ITAT Ahmedabad: Unutilised Section 11(2) Accumulation Taxable; Double Exemption Not Permissible

April 1, 2026 : The Ahmedabad Bench of the Income Tax Appellate Tribunal (ITAT) has held that income accumulated by a charitable trust under Section 11(2) of the Income Tax Act, 1961, which remains unutilised within the prescribed five-year period, becomes taxable under Section 11(3). The Tribunal further clarified that a trust cannot claim exemption twice on the same accumulated income.

The ruling came in Deputy Commissioner of Income Tax (Exemptions) v. State Examination Board (ITA No. 1505/Ahd/2025) for Assessment Year 2017–18, decided on April 1, 2026.

The dispute pertained to an amount of ₹3.32 crore out of ₹5.60 crore accumulated by the assessee in AY 2012–13 under Section 11(2). The Assessing Officer (AO) held that since the entire ₹5.60 crore had already been claimed as exempt in AY 2012–13, the subsequent claim of ₹3.32 crore as application of income in AY 2017–18 amounted to double deduction.

The Commissioner of Income Tax (Appeals) [CIT(A)] had deleted the addition, accepting the assessee’s contention that the accumulated amount had been applied during the relevant year. However, the Tribunal disagreed.

On examining the records, including Form 10B for AY 2012–13, the Tribunal found that the assessee had indeed claimed exemption for the full accumulated amount of ₹5.60 crore in the year of accumulation itself. The assessee failed to produce any evidence to show otherwise. The Tribunal therefore held that claiming exemption again in AY 2017–18 for a portion of the same amount constituted impermissible double deduction.

Further, the Tribunal analysed whether the amount of ₹3.32 crore had actually been applied for charitable purposes during the year. Referring to the consolidated income and expenditure account (as reproduced on page 4 of the order), it noted that the assessee had generated income of ₹34.52 crore and incurred expenditure of ₹27.32 crore, resulting in a surplus of ₹7 crore. This indicated that the application of income during the year was entirely out of current year income and not from past accumulations.

The Tribunal also observed that the disputed amount of ₹3.32 crore, though credited to the income and expenditure account, was not actually utilised and had been carried forward as part of general reserves (as reflected in the closing balance on page 6). This demonstrated that the funds were not applied for the purposes for which they were originally accumulated.

Importantly, the Tribunal invoked Section 11(3), noting that accumulated income not utilised within the stipulated period (maximum five years) is deemed to be income of the year in which such period expires. Since the amount remained unutilised up to AY 2017–18, it was rightly brought to tax in that year.

The Bench of Sanjay Garg (Judicial Member) and Annapurna Gupta (Accountant Member) therefore set aside the CIT(A)’s order and upheld the addition made by the Assessing Officer, allowing the Revenue’s appeal.