Nidadavole Lions Charitable Trust Vs DCIT (ITAT Visakhapatnam)
Summary: The Visakhapatnam Bench of the Income Tax Appellate Tribunal allowed Nidadavole Lions Charitable Trust’s appeal for AY 2018-19 and deleted an addition of ₹63 lakh arising from denial of accumulation under section 11(2) of the Income-tax Act, 1961. The trust, which runs Smt. Rajeswari Ramakrishnan Lions Hospital in West Godavari, filed its return on 2 October 2018 declaring total income of ₹21,590 after claiming exemption under section 11(1)(a) and accumulation under section 11(2). The Assessing Officer denied the disputed accumulation for building construction solely because the trustees’ resolution dated 27 August 2018 had been passed after the financial year ended on 31 March 2018. The CIT(A), NFAC, upheld that view.
The assessee argued that section 11(2), read with Rule 17(2) and Form 10, did not require the trustees’ resolution to be passed before the end of the previous year. It submitted that Form 10 had been furnished within the prescribed time and that even the resolution preceded the applicable return-filing deadline. The Revenue maintained that the decision to accumulate income for a specific purpose had to be taken during the financial year in which the income arose.
The Tribunal explained that the statutory conditions included furnishing the prescribed statement specifying the purpose and period of accumulation, a period not exceeding five years, and investment or deposit in the modes specified under section 11(5). It found that the assessee had complied with all the prescribed conditions and that the Assessing Officer had identified no other defect. Once the purpose of accumulation had been disclosed through timely Form 10, an additional requirement that the trustees pass their resolution before financial year-end could not be imposed. The Tribunal accordingly deleted the ₹63 lakh addition and allowed the accumulation claim and the appeal.
FULL TEXT OF THE ORDER OF ITAT VISAKHAPATNAM
This appeal by the assessee is directed against the order of the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi, dated 29.01.2026, for assessment year 2018-19.
2. The assessee has raised the following grounds of appeal:
1. Learned CIT (Appeals) erred in confirming the learned AO’s view that the appellant-Trust has to pass the resolution for accumulation of unspent income of the previous year, in excess of 15% before the end of the same previous year and not after its end; learned CIT(Appeal)’s endorsement of the learned AO’s view is an erroneous interpretation of Sec.11(2).
Extract from Sec.250 order:
income… Hence, as per the provision the decision to accumulated or set apart of the income for application to such purposes in India is to be taken within the year in which the accumulation is to be made. The resolution of the board of trustees resolving to accumulate income for application to such purposes has to be passed within the year. The se cannot be postponed to next year as it will show that the income same is not accumulated or set apart for application to such purposes in India within that year. Hence, the decision of the AD is found to be in accordance of the provisions of law. After the end of year if the income is not applied
2. Learned CIT(Appeals) erred in rejecting the appellant’s submission that, as per law, a registered Trust can pass a resolution for utilisation of unspent income after the end of the previous year and claim immunity from tax as per Sec.11(2) the issue at hand is not decided in the decisions relied upon by the appellant. The Income Tax Act provisions have to be followed as provided in the law. The argument of the appellant that there is no provision in the Act is not found to be acceptable as in the Act it is nowhere stated that the board can pass resolution even after the end of the financial year. The decision of making expenditure or accumulating has to be made during the year in which the income is received. Hence, the arguments of the appellant are not found to be acceptable.
3. The appellant craves leave to add or amend any Ground of appeal.
3. The solitary issue arises in this appeal of the assessee is regarding the disallowance of unspent income in excess of 15% as per the provisions of Sec.11(2) of the Income Tax Act, 1961 [in short “the Act”]. The Ld.AR of the assessee has submitted that the assessee is a Trust and running Smt. Rajeswari Ramakrishnan Lions Hospital, West Godavari, Andhra Pradesh. The assessee filed its Return of Income for the assessment under consideration on 02.10.2018 declaring total income of Rs.21,590/- after claiming exemption u/s.11(1)(a) of the Act & accumulation u/s.11(2) of the Act. The AO has denied the accumulation of unspent income on the ground that the resolution of the Board of Trustees to accumulate the income for the purpose of construction of building was passed after the end of the Financial Year on 27.08.2018. The Ld.AR has submitted that there is no requirement under the provisions of Sec.11(2) of the Act that the accumulation of unspent income above 15% shall be supported by a resolution. He has submitted that the only requirement is declaration to be filed in Form 10 within the due date which was duly filed by the assessee. Thus, the Ld.AR has submitted that the denial of accumulation of unspent income to be applied for construction of building in the subsequent year by the AO is unjustified. The Ld.AR has submitted that the only condition for set-apart the income is to furnish statement in the prescribed Form 10 within the due date to the AO explaining the purpose for which the income is accumulated or set-apart and therefore, there is no condition for allowing the said claim of set-apart/accumulation u/s.11(2) of the Act that the assessee should furnish any resolution of the Board of Trustees. The only condition is to furnish a statement in the prescribed form and manner which was complied with by the assessee by filing the statement in Form 10 within the due date. He has referred to provisions of Sec.11(2)(c) of the Act read with Rule 17(2) of the Income Tax Rules, 1962 which mandates that the statement in Form 10 must be furnished on or before due date of filing of Return of Income u/s.139(1) of the Act. The Ld.AR of the assessee has submitted that there is no provision in the Law that requires the Board resolution for accumulation to be passed before the closing date of previous year. The Ld.AR of the assessee has further submitted that even Board resolution dated 27.08.2018 was passed before the due date of filing of Return of Income as well as prescribed statement in Form 10 and therefore, the same can’t be a ground for denial of the set-apart/accumulation of unspent income as per the provisions of Sec.11(2) of the Act. He has also referred to Section 139(4A) of the Act and submitted that the provisions of the Section contemplates denial of exemption u/s.11 of the Act for non-filing of Form 10 or ITR before the due date and therefore, nothing contains in the provisions of Sec.11 or 13 which shall operates to exclude any income to be set apart before the end of the previous year. The claim of the assessee for accumulation of unspent income over and above 15% can’t be denied for want of resolution. Thus, the Ld.AR has submitted that once the assessee has complied with the conditions prescribed u/s.11(2) of the Act read with Rule 17 of the Income Tax Rules, 1962, the denial of accumulation or set-apart of the unspent income is not sustainable in law.
4. On the other hand, the Ld.DR has relied upon the orders of the authorities below and submitted that the decision to set-apart the income for a specific purpose was taken up by the assessee trust after closing of the Financial Year as it is clear from the resolution dated 27.08.2018. Thus, the assessee was not sure about the utilization of the unspent income for specific purpose of construction of building till the end of the Financial Year relevant to the assessment year under consideration. Thus, the assessee has not complied with the provisions of Sec.11(2) of the Act.
5. We have considered the rival submissions as well as the relevant material available on record. The assessee has claimed the accumulation/ set-apart of the income to the extent of Rs.63,21,590/- over and above 15% allowed u/s.11(1) of the Act by intimating the AO by way of filing the statement in Form 10 within the due date of filing the Return of Income u/s.139(1) of the Act. The provisions of Sec.11(2) of the Act contemplate that in case 85% of the income as referred to in Section 11(1)(a) & (b) of the Act is not applied or deemed to have been applied for charitable or religious purpose in India during the previous year, the same can be accumulated or set-apart either in whole or part for application to such purposes in India subject to the condition that such person furnished a statement in the prescribed form and in the prescribed manner to the AO stating 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 not exceeding five years. The other conditions are to keep the said accumulated/set-apart income in the investment or deposit in the form/ mode specified u/s.11(5) of the Act. Another condition is that the statement shall be furnished within the due date as specified under the provisions. It is pertinent to note that all the conditions as prescribed u/s.11(2) of the Act have been complied with by the assessee in respect of income accumulated/set-apart by filing a statement within the due date and therefore, once the assessee has explained the purpose for which unspent income is accumulated or set-apart by filing the statement in Form 10, then there is no other requirement to be complied with in the form of resolution to be passed by the Board before the end of the Financial Year. The AO has denied the claim of the assessee solely on the ground that the resolution of the Board of Trustees to accumulate income was passed after the end of the Financial Year as stated in Para No.6.4 as under:
6.4 The reply of assessee is considered but not found to be acceptable. Since the resolution of board of trustees (dated 27/08/2018) resolving to accumulate income of Rs.63 lakhs for the purpose of building construction was passed after the end of F.Y (i.e. 31/03/18) in which it was accumulated, therefore the accumulation of Rs.63 lakhs is an afterthought to save taxes on the amount not applied (to the extent it exceeds 15 per cent of the income derived from property held under trust wholly for such purposes). Therefore, deduction u/s.11(2) is denied to the assessee and amount of Rs.63 lakhs is treated as amount not applied/deemed to be applied u/s 11(1) as it exceeds 15% of the total receipts of the trust not applied. Therefore, Exemption u/s. 11(1)(a) is disallowed for the amount of Rs.63,00,000/-.
[addition to income: Rs.63,00,000/-]
Penalty proceedings u/s.270A of the Income Tax Act, 1961 are hereby initiated separately for under reporting of income.
6. The AO has not pointed out that any other defect or shortcoming in the claim of the assessee for accumulation/set-apart of the income over and above 15%, but the same was denied only on the ground that the resolution was passed after the end of the Financial Year. Once the assessee has complied with the conditions as prescribed u/s. u/s.11(2) of the Act r.w.rule 17(2) of the Income Tax Rules, 1962, then no other conditions can be imputed to deny the claim of accumulation/set-apart. Thus, the reasons given by the AO are beyond the provisions of Sec.11(2) of the Act for denial of the accumulation/set-apart of the unspent income by the assessee. Hence, in the given facts and circumstances of the case as discussed above, the denial of the claim of the assessee accumulation/set-apart by the AO is not in accordance with the provisions of law and therefore, the said addition made by the AO is deleted and the claim of the assessee is allowed.
7. In the result, appeal filed by the assessee is allowed.
Order pronounced on the 09th day of September, 2026, in Visakhapatnam.
