Unspent Accumulation Taxable After 5 Years For Charitable Trusts: ITAT Ahmedabad

The Ahmedabad Bench of the Income Tax Appellate Tribunal (ITAT) on 1 April held that income accumulated by a charitable entity but not utilised within the permitted five-year period becomes taxable, and claiming exemption again on such amount amounts to double deduction.

A Bench comprising Judicial Member Sanjay Garg and Accountant Member Annapurna Gupta, allowed the Revenue's appeal and restored the addition made by the Assessing Officer against State Examination Board, Nr. Government Library.

The Tribunal observed: “The amount of Rs. 3.32 crores needed to be added to the income of the taxpayer, liable to tax in the impugned year.”

The issue before the Tribunal was whether Rs. 3.32 crore, out of Rs. 5.60 crore accumulated earlier under Section 11(2) of the Income Tax Act, 1961, could be claimed as application of income in Assessment Year 2017-18.

The Assessing Officer found that the taxpayer had already claimed exemption on the entire Rs. 5.60 crore in AY 2012-13 at the time of accumulation. Therefore, claiming Rs. 3.32 crore again amounted to double deduction. The Commissioner (Appeals) had deleted the addition, accepting the taxpayer's claim as valid.

Reversing this, the Tribunal noted that Form 10B for AY 2012-13 showed that the entire Rs. 5.60 crore had been claimed as exempt at the time of accumulation, and the taxpayer did not provide material to show otherwise. The Tribunal held that the taxpayer could not claim exemption again when the accumulated amount was allegedly applied in a later year.

The Tribunal further observed that the Rs. 3.32 crore was not actually applied during the year. The taxpayer had sufficient current-year income and surplus, and the amount remained in reserves and unutilised funds.

Under Section 11(3) of the Act, accumulated income not utilised within the specified period is deemed income of the year in which the period expires. Since the Rs. 3.32 crore remained unutilised up to the expiry of the five-year period, it became taxable in the impugned year.

Accordingly, the Tribunal set aside the CIT(A)'s order and confirmed the addition made by the Assessing Officer, allowing the Revenue's appeal.