A generic purpose in Form 10 is acceptable if a Board Resolution specifies it.

Issue

Can the benefit of accumulating income under Section 11(2) of the Income-tax Act, 1961, be denied to a charitable trust simply because the purpose mentioned in the prescribed Form 10 is generic, even if a supporting and contemporaneous Board Resolution provides the necessary specific purpose?

Facts

An assessee, a charitable trust engaged in educational activities, filed Form 10 to accumulate a portion of its income for future use, as permitted under Section 11(2).
In the form, the purpose of this accumulation was stated in general terms as “for objects of the trust.”
The Assessing Officer (AO) disallowed the entire accumulation. The AO’s reasoning was that the law requires a specific purpose to be mentioned in the form, and the one provided was too vague and generic.
However, the assessee’s Form 10 was supported by a Board Resolution that had been passed by its directors. This resolution clearly and specifically stated that the accumulated funds were to be utilized for providing scholarships to students.
It was also not the revenue department’s case that the funds were ultimately misused or not utilized for the trust’s charitable objects in the subsequent years.

Decision

The Tribunal ruled in favour of the assessee.

It held that the vagueness of the purpose stated in the Form 10 itself was not a fatal defect in these circumstances.
The Tribunal found that the Form 10 should be read together with its supporting documents, and the Board Resolution in this case provided the required specificity that was missing in the form.
The matter was remanded back to the AO with a direction to verify the utilization of the funds and to delete the disallowance to the extent the accumulated amount had been used for the specified purpose of providing scholarships.

Key Takeways

Read Form 10 with Supporting Documents: A Form 10 should not be read in complete isolation. Contemporaneous and supporting documents, such as a Board Resolution that provides further details and specificity, should be considered as part of the assessee’s declaration of intent.
Substance Over Form: This ruling is a classic example of the legal principle of prioritizing the substance of a taxpayer’s intention over the literal form of their compliance. The real, documented intention was specific, even if the wording in the form was general.
No Actual Misuse of Funds: The fact that the revenue did not allege any subsequent misuse of the accumulated funds was a crucial factor. It showed that the trust’s intentions were bona fide and the accumulation was for genuine charitable purposes.
The Purpose of the Rule: The requirement to state a purpose for accumulation is a procedural safeguard to ensure that the trust has a clear plan for the funds and to prevent their misuse. It is not meant to be a trap to deny a legitimate exemption based on minor deficiencies in wording, especially when the specific intent is otherwise clear and documented.

IN THE ITAT MUMBAI BENCH ‘C’

Imperial College India Foundation

Income-tax Officer, Exemption

Rahul Chaudhary, Judicial Member
and Vikram Singh Yadav, Accountant Member

IT Appeal No. 4452 (MUM.) of 2025
[Assessment year 2016-17]

SEPTEMBER 10, 2025

Sambhav Shah for the Appellant. Virabhadra Mahajan for the Respondent.

ORDER

Rahul Chaudhary, Judicial Member.- The present appeal preferred by the Assessee is directed against the order, dated 14/05/2025, passed by the National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as ‘the CIT(A)’] whereby the Ld. CIT(A) had dismissed the appeal against the Assessment Order, dated 10/12/2018, passed under Section 143(3) of the Income Tax Act, 1961 for the Assessment Year 2016-2017.

2. The Assessee has raised following grounds of appeal :

“The Appellant prefers the following Grounds of Appeal against the order dated 14.05.2025 passed by the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi, under section 250 of the Income-tax Act, 1961:

On the facts and circumstances of the case and in law the Learned Commissioner of Income Tax (Appeal) has erred in confirming the disallowance u/s 11(2) of the Income Tax Act, 1961 merely on ground that specific outline for purpose of accumulation was not mentioned in Form 10.

On the facts and circumstances of the case and in law the learned Commissioner of Income Tax (Appeal) has erred in not considering the Board Resolution wherein it has clearly mentioned that accumulation shall be utilized only for Education purpose and not for any other objects of the trust.

On the facts and circumstances of the case and in law the learned Commissioner of Income Tax (Appeal) has erred in not appreciating the fact that assessee in its Board Resolution has clearly mentioned the specific objects for which funds are accumulated and not merely a general discussion as alleged.

On the facts and circumstances of the case and in law the learned Commissioner of Income Tax (Appeal) has erred in not appreciating that assessee has subsequently utilized the amount for the object of the trust which were in accordance with the objects mentioned in the Board Resolution.

The Learned Commissioner of Income Tax (Appeals) failed to appreciate that the Appellant had complied with all the conditions prescribed under section 11(2), including: (1) timely furnishing of Form No. 10, (ii) specifying the amount and period of accumulation, (iii) investing the accumulated amount in prescribed modes under section 11(5), and (iv) application of the accumulated income within the permissible period.

On the facts and circumstances of the case and in law the learned Commissioner of Income Tax (Appeal) has erred in not appreciating the judicial pronouncement submitted by assessee which supports the assessee’s contention.

Under facts and circumstances of the case the Learned Commissioner of Income Tax (Appeal) had passed the order without considering the facts and submissions put before him as also without allowing the appellant sufficient opportunity of being heard.

On the basis of facts and circumstances of the case, the Learned Commissioner of Income Tax (Appeals) failed to provide an personal hearing through video conferencing despite same being specifically asked for during the appellate proceedings.

Each of the above ground be considered as separate from the other grounds.

10.

The appellant craves leave to add, amend, alter or delete the above Grounds of Appeal.”

3. We have heard both the side and have perused the material on record.

4. The Assessee is a charitable trust engaged in the educational activities which includes granting of scholarships to the students. For the Assessment Year 2016-17, assessment was framed on the Assessee vide Assessment Order, dated 10/12/2018. The Assessing Officer disallowed the income amounting to INR.62,28,989/-accumulated under Section 11(2) of the Act holding that the purpose stated for accumulation [i.e. “towards the object of the trust”] was generic. According to the Assessing Officer, it was mandatory requirement that purpose stated for accumulation should be specific. The appeal preferred by the Assessee before the Ld. CIT(A) did not yield any favorable results for the Assessee as the Ld. CIT(A) vide impugned Order, dated 14/05/2025, confirmed the disallowance observing that the Assessee has admittedly used expression “for the object of the trust” in Form 10 which is broad and does not meet the requirements envisaged in Section 11(2) of the Act. Form No. 10 is a statutory vehicle for communicating the intent of accumulation and its sanctity must be preserved. Being aggrieved the Assessee has now preferred the present appeal before the Tribunal on the grounds reproduced in Paragraph No. 2 above.

5. During the course of hearing both side reiterated the stands taken before the authorities below. We have given thoughtful consideration to the rival submission and have perusal the material on record. We find that Form No. 10 filed by the Assessee stated the purpose of accumulation as “for the objects of the trust”. However, the said Form 10 was supported by the Board Resolution, dated 20/09/2016, passed by the Board of Direction of the Assessee-Company registered under Section 8 of the Companies Act, 2013. A perusal of the aforesaid Board Resolution shows that the accumulated amount was to be utilized for providing ‘scholarship (educational purpose)’. During the course of hearing Ld. Authorized Representative for the Assessee had placed reliance upon the decision of Mumbai Bench of the Tribunal in the case of B al Jeevan Trust v ITO [IT Appeal No. 1872/Mum/2023, dated 12-12-2023] wherein in identical facts and circumstances, the Tribunal had deleted the disallowances in respect of income accumulated under Section 11(2) of the Act after examining the actual utilization of the accumulated funds in the subsequent years. In the present case also it was contended by the Learned Authorised Representative for the Assessee that in the subsequent years the funds have been utilised for the purpose stated in the aforesaid Board Resolution. We find that in the Submission, dated 16/09/2024, filed before the Ld. CIT(A), reproduced at page 11 if the impugned order it was stated as under:

“It is also pertinent to mote that the appellant has spent the entire amount of Rs.62,28,989/- before 31.03.2021 i.e. within the period of 5 years from the end of the year for which accumulation was made. “

6. It is not the case of the Revenue that in the subsequent years the accumulated funds amounting to INR.62,28,989/- was not utilized by the Assessee. Therefore, taking into consideration the above, we deem it appropriate to set aside the Order, dated 14/05/2025, passed by the CIT(A) and remand the issue back to the Assessing Officer with the following directions. We direct the Assessing Officer to verify Board Resolution, dated 20/09/2016, and for the same the Assessee is directed to file a certified copy of the Board Resolution before the Assessing Officer. Thereafter, the Assessing Officer is further directed to verify the utilization of accumulation amounting to INR.62,28,989/- in subsequent years by the Assessee as per the Board Resolution [i.e. for the object of the trust – Scholarships (Educational Purposes)]. We hold that to this extent we hold that the vagueness of the purpose of accumulation as stated in Form 10 would not be fatal and the Assessee would be entitled to claim benefit of Section 11(2) in respect of the same. Accordingly, the disallowance to the extent the accumulated amount has been utilized for the aforesaid purpose shall be deleted by the Assessing Officer.

7. In terms of aforesaid ground No. 1 to 10 is allowed for statistical purposes.

8. In the result the present appeal is allowed for statistical purposes.