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Accumulation of Income in excess of 15% of the income earned [Section 11(2) and Rule 17] by Public Trusts

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 for allowing Exemption U/s 11(2) by the Public Trusts.

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

(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) 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.   Exemption under section 11(2) not be allowed unless the return of income of the trust is furnished before the due date of filing the return specified under section 139(1) [Section 13(9)]

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(I) 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.   Consequences if such Accumulated Income in Excess of 15% is Not Applied / Invested in the Prescribed Manner by the Trusts [Section 11(3)]:

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

(a) is applied for purposes other than charitable or religious purposes, or ceases to be accumulated or set apart for application thereto, or

It shall be deemed to be income of the previous year in which it is so applied for other purpose or ceases to be accumulated or set apart.

(b) ceases to remain invested or deposited in any mode mentioned under section 11(5) above, or

It shall be deemed to be income of the previous year in which it ceases to remain so invested or deposited.

(c) is not utilized for the purpose for which it is so accumulated or set apart during the period specified (not exceeding 5 years) or in the year immediately following thereof, or

It shall be deemed to be income of the previous year immediately following the expiry of period specified therein.

(d) is credited or paid to any trust or institution registered under section 12AA or any institution or trust referred to in Section 10(23)(iv), (v), (vi), or (via)

It shall be deemed to be income of the previous year in which it is paid or credited.

 

Note :

However, in computing the aforesaid period of 5 years, the period during which the income could not be applied for the purposes for which it is so accumulated or set apart due to an order or injunction of any Court, shall be excluded.

 

4.   Circumstances where the Accumulated Income in excess of 15% can be utilized by the Trusts for a purpose other than that for which it was accumulated [Section 11(3A)]:

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.
 

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