ITAT Mumbai Holds That Payments Made Out of Accumulated Income to Registered Trusts Attracts Section 11(3)(d)

The Income Tax Appellate Tribunal (ITAT) Mumbai has upheld the addition of Rs 57.89 lakh under Section 11(3)(d) and dismissed the appeals filed by the assessee.

The assessee is a charitable trust registered under Section 12A of the Income Tax Act and had filed accumulated income under Section 11(2) while claiming exemption under Sections 11 and 12. During the original assessment proceedings, the AO had disallowed Rs 6 lakh paid to another charitable institution.

Upon verification of records, the AO noticed that the trust had made additional payments aggregating to Rs 57.89 lakh to institutions including TERI and the Quality Council of India, both registered under Section 12A. Considering such payments, the AO invoked Section 154 and treated the amount as deemed income. The assessee argued that the payments were not donations but expenditures incurred through implementing agencies for carrying out its own charitable projects.

The Tribunal held that the language used in Section 11(3)(d) is clear and uses the expression “paid or credited,” which is much wider than the expression “donated.” Therefore, once accumulated income is transferred to another institution having a charitable registration, there will be a statutory consequence. It was observed that the provision is recipient-centric and does not permit any distinction based on the nomenclature of the payment, even if it is described as project expenditure, consultancy fees, research charges or implementation costs.

Rejecting the assessee’s plea that TERI and the Quality Council of India merely acted as implementing agencies, the Tribunal observed that no exception has been provided in the statute for such arrangements and courts cannot read into the provision qualifications that are manifestly omitted by Parliament.

Accordingly, the ITAT upheld the order of the CIT(A), and the appeals of the assessee were dismissed.