Hegde Charitable Trust Vs ITO (ITAT Bangalore)
No Form 10B, but Can the Entire Receipts of a Charitable Trust Be Taxed? Bengaluru ITAT Says Expenses Must Be Examined
A charitable trust’s failure to file its audit report in Form 10B led the Centralised Processing Centre (CPC) to deny its section 11 exemption and tax its entire gross receipts of ₹9,13,841. The trust did not ask the Income Tax Appellate Tribunal to restore the exemption. Its narrower argument was that, even without exemption, tax could be charged only on income remaining after allowable expenses.
The Bengaluru ITAT accepted that distinction. It held that denial of section 11 exemption does not, by itself, justify taxing gross receipts without considering legitimate expenditure. The Tribunal sent the matter to the Assessing Officer (AO) to examine the expenses and determine what could be allowed. It did not calculate the trust’s taxable income.
How the dispute arose
Hegde Charitable Trust, Mangaluru, was registered under section 12AA for educational purposes and the advancement of an object of general public utility. For assessment year 2019–20, it filed a return declaring nil income after claiming exemption under section 11.
The CPC proposed an adjustment because the trust had not electronically filed Form 10B on or before filing its return. In an intimation dated 14 August 2020, it denied the exemption, brought the trust’s gross receipts of ₹9,13,841 to tax and raised a demand of ₹1,26,911.
The trust then filed a rectification application under section 154. It asked the tax officer to compute its income on commercial principles: allow legitimate expenditure and tax any resulting surplus. The Income Tax Officer (Exemptions) rejected the application because Form 10B had not been filed on time.
The first appellate authority also dismissed the trust’s appeal. It observed that Form 10B had not been filed even belatedly, treated it as mandatory for claiming section 11 exemption, and said it had no power to condone the delay. That reasoning addressed the exemption claim, but the trust maintained that its rectification request concerned how its income should be computed after exemption was denied.
The question before the Tribunal
The trust’s representative made clear that it was not asking the ITAT to allow section 11 exemption despite the missing Form 10B. It sought a direction to consider expenditure incurred in earning its receipts and to tax only the net income, if any. The trust also argued that amendments to section 13(10) made by the Finance Act, 2022 were clarificatory and applied to assessment year 2019–20.
The department supported the earlier orders. It argued that, without Form 10B, the trust could not claim section 11 exemption and that the authorities were right to tax its gross receipts without allowing application or utilisation of funds.
The distinction between an exempt application of income and an expense allowable when computing taxable income was therefore central to the appeal. The trust was no longer seeking to exclude income through section 11. It wanted its actual income determined after eligible costs were considered.
Why the ITAT intervened
After examining the rectification application, the Tribunal found that the tax officer had rejected it by repeating the Form 10B objection without addressing the trust’s actual request. The first appellate authority had likewise focused on eligibility for section 11 exemption and condonation, rather than the proposed computation of income.
The ITAT held that failure to satisfy the conditions for sections 11 and 12, despite having section 12AA registration, did not make the trust’s entire receipts its taxable income. Where gross receipts were considered, expenses connected with earning them also had to be considered under the Act and accounting principles. The Tribunal treated the CPC’s failure to consider the claimed expenses at all as a mistake apparent from the record for the purpose of the trust’s rectification plea.
It further observed that revenue expenditure incurred wholly and exclusively to earn income, together with depreciation where applicable, had to be considered under the relevant provisions. On that basis, it held that the lower authorities should have entertained the trust’s request to tax income embedded in the receipts rather than the full receipts.
What happens next
The ITAT remitted the issue to the AO to examine the various expenses claimed by the trust. If expenditure is found to have been incurred for earning the income, it is to be allowed. The appeal was partly allowed for statistical purposes.
This is an important limit on the outcome: the Tribunal did not approve any particular expense, quantify depreciation or determine the final taxable amount. Nor did it restore section 11 exemption or accept the trust’s argument about the retrospective effect of the Finance Act, 2022 amendment.
Author’s comment
The order turns on the relief the trust actually requested. Once exemption was denied, the authorities still had to address whether gross receipts represented taxable income or whether allowable expenses reduced that amount. The missing Form 10B answered the exemption objection as framed by the authorities; it did not answer the trust’s separate computation plea.
The remand also leaves a practical task for the trust. It must substantiate the expenses claimed before the AO and show how they relate to earning its income. The decision protects the opportunity to have those expenses examined; it is not a blanket allowance of every payment made by the trust.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
This appeal at the instance of the assessee is directed against the order of the ld. Addl/JCIT(A), Kochi dated 28.01.2026 vide DIN & Order No. ITBA/APL/S/250/2025-26/1085254121(1) passed u/s 250 of the Income Tax Act, 1961 (in short “the Act”) for the assessment year 2019-20.
2. The assessee has raised the following grounds of appeal:-
| Section | Ground | Particulars |
|---|---|---|
| 154 | General | The learned CIT(A) erred in confirming the intimation passed u/s 143(1) r.w. 154 of the Income Tax Act, 1961 which is prejudicial to the interest of the appellant, is bad and erroneous in law and also against the facts and the circumstances of the case. |
| 250 | Adjudication without considering submissions | The learned CIT(A) failed to consider the detailed submissions made by the appellant while passing the order and therefore appellate order passed by the learned CIT(A) is bad in law and also against the principles of natural justice. |
| 154 | Taxing of the gross receipts is against the principles of natural justice | The appellant’s request to process the return of income under commercial principles was rejected without stating any reasons by the Assessing Authority which the learned CIT(A) failed to take into consideration. The taxing of entire gross receipts without considering the expenses incurred, is against the principles of natural justice. |
| 13(10) | The amendments made were clarificatory in nature and therefore applicable for the AY 2019-20 as well | The learned CIT(A) ignored the fact that the amendments made through finance Act 2022 to the section 13(10) were clarificatory in nature and therefore applicable for the assessment year 2019-20 as well. The assessing authority rejecting the appellant’s claim to consider the return of income in accordance with the provisions of section 13(10) of the Income Tax Act, 1961 is against the facts and circumstances of the case and also against the law. |
| 154 | General | Each of the above ground is without prejudice to one another and the appellant craves leave of the Hon’ble Income Tax Appellate Tribunal, to add, delete, modify or otherwise amend either all or any of the above grounds either before or during the hearing. |
3. The brief facts of the case are that the assessee is a charitable trust registered under 12AA of the Act vide Registration No. CIT(EXEMPTIONS)BANGALORE/12AA/2018-19/A/10538 dated 24/10/2018 for the purposes of Education, Advancement of any other object of general public utility from the Assessment year 2019-20. Subsequently, the assessee trust was also granted registration in Form No.10AC under sub clause (i) of clause (ac) of sub-section (1) of section 12A of the Act on 01/12/2022 vide Unique Registration Number (URN):- AABTH8172KE20211 effective from AY 2022-23 to AY 2026-27. The Assessee trust filed its return of income for the A.Y.2019-20 on 12.11.2019 u/s 139(4) of the Act vide acknowledgment number 254182470121119 declaring the income of Rs.NIL after claiming exemption u/s 11 of the Act. The said return was processed and accordingly the CPC issued a communication of proposed adjustment u/s 143(1)(a) of the Act by denying the exemption claimed u/s 11 of the Act on the ground that the audit report in Form 10B had not been e-filed on or before the filing of the Return of Income. Thereafter, the intimation u/s 143(1) of the Act was passed on 14/08/2020 by denying the exemption claimed u/s 11 of the Act for the sole reason that the audit report in Form 10B was not filed within the due date of filing the return of income and consequently, the CPC disallowed the entire applications/expenditures of the trust & brought the entire gross receipts to tax & determined the taxable income at Rs. 9,13,841/- & raised a demand of Rs.1,26,911/-.
3.1 Subsequently, the assessee trust filed a rectification application u/s 154 of the Act on 11.01.2023 before the jurisdictional assessing officer to consider the taxable income of the assessee on commercial principles by allowing the deduction towards the legitimate expenditures of the trust and prayed to tax only the net profits if any. However, the ITO (Exemptions), Ward-1 Mangaluru rejected the rectification application on 14/02/2023 vide DIN & Letter No. ITBA/COM/F/17/2022-23/1049726894(1) by stating that the assessee had not electronically filed the Form 10B on or before filing of return of income i.e., on or before 31.10.2019 and for this reason the exemption u/s 11 of the Act was not allowed and hence it resulted into demand. In view of the above, the ITO (Exemptions) rejected the rectification application filed by the assessee and directed to pay the demand outstanding for the A.Y.2019-20 immediately along with the interest.
4. Aggrieved by the rectification order passed by the ITO (Exemptions), Ward-1, Mangalore dated 14.02.2023, the assessee preferred an appeal before the Ld. Addl/JCIT/CIT(A).
5. The Ld. Addl/JCIT(A), Kochi dismissed the appeal of the assessee by observing that evidently the assessee “has not at all filed the Form 10B”, not even at least belatedly too, to claim deduction u/s 11 of the Act for the A.Y.2019-20. Further, the Ld. Addl/JCIT(A) held that as the filing of Form 10B is mandatory for claiming deduction u/s 11 of the Act, whereas the assessee has not at all filed the requisite Form 10B and therefore it is evidently not eligible for deduction u/s 11 of the Act. Further, the Ld. Addl/JCIT(A) also held that as the power of condoning the delay is also not vested with Ld. Addl/JCIT(A), the delay in filing the ITR also cannot be condoned by Ld. Addl/JCIT(A) and accordingly dismissed all the ground of appeal of the assessee.
6. Again aggrieved by the order of Ld. Addl/JCIT(A), Kochi dated 28.01.2026, the assessee has filed the present appeal before this Tribunal.
7. Before us, the Ld AR of the assessee vehemently submitted that the CPC while passing the intimation u/s 143(1) of the Act had taxed the entire gross receipts declared by the assessee trust without allowing the deduction towards the legitimate expenditures incurred by the assessee trust. Further, the Ld. AR of the assessee submitted that the Ld. Addl/JCIT(A) grossly erred in completely ignoring the fact that the appeal filed by the assessee was against 154 of the Act where the assessee only prayed to allow the deduction towards the legitimate expenditures incurred by the assessee which was a mistake apparent on the face of the record, however the Ld. Addl/JCIT(A) held that as the assessee has not at all filed the requisite Form 10B on or before the filing of return of income and therefore it is evidently not eligible for deduction u/s 11 of the Act. It is also submitted that the amendments made through the Finance Act, 2022 to the section 13(10) of the Act were clarificatory in nature and therefore applicable for the A.Y.2019-20 as well and accordingly prayed that only the Net Income after granting the deduction toward the expenses incurred by the assessee trust in accordance with the commercial principles should only be liable to taxed if any.
8. The Ld. DR on the other hand relied upon the order of the Ld. Addl/JCIT (A) and vehemently submitted that as the assessee had not filed the Form No. 10B at all which is a mandatory requirement for claiming exemption u/s 11 of the Act, the Learned Authorities below have rightly taxed the entire Gross Receipts without allowing any application/utilization of funds and accordingly prayed to dismiss the appeal of the assessee.
9. We have heard the rival submissions and perused the materials available on record. On perusal of the rectification application filed by the assessee trust before the ITO(Exemptions), Ward-1, Mangaluru on 11.01.2023, we observed that the assessee trust was mainly seeking the computation of taxable income on commercial principles i.e. allowing the legitimate expenditure of the trust and taxing only the surplus if any. Further, on perusal of the rectification order dated 14.02.2023 passed by the ITO(Exemptions), Ward-1, Mangaluru u/s 154 of the Act, we observed that the ITO(Exemptions) rejected the rectification application on the ground that the assessee trust had not e-filed the Form 10B on or before the filing of the return of income without understanding the actual prayers of the assessee trust in the rectification application. We are also surprised to note that even the Ld. Addl/JCIT(A) misdirected himself in dismissing the appeal of the assessee without clearly understanding the grounds raised by the assessee against the Order passed u/s 154 of the Act. Thus, the Ld. Addl/JCIT(A) without appreciating the ground of appeal raised by the assessee held that as the filing of Form 10B is mandatory for claiming deduction u/s 11 of the Act, whereas the assessee has not at all filed the requisite Form 10B and therefore it is evidently not eligible for deduction u/s 11 of the Act. Further, the Ld. Addl/JCIT(A) also held that as the power of condoning the delay is also not vested with Ld. Addl/JCIT(A) and hence the delay in filing the ITR also cannot be condoned by Ld. Addl/JCIT(A).
9.1 Before us, the main contention of the Ld. AR of the assessee is that in the absence of Form No.10B, the income of the assessee should be taxed on commercial principles by allowing the deduction towards the expenditures of the trust and tax only the real Profit. Thus, even before us, the Ld. AR of the assessee is not praying to allow the deduction claimed u/s 11 of the Act but direct to tax the net income after allowing the deduction towards expenses incurred as per the commercial basis.
9.2 We are of the considered opinion that the denial of exemption u/s 11 of the Act would not amount to disallowance of entire legitimate expenditures incurred by the assessee trust. In our considered opinion, once it is found that the assessee trust did not comply with the conditions for applicability of sections 11 & 12 of the Act as enumerated u/s 12A of the Act, although the registration u/s 12AA of the Act is granted, only the net income of the assessee is liable to be assessed. Once the gross receipts of the assessee trust are being considered, then obviously the expenses incurred in relation to such receipts would also have to be considered as per the provisions of the Act and as per the accounting principles. We are of the considered opinion that it is the basic principle for the levy of income tax that the taxes are to be levied on the net income after deduction of expenditures from the total receipts. Therefore, we find merits in the arguments of the ld. AR of the assessee that the disallowance of entire expenses in processing the return u/s 143(1) of the Act is not only against the accounting principle but also against the provisions of the Act & therefore is a mistake apparent on the face of the record. Therefore, the non-consideration of prayer of the assessee in the rectification application by the lower authorities were illegal and bad in law. We are of the considered view that the finding in the impugned order that the assessee trust is not eligible to claim exemption u/s 11 of the Act does not mean that the assessee trust is not eligible to claim the revenue expenditures incurred exclusively to earn such income. We are also of the view that at most, the income embedded in the gross receipts can only be taxed and not the entire gross receipts. Consequently, the revenue expenditures incurred wholly & exclusively to earn the income along with the depreciation if any have to be allowed as expenditures as per the provisions of the Act. Thus, since the fundamental principle under the income-tax Act being that only net income has to be taxed (i.e. gross receipts minus allowable expenditures), this plea of the assessee has to be necessarily entertained. This being so, as the CPC had not considered the expenses claimed by the assessee at all, we deem it fit & appropriate to remit this issue to the file of the AO for examination of various expenses claimed by the assessee and if it is found that the expenditures are incurred for the purposes of earning the income, the same are liable to be allowed. It is ordered accordingly.
10. In the result, the appeal of the assessee stands partly allowed for statistical purposes.
Order pronounced in the open court on 24th Sept, 2026.
