Rule 186 — Application under section 342(5) for change of purpose for which income has been accumulated or set apart. Made under s.265, s.342 of the Income-tax Act, 2025.
Rule 186 gives effect to Section 265 and Section 342 of the Income-tax Act, 2025. A rule cannot go beyond the section it serves: where the two seem to differ, the section governs.
Sub-rule (1) allows a registered non-profit organisation that has accumulated or set apart part of its regular income in accordance with section 342(1) to request the Assessing Officer to change the purpose for which the income is accumulated or set apart, by furnishing an application in Form No. 110.
Sub-rule (2) requires Form No. 110 to be furnished electronically, under digital signature where the return of income is required to be furnished under digital signature and through electronic verification code in any other case, and to be verified by the person authorised to verify the return of income under section 265 as applicable to the applicant.
Sub-rule (3) allows the Assessing Officer, on such an application and subject to section 342(2), to permit the organisation to apply its income for such other charitable or religious purposes in India as are in conformity with its objects, in Form No. 111.
Section 342(1) lets a registered non-profit organisation set income aside for a stated purpose, and section 342(5) allows that purpose to be changed. The rule supplies the machinery: the application form, how it is signed and verified, and the form in which the Assessing Officer's permission is given. Requiring verification by the person who verifies the return keeps the application at the same level of responsibility as the return itself.
The change of purpose is not something the organisation can resolve for itself; it must apply and the Assessing Officer must allow it, and the permission comes in Form No. 111. Two limits sit on what he may allow: the new purpose must be a charitable or religious purpose in India, and it must be in conformity with the organisation's objects. The permission is also subject to section 342(2), so the conditions there continue to apply. The signature route in sub-rule (2)(a) follows the organisation's return — digital signature where the return needs one, electronic verification code otherwise — and the person verifying is the one authorised under section 265 for the return.
A registered non-profit organisation set apart Rs. 40,00,000 under section 342(1) to build a school building, and the project becomes impossible when the land is not made available. It furnishes Form No. 110 electronically, verified by the person authorised to verify its return under section 265, asking to apply the amount to a vocational training centre instead. The Assessing Officer may allow that in Form No. 111 if the new purpose is charitable or religious, is in India and conforms to the organisation's objects.
In the Form No. 110 application filed with the Assessing Officer when an accumulation cannot be spent on its original purpose, and in the Form No. 111 order that follows.
it may request the Assessing Officer for the change of purpose for which such income is accumulated or set apart, by furnishing an application to the Assessing Officer in Form No. 110
allow the registered non-profit organisation to apply its income for such other charitable or religious purposes in India which are in conformity with its objects, in Form No. 111