Accumulation of Income in Excess of 15% of the Income Earned by Charitable and Religious Trust and Institution [Section 11(2) and Rule 17]

[Section 11(2)]: Accumulation of Income in Excess of 15% by Trust

As already mentioned, assessee is allowed to accumulate upto 15% of the income earned during the year for application for charitable or religious purposes in India in future. If the assessee wants to accumulate or set apart the income in addition to 15% of the income, he can do so if certain conditions are satisfied. In this case, the amount accumulated in excess of 15% shall be deemed to have been applied for charitable or religious purposes in India during the previous year itself.

1.  Conditions to be satisfied to Claim Exemption under Section 11(2)

Exemption under section 11(2) shall be allowed subject to the following conditions being satisfled:

(a)        such person furnishes a statement in Form No. 10 electronically either under digital signature or electronic verification code to the Assessing Officer, 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, which shall in no case exceed 5 years;

(b)        the money so accumulated or set apart is invested or deposited in the forms or modes specified in section 11(5);

(c)        the statement referred to in clause (a) above is furnished on or before the due date specified under section 139(1) for furnishing the return of income for the previous year.

Provided that in computing the period of 5 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.

2.   [Section 13(9)]: Exemption under Section 11(2) Not to be Allowed unless the Statement mentioned in section 11(2)(a) and the Return of Income of the Trust is Furnished before the Due Date of Filing the Return specified under section 139(1)

Nothing contained in section 11(2) shall operate so as to exclude any income from the total income of the previous year of a person in receipt thereof, if—

(i)         the statement referred to in clause (a) of section 11(2) (mentioned above) in respect of such income is not furnished on or before the due date specified under section 139(1) for furnishing the return of income for the previous year;

or

(ii)        the return of income for the previous year is not furnished by such person on or before the due date specified under section 139(1) for furnishing the return of income for the said previous year.

In other words, benefit of accumulation shall not be allowed under section 11(2) unless the said statement in prescribed form as well as the return of income are furnished before the due date of filing the return of income specified under section 139(1).

3.  Donation to Other Institution out of Accumulated Income not to be treated as Application of Income for Charitable/Religious Purpose [Explanation to Section 11(2)]

The Explanation under section 11(2) provides that any amount credited or paid out of the income referred to in section 11(1)(a) or (b) read with 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 section 10(23C)(iv), (v), (vi) and (via) shall not be treated as application of income for charitable or religious purposes, either during the period of accumulation or thereafter.

4. [Section 11(5)]:  Modes of Deposit / Investment of such Accumulated Income in excess of 15%

A uniform pattern of investment is laid down, with effect from April 1, 1983, for all categories of funds belonging to charitable and religious trusts or institutions. The same pattern of investment will apply in relation to accumulation of income in excess of 15%.

The uniform forms or modes for investing funds of charitable and religious trusts and institutions are given below:

(1)        Investment in Government Saving Certificates and any other Securities or Certificates issued by the Central Government under its Small Saving Scheme.

(2)        Deposits with Post Office Savings Banks.

(3)        Deposits with Scheduled Banks or Co-operative Banks (including a Cooperative Land Mortgage Bank or a Cooperative Land Development Bank).

(4)        Investments in the units of Unit Trust of India.

(5)        Investments in Central or State Government Securities.

(6)        Investments in debentures issued by or on behalf of any company or corporation. However both the principal and interest thereon must have been guaranteed by the Central or the State Government.

(7)        Investment or deposits in any public sector company.

(8)        Investment in bonds of approved financial corporation providing long term finance for industrial development.

(9)        Investment in bonds of approved public companies whose principal object is to provide long term finance for construction or purchase of houses in India for residential purposes.

(10)      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;

(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.

(11)      Deposits with the Industrial Development Bank of India.

(12)      Investment in immovable property excluding plant and machinery, not being plant and machinery installed in a building for the convenient occupation thereof.

(13)      Any other form or mode of investment or deposit as may be prescribed.

5.  [Section 11(3)]: Consequences if such Accumulated Income in excess of 15% is Not Applied/Invested in the prescribed manner

Where the income of the trust referred to in section 11(2)—

6.  [Section 11(3A)]:  Circumstances where the Accumulated Income in Excess of 15% can be Utilized for a Purpose other than that for which it was Accumulated

Where the income invested/deposited in approved modes cannot be applied for the purposes for which it was accumulated or set apart, due to circumstances beyond the control of the assessee, such assessee can make an application to the Assessing Officer specifying such other purpose for which he wants to utilize such accumulated income. Such other purposes should also be in conformity to the objects of the trust. The Assessing Officer in this case, may allow the application of such income to such other purposes. On such an application being allowed by the Assessing Officer, the funds may be accumulated and/or applied for the purposes newly specified and the provisions regarding withdrawal of exemption will be applicable on the basis that new purposes were the ones that had been specified in the notice for accumulation given under section 11(2).

However, the Assessing Officer shall not allow application of such income by way of payment or credit made for donation to other trust or other institutions, but the Assessing Officer may allow application of such accumulated income for the purpose of donation to other trust or institution in the year in which such trust or institution was dissolved.