trust is not relevant - From the fact that the institution bears the name of a private person, the nature of the trust cannot be determined to be a private one. It is the object of the trust that has to be looked into.
  • Gangabai Charities v. CIT [1992] 63 Taxman 501/197 ITR 416 (SC): Trust deed should contain broad objectives - The crux of the statutory exemption under section 11(1)(a) is not the income earned from property held under the trust but the actual application of the said income for religious and charitable purposes. It is, therefore, necessary to indicate in the trust deed the broad objectives for which the income derived from the property was to be utilised.
  • CIT v. Sardar Bahadur Sardar Indra Singh Trust [1956] 29 ITR 781 (Cal.): Choice given to trustees is not relevant - A trust for charitable purposes does not become invalid if the choice of the specific charitable objects to be benefited is left to the trustees, nor could such a trust be condemned as invalid or illusory, if, by the language of the deed, the trustees are given an absolute discretion to apply the fund at such time as they may think fit or retain it so long as they choose.
  • Chamber of Commerce v. CIT [1936] 4 ITR 397 (All.): Element of altruism must be present - Before an institution can be held to be charitable, there must be an element of altruism, that is to say, the beneficiaries must not be able to claim the benefit.
  • Hyderabad Race Club v. CIT [1985] 153 ITR 521 (AP)(FB): Absence of personal/pecuniary benefit is no criterion - The mere fact that the members of a society are not entitled for any personal or pecuniary benefit or advantage does not automatically render the society a charitable institution. Unless positive requirements of law are satisfied, the society cannot be regarded as a charitable institution.
  • CIT v. Sivakasi Hindu Nadars Uravinmurai [1996] 217 ITR 118/86 Taxman 290 (Mad.): Dominant object should be charitable, and not profit-making - What is necessary to be considered is whether having regard to all the facts and circumstances of the case, the dominant object of the activity is profit-making or carrying out a charitable purpose. If it is the former, the character of the purpose would be lost.
  • Sakthi Charities v. CIT [1984] 149 ITR 624/[1990] 182 ITR 483 (Mad.): Even founder or Court cannot delete objects originally spelt out - It is well-established that once a trust has been founded with certain objects, those original objects cannot be deleted even by the founder of trust, even though it is possible to add some other charitable objects without detriment to original objects. Even a Court cannot do it under section 92 of the Code of Civil Procedure.
  • CIT v. Kamla Town Trust [1996] 84 Taxman 248/217 ITR 699 (SC): Civil Court can rectify a trust deed - It cannot be said that a Civil Court suffers from lack of inherent jurisdiction to rectify a trust deed, on the ground that the condition precedent for invoking the jurisdiction under section 26 of the Specific Relief Act (i.e., mutual mistake on the part of the parties to the document) is absent in the case of a trust deed, inasmuch as there are no two parties in an instrument of trust.
  • CIT v. Kamla Town Trust [1996] 84 Taxman 248/217 ITR 699 (SC): Rectified trust deed cannot be ignored by Assessing Officer - When a rectified trust deed under section 26 of the Specific Relief Act is pressed in service before the income-tax authorities in assessment proceedings concerning the relevant assessment years, the ITO will have to interpret such rectified instrument for finding out its legal effect. It will not be open to the ITO to refuse to look at such rectified instrument of trust and to insist that the trustees of the trust should ignore the said rectified objects and should stick to the instrument as it existed prior to its rectification. The ITO will have to take the instrument as it exists in its actual amended form when it is pressed into service for framing the assessment concerning the relevant assessment year in which such rectified instrument holds the field.
  • U.P. Forest Corporation v. Dy. CIT [2007] 165 Taxman 533 (SC): A conjoint reading of sections 11, 12 and 12A makes it clear that registration under section 12A is a condition precedent for availing benefit under sections 11 and 12. Unless and until an institution is registered under section 12A, it cannot claim the benefit of section 11(1)(a).
  • CIT v. P.S.G. & Sons Charities 1996 Tax LR 477 (Mad.), CIT v. Programme for community organisation [1997] 228 ITR 620 (Ker.): “Income” must be understood in commercial sense, and not as ‘total income’ as assessed - It is not the ‘total income’ as would be assessed by the ITO that is relevant for the purpose of investing the funds of the trust or assessing the income of the trust. Taking into account the purpose for which the conditions of section 11(1)(a) are imposed, it would be clear that ‘income’ to be considered will be that which is arrived at in the context of what is available in the hands of the assessee subject to an adjustment of any expenses extraneous to the trust.
  • CIT v. Hamdard Dawakhana (Wakf) [2002] 120 Taxman 186 (Delhi): Refund of income-tax is not ‘income from property held under trust’ - Refund of income-tax can by no stretch of imagination be held as income derived from property held under the trust, and hence will not be covered under section 11(2).
  • Director of Income-tax v. Girdharilal Shewnarain Tantia Trust [1993] 199 ITR 215/71 Taxman 150 (Cal.): Heads of income under section 14 have no relevance and question of allowing statutory deductions will not arise - The ‘income’ contemplated by the provisions of section 11 is the real income and not the income as assessed or assessable. Since the income from property held under trust has to be arrived at in a normal commercial manner and when the income from property held under trust as such is excluded, there is no scope of computing the income from property by applying the provisions of section 14 of the Act. Therefore, the question of allowing any statutory deductions as contemplated by the different provisions of the Act dealing with different heads of income in computing the income accumulated does not arise when the trust loses the benefit of accumulation.
  • CIT v. Jayashree Charity Trust [1986] 159 ITR 280 (Cal.): Deemed income (tax deducted at source) must be excluded - CBDT Circular 5-P/LXX-6 dated 19-5-1968 makes it clear that the word ‘income’ in section 11(1)(a) must be understood in a commercial sense. Thus, deemed income (i.e., tax deducted at source) is not to be taken into account for determining the ‘application’ or ‘accumulation’ of income.
  • CIT v. Sheth Manilal Ranchhoddas Vishram Bhavan Trust [1992] 198 ITR 598 (Guj.): Depreciation as per normal rules of accountancy must be allowed - ‘Income’ referred to in section 11(1)(a) is to be computed not in accordance with the provisions of the Act, but in accordance with the normal rules of accountancy, under which depreciation has to be allowed while computing the income.
  • CIT v. Trustee of H.E.H. Nizam’s Supplemental Religious Endowment Trust [1981] 127 ITR 378 (AP)/CIT v. Ganga Charity Trust Fund [1986] 162 ITR 612 (Guj.)/CIT v. Janaki Ammal Ayya Nadar Trust [1985] 153 ITR 159 (Mad.): Taxes like income-tax and wealth-tax must be excluded - Payments of income-tax or wealth-tax made in a year are outgoings and constitute expenditure of the trust, and are therefore liable to be excluded from the income of the trust in the year of payment for the purposes of section 11(1).
  • CIT v. Cutchi Memon Union [1985] 155 ITR 51 (Kar.): Amounts returned by beneficiaries must be included - Section 11(1) itself contains sufficient indication to treat moneys received by a trust from its beneficiaries as income of the trust. Under this sub-section, only the income spent on charitable or religious purposes is excluded from the total income of the trust and when that amount is returned by the beneficiaries of the trust, the receipt in the hands of the trust can only be its income of the years in which it is received; it cannot have any different character. This is also the tenor of Circular dated 24-1-1973 issued by the CBDT.
  • CIT v. Birla Janahit Trust [1994] 208 ITR 372/73 Taxman 465 (Cal.): Salaries and other administrative expenses must be allowed - Expenditure on salaries and miscellaneous expenses for purpose of carrying out objects and purposes of the trust can be considered as application of income for charitable purpose.
  • CIT v. Birla Janahit Trust [1994] 208 ITR 372/73 Taxman 465 (Cal.): Expenditure on earning dividend must be apportioned - Where the quantum of expenditure for carrying out the objects and purposes of the trust and the expenditure made to earn income from dividend had not been separately allocated or determined, the assessee would be entitled to the benefit of the said expenditure incurred for the purpose of carrying out objects and purposes of the trust only, but any expenditure incurred for earning the income from dividend would not qualify as amount spent for carrying out objects and purposes of the trust.
  • Ananda Marga Pracharaka Sangha v. CIT [1994] 76 Taxman 88 (Cal.): Legal expenses are allowable - The same principle as applies to allowability of expenses for defence in a criminal proceeding emanating in the course of carrying on a trade shall also apply to expenses on defence that a charitable institution may have to incur for the defence of any of its founders or trustees getting involved in criminal prosecution in the course of carrying out the objects of the trust. Hence, legal expenses incurred by a charitable institution for defending its president from criminal charges are allowable as a permissible deduction while computing its income.
  • Addl. CIT v. A.L.N. Rao Charitable Trust [1995] 83 Taxman 252/216 ITR 697 (SC): Section 11(1)(a) and section 11(2) - If section 11(1)(a) has been fully exploited and there is still accumulated income left to be dealt with, sub-section (2) of section 11 can be pressed in service and if it is complied with, such additional accumulated income beyond the prescribed percentage can also earn exemption under section 11(2).
  • S.RM.M.CT.M. Tiruppani Trust v. CIT [1998] 96 Taxman 635 (SC): The accumulated income which is exempt under section 11(1)(a) need not be invested in the Government securities. It is only in respect of any additional accumulated income beyond the prescribed percentage that, if the assessee wants exemption of this additional accumulated income also, the assessee is required to invest the additional accumulated income in the manner laid down in section 11(2) after following the procedure laid down therein.
  • Trustees of H.E.H. The Nizam’s Pilgrimage Money Trust v. CWT/CIT [1988] 171 ITR 323 (AP): Purpose need not be confined to taxable territories - In view of the absence of the words ‘in India’ in section 11(1)(a), it is immaterial for the purpose of that clause whether the charitable or religious purposes are confined to taxable territories or not. It is sufficient if the income is spent in India and, to that extent, that income will be exempt under that clause.
  • CIT v. Trustees of H.E.H. The Nizam’s Charitable Trust [1981] 131 ITR 497 (AP): ‘Applied’ need not be equated with ‘spent’ - It is not correct to equate the word ‘applied’ with the word ‘spent’. If the Legislature intended that the amounts should actually be spent, there was nothing preventing it from using that word.
  • CIT v. Radhaswami Satsang Sabha [1954] 25 ITR 472 (All.): The word ‘applied’ does not necessarily mean ‘spent’. Even if the amount has been earmarked for the purposes of the institution and allocated, it may be deemed to have been applied.
  • Nachimuthu Industrial Association v. CIT [1999] 235 ITR 190 (SC): Effect of making ‘provision’ - Where an amount was set apart as provision in the accounts of the assessee and the finding of fact was that the amount was not actually applied for charitable or religious purposes, assessee would not be entitled to exemption under section 11 in respect of that amount.
  • CIT v. S.RM.CT.M. Thiruppani Trust [1982] 134 ITR 555 (Mad.): Recovery of any outstanding in any form is not application of income - Where the assessee recovers an outstanding, it cannot be stated that it has applied the income of the trust for charitable purposes. The asset, as it is sometimes called, is ‘in mean or in malt’. The change of its shape or form involves no application of income for charitable purposes. Purchase of a building in discharge of a debt due to the assessee-trust could not be said to be an application of income for charitable purposes, even if the building was to be used for charitable purposes.
  • CIT v. Kannika Parameswari Devasthanam & Charities [1982] 133 ITR 779 (Mad.): Expenditure can be even on capital purposes except those on improvements to property - As far as the objects of the trust are concerned, the application of the amount can be for revenue or capital purposes. So long as the expenditure has to be incurred out of the income earned by the trust, even if such expenditure is for capital purposes on the objects of the trust, the income would be exempt. But expenditure on improvement of a property held under trust would by itself not come within the scope of ‘application of income for charitable purposes’.
  • CIT v. Sarladevi Sarabhai Trust (No. 2) [1988] 172 ITR 698 (Guj.)/CIT v. Hindusthan Charity Trust [1983] 139 ITR 913 (Cal.): Donation to another trust is also application of income - When a donor trust which is itself a charitable and religious trust donates its income to another trust, the provisions of section 11(1)(a) can be said to have been met with by such donor trust, notwithstanding the fact that the donation is subjected to any conditions that the donee trust will treat the donation as towards its corpus and can only utilise the accruing income from the donated corpus for charitable and religious purposes. What the donor trust does is the only relevant matter. Utilisation by the donee trust in any year will not be relevant for the purpose of deciding whether the donor trust can get exemption under section 11 or not.
  • CIT v. Thanthi Trust [1999] 239 ITR 502 (SC): Amount given by assessee-trust to educational institution by making credit entries in its books and withdrawn by educational institution would be entitled to exemption since it could not be said that despite credit entries assessee trust retained beneficial ownership of sums or retained any control over them.
  • Siddaramanna Charities Trust v. CIT [1974] 96 ITR 275 (Mys.): Donation at commencement of year is eligible provided it formed part of that year’s profits - A donation made on the first day of the accounting year can be treated as application of income under section 11(1)(a), provided that the trust earned profits in that accounting year, and the accounts for that year disclosed that the donation was made, not out of capital account, but out of the profits for that year.
  • CIT v. Ramchandra Poddar Charitable Trust [1987] 164 ITR 666 (Cal.): Donation of shares purchased out of accumulated income is not covered - Section 11 does not permit accumulation of a larger amount that what is prescribed. If the assessee does not apply the income of a year for charitable purposes but spends a like amount for charitable purposes out of its accumulated profits, the conditions laid down in section 11(1)(a) are not fulfilled. The mere fact that the assessee had applied its accumulated income of the earlier years for the purpose of charity will not absolve the assessee of its duty to apply its income for the current year for the purpose of charity, nor will it enlarge the limit of the amount which is permitted to be accumulated under section 11(1)(a). Thus, donation of shares purchased out of accumulated income of earlier year will not amount to application of income for the year of donation.
  • CIT v. Shri Plot Swetamber Murti Pujak Jain [1994] 119 CTR (Guj.) 144/CIT v. Maharana of Mewar Charitable Foundation [1987] 164 ITR 439 (Raj.): Reimbursement of expenditure of earlier year out of income of current year is application of income - There is nothing in the language of section 11(1)(a) to indicate that the expenditure incurred in the earlier year cannot be met out of the income of the subsequent year, and utilisation of such income for meeting the expenditure of earlier year would not amount to such income being applied for charitable or religious purposes.
  • CIT v. Janmabhumi Press Trust [2000] 242 ITR 457 (Kar.): Repayment of borrowals is also covered - Where the assessee-trust constructed a building out of its accumulated income as well as from borrowed funds, and later earned rental income from the said building, a part of which was utilised for the repayment of the borrowed funds, such repayment of debt was to be treated as application of income for purposes of section 11.
  • CIT v. V.G.P. Foundation [2003] 262 ITR 187/[2004] 134 Taxman 663 (Mad.): Monies given to sister-concern but was kept idle - Monies given by assessee-trust to sister concern purportedly for construction of hospital and which was kept lying unused with sister concern could not be regarded as having been applied for charitable purposes.
  • CIT v. State Bank of India [1988] 169 ITR 298 (Bom.): ‘Accumulation’ must be a conscious act - The ‘accumulation’ contemplated under section 11(1)(a) has to be a conscious accumulation and not just a mass of unspent or unapplied profits.
  • CIT v. Natwarlal Chowdhury Charity Trust [1991] 189 ITR 656 (Cal.): Deemed income can be included for purposes of accumulation - Where, due to non-investment of accumulated income in the prescribed securities in a year, such income is deemed to be the income of the trust for that year, the assessee will be entitled to accumulate prescribed percentage of the total income of that year, inclusive of such deemed income.
  • CIT v. Programme for Community Organisation [2001] 248 ITR 1/116 Taxman 608 (SC): Prescribed percentage of accumulated income should be out of ‘Income derived from property held under trust’ - Where the assessee-trust received donations in the aggregate sum of Rs. 2,57,376, out of which it applied to its charitable purposes the aggregate sum of Rs. 1,70,369 leaving a balance of Rs. 87,010, it was entitled to accumulate prescribed percentage of Rs. 2,57,376, and not prescribed percentage of Rs. 87,010.
  • S.R.M.M.CT.M. Tiruppani Trust v. CIT [1998] 96 Taxman 635 (SC): If after filing Form No. 10 for accumulation of income, assessee without investing income in Government securities applied the same for charitable purposes, exemption could not be denied on the ground that conditions of section 11(2)(b) were not complied with.
  • Director of Income-tax (Exemption) v. Trustees of Singhania Charitable Trust [1993] 199 ITR 819 (Cal.): Whether purpose must be definite and concrete and must be specified - The long-term accumulation of income contemplated under section 11(2) should be for a definite and concrete purpose or purposes, and should not admit of any amount of vagueness. The purposes to be specified cannot under any circumstances tread beyond the objects clause of the trust.[contra]
  • Director of Income-tax v. Mitsui & Co. Environmental Trust [2007] 211 CTR (Delhi) 352: Plurality of purposes for accumulation is not precluded; in other words, it need not necessarily be specifically stated for which purpose accumulation is sought.
  • Bharat Kalyan Pratisthan v. Director of Income-tax [2007] 160 Taxman 216 (Delhi): Where assessee had mentioned that it was accumulating funds for all objects (three in number) for which it was created, denial of benefit of section 11(2) to assessee on ground that it did not specifically indicate purposes for which amount was to be accumu­lated, was not justified.
  • Director of Income-tax (Exemptions) v. Daulat Ram Education Society [2005] 278 ITR 260 (Delhi): Specifying more than one of the declared purposes is no bar to allow exemption - Where, out of 29 objects stipulated in the memorandum of association, the assessee had mentioned eight purposes in Form No. 10 for purposes of accumulation of income, and it was not the case of the Revenue that any of those eight purposes was not charitable or that the same did not figure in the memorandum of association, Revenue would not be justified in denying exemption on the grounds, (i) that more than one purpose had been specified, and (ii) that details about the plans which the assessee had for spending on such purposes were not given. So long as one or more of the purposes specified by the assessee found place in the objects for which the society had been incor­porated and so long as the said purposes were charitable in char­acter, the benefit admissible under section 11 must flow to the assessee.
  • Trustees of Tulsidas Gopalji Charitable and Chaleshwar Temple Trust v. CIT [1994] 73 Taxman 612/207 ITR 368 (Bom.): Option can be exercised along with return filed under section 139(4) - If a return is filed within the time allowed under sub-section (4) of section 139, and the option contemplated by Explanation to section 11(1) is exercised in writing along with such return, the requirements of the said Explanation will stand satisfied.
  • CIT v. East India Charitable Trust [1994] 206 ITR 152 (Cal.): Option is available for capital gains also - Since the definition of ‘income’ under section 2(24) includes ‘capital gains’, the option exercisable under the Explanation to section 11(1)(a) is available on capital gains also, provided such option is exercised in writing before the expiry of the time allowed under section 139(1) for furnishing the return.
  • CIT v. Nagpur Hotel Owners’ Association [2001] 247 ITR 201 (SC): Time-limit for filing Form 10 before completion of assessment is mandatory - It is mandatory for the person claiming the benefit of section 11 to intimate to the assessing authority the particulars required, under rule 17 in Form No. 10 of the Rules. Even assuming that there is no valid limitation prescribed under the Act and the Rules even then, it is reasonable to presume that the intimation required under section 11 about accumulation of income has to be furnished before the assessing authority completes the concerned assessment because such requirement is mandatory and without the particulars of this income, the assessing authority cannot entertain the claim of the assessee under section 11 of the Act.
  • S.RM.M.CT.M. Tiruppani Trust v. CIT [1998] 96 Taxman 635/230 ITR 636 (SC): Only additional accumulated income is required to be invested in government securities - The accumulated income prescribed percentage which is exempt under section 11(1)(a) need not be invested in government securities. It is only in respect of any additional accumulated income beyond prescribed percentage that, if the assessee wants exemption of the additional accumulated income also, the assessee is required to invest the additional accumulated income in the manner laid down in section 11(2) after following the procedure laid down therein.
  • CIT v. Indian National Theatre Trust [2008] 169 Taxman 42/305 ITR 149 (Delhi): Investment must necessarily come out of current year’s income - In order to satisfy the requirement of section 11(2)(b), the invest­ment must necessarily come out of the current year’s income. An investment made in the past obviously cannot satisfy this requirement.
  • CIT v. Nabhinandan Digamber Jain [2002] 257 ITR 91 (MP): Agricultural income - Agricultural income will not form part of total income for purpose of computing accumulation of income in excess of prescribed percentage of total income as laid down under section 11.
  • CIT v. P. Krishna Warrier [1964] 53 ITR 176 (SC): Expression ‘in part’ applies to purpose and not to property - The expression ‘in part’ does not refer to an aliquot part; if half a house is held in trust wholly for religious and charitable purposes, the subject-matter of the trust is only the said half of the house, and that half is held wholly for religious and charitable purposes. The expression ‘in part’ therefore must apply to a case other than a property, a part of which is held wholly for religious or charitable purposes. The dichotomy between the two expressions ‘wholly’ and ‘in part’ is not based upon the dedication of the said property wholly for religious or charitable purposes or in part for such purposes. So construed, the first limb of section 11(1)(a) deals with a property or a part of it held in trust wholly for religious or charitable purposes, while the second limb of that provision provides for such a property held in trust partly for religious or charitable purposes.
  • CIT v. East India Charitable Trust [1994] 206 ITR 152/73 Taxman 380 (Cal.): Deposit in public sector company is an eligible investment - The contention of the revenue that the investment by way of deposit in the public sector company cannot be treated as a new asset acquired with the net consideration, in terms of section 11(1A), is not tenable.
  • CIT v. Hindusthan Welfare Trust [1993] 70 Taxman 93/[1994] 206 ITR 138 (Cal.): Investment of sale proceeds of shares in fixed deposits is permissible - Investment in fixed deposit made in previous year relevant to the assessment year 1981-82 out of sale proceeds of shares of companies, amounted to acquiring of another capital assets in terms of section 11(1A).
  • CIT v. Hindusthan Welfare Trust [1993] 70 Taxman 93/[1994] 206 ITR 138 (Cal.): Reinvestment in fixed deposits of any duration is permissible - CBDT Circular dated 24-9-1975, declaring that deposits for a period of six months or more could be considered as capital assets for the purpose of section 11(1A), is not in consonance with the general principles of law and it cannot hold the field. Once a deposit is accepted to be an asset, the larger or lesser duration of the term is an immaterial consideration.
  • CIT v. Birla Education Trust [1985] 153 ITR 579 (Cal.): Income for purposes of section 11(4) means gross income - The income spoken of in sub-section (4) appears to be the gross income and not the net income of the business undertaking.
  • CIT v. Birla Education Trust [1985] 153 ITR 579 (Cal.): ITO has to scrutinise accounts to detect undisclosed or unaccounted income - The ITO has to scrutinise the accounts and see if there is suppression of income or manipulation of accounts with a view to conceal income.
  • Director of Income-tax (Exemption) v. Agrim Charan Foundation [2002] 253 ITR 593 (Delhi): Investment made in unapproved concern due to misrepresentation by concern - Where the assessee-trust invested its funds in two concerns on the basis of the assurance of the said concerns that they had been authorised to accept deposits from charitable trusts as well as on the basis of advice obtained from a chartered accountant, but later when the Assessing Officer pointed out that the two concerns did not have the necessary approval of the Government to accept deposits from charitable trusts the assessee promptly withdrew the deposits made in the two concerns, exemption need not be denied for violation of section 11(5) since the assessee could not be faulted for the misrepresentation of the two concerns.
  • Asstt. DIT (Exemption) v. Murugappa Chettiar Trust [2008] 303 ITR 360 (Mad.): Deposit made in current account with a scheduled bank is also covered - Words ‘any account’ in section 11(5)(iii) include current account also and, hence, deposit made in the current account with a scheduled bank will come within the meaning of the words ‘deposit in any account with a scheduled bank’. It is a classified investment, as contemplated under the provisions of the Act and the same is covered by section 11(5)(iii).

Other related Sections from the Act

  • Section 2: Definitions. Includes meanings of various terms used in the Indian Income Tax Act, 1961

Sections of the Indian Income Tax Act, 1961


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