Section 11(1)(a)

Section 11(1)(a) — the law in short

What the courts have decided on section 11(1)(a), in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• CIT v Rajasthan and Gujarati Charitable Foundation Supreme CourtHelps taxpayerSuperseded by amendment
  We treated a building's full cost as application of income. Can we also claim depreciation on it?
  Yes on the law as it stood, but read the editor's note before using this for a current year. The Court held that treating the whole acquisition cost as application under s.11(1)(a) does not bar a s.32 depreciation claim on the same asset, rejected the double benefit objection, and allowed the depreciation to be carried forward.
• CIT v Programme for Community Organisation Supreme CourtHelps taxpayer
  We spent most of our donations on our objects in the same year. The officer now says our 15 per cent accumulation is worked out on what was left over after that spending. Is it worked out on the receipts or on the balance?
  On the receipts. The Supreme Court dismissed the Revenue's appeal and left standing the Kerala High Court's answer: on the plain language of s.11(1)(a) the accumulation a trust is allowed is a percentage of its income derived from property held under trust, and the donations the trust received are that property. It is not a percentage of what survives after part of the income has been applied. The trust had received Rs 2,57,376 and applied Rs 1,70,369, leaving Rs 87,010. The Court held it could accumulate 25 per cent of Rs 2,57,376 and said it was unclear on what basis the Revenue contended for 25 per cent of Rs 87,010. The percentage is now 15, not 25.
• S.Rm.M.Ct.M. Tiruppani Trust v CIT Supreme CourtHelps taxpayer
  My trust filed Form 10 to accumulate income but then spent the money on a hospital building instead of buying government securities. Have I lost the exemption altogether?
  No. The Supreme Court held that a trust which fails the conditions of section 11(2) still keeps the whole of the exemption section 11(1)(a) gives it. Income actually applied to charitable purposes in India is exempt whether or not a declaration was filed, and buying a building to be used as a hospital is such an application. On top of that the trust may accumulate up to 25 per cent of its total income - the limit then in force - and claim exemption on that accumulation without investing it in government securities. Section 11(2) only lifts the ceiling; it does not cut down section 11(1).
• Escorts Ltd v Union of India Supreme CourtHelps department
  I wrote off the whole cost of a laboratory building and its equipment under the scientific research provision. Can I also take depreciation on the same assets in later years, and can the department deny it for years before 1980 using an amendment made in 1980?
  No to the first, and yes to the second, and the reason for the second is the answer to the first. Section 35(2)(iv) as substituted by the Finance (No.2) Act 1980, with retrospective effect from 1 April 1962, provides that where a deduction is allowed for any previous year under section 35 in respect of expenditure represented wholly or partly by an asset, no deduction shall be allowed under clauses (i), (ii) and (iii) of section 32(1) for the same or any other previous year in respect of that asset. The petitioners said that was a new burden imposed on closed years and attacked it under Articles 14, 19(1)(g) and 300-A. The Supreme Court dismissed the petitions. It held that even before the 1980 amendment the Act did not permit depreciation on the cost of a capital asset acquired for scientific research to the extent that cost had been written off under the scientific research provision, so the amendment effected no change at all except to set out more clearly and categorically what the provision said even earlier. Being clarificatory, it took away no vested right. The reason the pre-amendment law was already to that effect is the sentence the case is now known for: there is an axiom, unwritten but fundamental, that no legislature could have intended a double deduction for the same business outgoing, and if it is intended it will be clearly expressed.
• Ahmedabad Rana Caste Association v CIT Supreme CourtHelps taxpayer
  Our trust benefits one caste. Can that be a charitable purpose at all?
  Yes. It is not necessary that the object benefit the whole of mankind or all persons in a country; it is enough that a section of the public, as distinguished from specified individuals, is intended to be benefited. The Supreme Court held that the members of the Rana caste of Ahmedabad — whether natives or admitted to the caste under custom or usage — are united by a quality that is impersonal, so they form a section of the public and the trust's objects were charitable.
• Rashtrotthana Sahitya and Mudrana Trust v ITO (Exemptions) Ward 2, Bangalore ITATHelps taxpayerNo later treatment found
  From AY 2022-23 my spending out of a bank loan is not application, and I claim it when I repay. The officer says that is a double deduction. How do I prove it is not?
  By showing that you reduced the application of income in the year you took the loan by the amount borrowed, and claimed nothing then. On that evidence the Bangalore Tribunal deleted the disallowance of Rs.1,63,86,245 of loan repayment: the trust had claimed application only on repayment and not when the borrowed funds were spent, so there was no double deduction, and the lower authorities had ignored the computations and accounts filed and proceeded on a presumption.
• Saguna Rural Foundation v Exemption Ward 2(3), Mumbai ITATHelps taxpayerNo later treatment found
  CPC denied my s.11(2) accumulation because Form 10 was filed after the s.139(1) due date, and the CIT(A) said s.13(9) settles it. Can the Tribunal still help me?
  Yes. Following the jurisdictional High Court in CIT v Sakal Relief Fund, the Mumbai Tribunal held that filing Form No. 10 before completion of assessment satisfies s.11(2), so a s.143(1) denial founded only on the s.139(1) due date cannot stand. The matter was restored to the Assessing Officer for the limited purpose of checking that the stated purpose of accumulation matches the objects and is backed by a trustees' resolution, with an express direction not to deny exemption on merely technical grounds.
• JITO Incubation and Innovation Foundation v CIT (Exemption), Mumbai ITATHelps taxpayerNo later treatment found
  The CIT(E) refused my Form 10AB because the memorandum says the objects may be carried out in India 'and elsewhere'. Is a possible application of funds outside India a ground to refuse registration?
  No. What the Commissioner has to satisfy himself about at the registration stage under s.12AB(1)(b) is the objects of the trust, the genuineness of its activities and compliance with other laws material to achieving its objects. Whether income has actually been applied within or outside India is a question that arises only when exemption under s.11 is claimed, and refusing registration on that ground is premature.

Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.