Trust payment from accumulated income to another registered trust is taxable as deemed income.

ORDER

Siddhartha Nautiyal, Judicial Member. – These two appeals have been filed by the Assessee against the different orders of National Faceless Appeal Centre, Delhi / Ld. CIT(A) commonly dated 05-Dec-2025 for the Assessment Years 2013-14 & 2015-16.

2. Since all the issues involved in these two appeals are common and identical and belongs to one assessee therefore, they have been clubbed, heard together and consolidated order is being passed. Firstly we shall take ITA No. 08/Mum/2026, for A.Y 2013-14 as lead case and facts narrated therein.

The Assessee has raised the following grounds of appeal:

1. On the facts and circumstances of the case and in law, the Hon’ble ADDL/JCIT(A) erred in confirming the Order u/s 154 of the Act without giving the Appellant the Opportunity of being heard through Video Conference.

2. The Hon’ble ADDL/JCIT(A) failed to appreciate that the Appellant had requested for a personal hearing through Video Conferencing in all its submissions.

The Hon’ble ADDL/JCIT(A) failed to give an opportunity for personal hearing through video conferencing as is mandated by Rule 12(1) & 12(2) of the Faceless Appeal Scheme 2021.

3. The Appellant prays that the Order made by the Hon’ble ADDL/JCIT(A) in violation of principle of Natural Justice, and/or the mandatory requirements of personal hearing be held to be bad in law and consequently or otherwise be cancelled and set aside and the Hon’ble ADDL/JCIT(A) be directed to decide the appeal of the Appellant in accordance with law.

WITHOUT PREJUDICE OF GROUND NO. I ABOVE

GROUND NO. II: INVOKING AND RECTIFYING ORDER U/S 154 BASED ON AUDIT OBJECTION

1. On the facts and circumstances of the case and in law, the Hon’ble ADDL/JCIT(A) erred in confirming the Order u/s 154 of the Act without appreciating that:

1.1 The order stated to be u/s 154 was clearly a review of the original assessment order which is not permitted in law;

1.2 The order u/s 154 was passed in violation of the Rules of natural justice;

1.3 in any case, the question whether section 11(3)(d) applied only to payments by way of donation and not to the bearing of part expenses of an identified project was an issue on which two views were possible, and as the original assessment order had for valid reasons adopted one view adopting a different view was not permissible on the

basis that the change in view was a mere rectification of a mistake apparent from the record.

2. The Hon’ble ADDL/JCIT(A) failed to appreciate and ought to have held that:

2.1 the Assessing Officer had considered the submissions of the Appellant and consciously held that out of the expenses claimed to be eligibly incurred in accordance with section 11(2), the claim could not be accepted only for expenses aggregating to Rs. 600,000 and consequently, the order under section 154 for disallowing a further Rs. 57,89,046/- amounted to a review of the decision which is not permitted by any provision of the Income Tax Act.

2.2 The issue whether certain expenses incurred out of accumulation made u/s 11(2) of the Act is Inter Charity Donation or not is not an obvious and patent mistake rectifiable u/s 154 of the Act.

2.3 Further, in the course of passing the order u/s 154 in response to the letter seeking adjournment filed by the Appellant, no new date of hearing was given by the learned AO and in the absence of any new date of hearing, question of failing to file any reply did not arise and, consequently, the order made on the erroneous finding that the Appellant had no submissions to make was an order in violation of the principles of natural justice.

3. The Appellant prays that the Order u/s 154 of the Act confirmed by the Hon’ble ADDL/JCIT(A) be held to be without jurisdiction and/or contrary to the rules of natural justice and/or bad in Law and consequently or otherwise be cancelled.

GROUND NO. III: ADDITION OF Rs. 57,89,046/- U/S 11(2) OF THE ACT

1. On the facts and circumstances of the case and in law, the Hon’ble ADDL/JCIT(A) erred in confirming the addition of Rs. 57,89,046/- by construing it as Inter Charity Donation.

2. The Hon’ble ADDL/JCIT(A) erred in failing to correctly appreciate the fact that as the money has been actually spent on different projects under the control and supervision of the Appellant and that too during the year itself, there is no rolling over of exemption through inter charity transfer and hence, question of multiple accumulation, the mischief sought to be remedied does not arise in the case

3. The Hon’ble ADDL/JCIT(A) further failed to appreciate that in the Appellant’s case, as the QCI (set up jointly by government of India with ASSOCHAM, CII, and FICCI) and TERI, etc. are only executing the projects of the Appellant, the fact that they are registered u/s 12AA of the Act is not relevant and accordingly question of violation of Provisions of Section 11(2) r.w.s 11(3)(d) of the Act does not arise.

4. The Hon’ble ADDL/JCIT(A) further erred in ignoring the submission of the Appellant that, in the Appellant own case for A.Y. 2018/19, in the course of scrutiny assessment under e-assessment scheme on the similar issue of accumulation of the Income by the Appellant and its utilization, after considering similar submissions by the Appellant, the Order has been passed u/s 143(3) of the Act assessing the Total Income as per Returned Income and no addition has been made by the Assessing Officer.

5. The Appellant prays that the addition u/s 11(2) by applying section 11(3)(d) to the expenses of Rs. 57,89,046/- being expenses incurred on various projects be deleted.

GROUND NO. IV: INTEREST U/S. 234A AND 234B OF THE ACT:

1. On the facts and in the circumstances of the case in law, the Hon’ble

ADDL/JCIT(A) erred in confirming the charging of interest u/s. 234A and 234B of the Act amounting to Rs. 6,90,750/-

2. The Appellant prays that the interest charged u/s 234A and 234B of the Act be deleted.

GROUND NO. V: GENERAL:

The Appellant craves leaves to add to, alter, amend and / or delete all or any of the above grounds of appeal.

3. The brief facts of the case are that the assessee, a charitable trust registered under section 12A of the Income-tax Act (“the Act”), filed its return of income for A.Y. 2013-14 declaring nil income and claiming exemption under sections 11 and 12 of the Act. The assessment was initially completed under section 143(3) of the Act, wherein the Assessing Officer examined the utilisation of funds accumulated by the trust under section 11(2) of the Act. During the assessment proceedings, the Assessing Officer observed that the assessee had utilised a sum of ₹6,00,000 out of the accumulated funds by making payments to other charitable institutions registered under section 12AA of the Act. The Assessing Officer, by invoking Explanation to section 11(2) of the Act, held that any amount paid or credited out of accumulated income to another trust registered under section 12AA of the Act cannot be treated as application of income and consequently added back the said amount while completing the assessment.

4. Subsequently, on verification of the records, the Assessing Officer observed that apart from the amount already disallowed in the assessment order, the assessee had also made further payments aggregating to ₹57,89,046 to institutions such as TERI and Quality Council of India, which were likewise registered under section 12AA of the Act. According to the Assessing Officer, these payments had escaped consideration during the original assessment despite being hit by the same statutory prohibition contained in section 11(2) read with section 11(3)(d) of the Act. The Assessing Officer therefore formed a view that there existed a mistake apparent from the record resulting in under-assessment of income and accordingly, the Assessing Officer initiated rectification proceedings under section 154 of the Act. After issuing notice and granting an opportunity of hearing, the Assessing Officer observed that no substantive explanation had been furnished by the assessee and consequently passed a rectification order under section 154 of the Act treating the amount of ₹57,89,046 as deemed income under section 11(3)(d) of the Act. The Assessing Officer enhanced the assessed income to ₹63,89,046 comprising the original addition of ₹6,00,000 made in the assessment proceedings and the further addition of ₹57,89,046 made in rectification proceedings u/s 154 of the Act. The reasoning of the Assessing Officer was that once income accumulated under section 11(2) of the Act is paid or credited to another trust registered under section 12AA of the Act, the Statute itself deems such amount to be taxable income of the donor trust and no further enquiry regarding the nature or purpose of such payment is required.

5. Aggrieved by the rectification order, the assessee preferred an appeal before the CIT(Appeals). The principal challenge raised by the assessee was twofold. Firstly, it was contended that the issue involved interpretation of sections 11(2) and 11(3)(d) of the Act and was therefore a debatable issue incapable of being rectified under section 154 of the Act, which is confined only to obvious and patent mistakes apparent from the record. Secondly, on merits, the assessee submitted that the payments made to TERI and Quality Council of India were not donations or inter-charity transfers but were in fact expenditure incurred for execution of projects and implementation of the charitable objects of the trust. According to the assessee, the recipient institutions had acted as implementing agencies and the payments constituted genuine expenditure incurred in furtherance of the trust’s charitable activities. The assessee therefore submitted that the statutory mischief sought to be addressed by section 11(3)(d) of the Act was diversion of accumulated funds through inter-charity donations and not bona fide expenditure incurred through another charitable institution for carrying out approved charitable programmes. The assessee therefore tried to draw a distinction between a donation to another trust and expenditure incurred through another trust for execution of charitable activities.

6. The CIT(Appeals), however, rejected the contentions of the assessee both on the issue of rectification as well as on merits. From a legal perspective, the CIT(Appeals) undertook an analysis of the scheme of section 11(2), the Explanation thereto and section 11(3)(d) of the Act. The CIT(Appeals) observed that the legislative framework governing accumulation of income by charitable trusts is based upon a conditional exemption. While a trust is permitted to accumulate income for specified charitable purposes under section 11(2) of the Act, such accumulated income must be applied by the very trust which accumulated it. The CIT(Appeals) held that the Explanation to section 11(2) of the Act specifically prohibits utilisation of accumulated funds through payments to another trust registered under section 12AA. Further, section 11(3)(d) of the Act creates a deeming fiction whereby any amount out of accumulated income that is paid or credited to another charitable institution automatically loses its exempt character and becomes taxable as income of the donor trust in the year of payment. According to the CIT(Appeals), the language employed by the legislature is unambiguous since it uses the broad expression “paid or credited” and not merely “donated”. Therefore, the Statute does not permit any distinction based on the nomenclature of the payment or the purpose for which it is made. The CIT(Appeals) held that once the recipient is another institution registered under section 12AA of the Act and the source of payment is accumulated income under section 11(2) of the Act, the deeming provisions are automatically attracted. While dealing with the assessee’s argument that the payments were in relation to project expenditure rather than donations, the CIT(Appeals) held that such distinction was not supported by the Statutory language. The CIT(Appeals) observed that if Parliament intended to carve out an exception in respect of payments made for project execution, consultancy services or implementation of charitable programmes through another trust, it would have expressly incorporated such exception in the statute. In the absence of any such qualification, the words “paid or credited” were required to be given their plain and ordinary meaning. The CIT(Appeals) further held that the object behind insertion of the Explanation to section 11(2) and section 11(3)(d) was to prevent the phenomenon of “rolling over” or “parking” of accumulated charitable funds. According to the CIT(Appeals), if one trust were permitted to discharge its obligation under section 11(2) of the Act by merely transferring accumulated funds to another tax-exempt institution, the recipient trust could in turn accumulate such funds again and the legislative scheme regulating accumulation and utilisation of charitable income would become ineffective. The CIT(Appeals) therefore held that the prohibition under section 11(3)(d) of the Act is triggered by the character of the recipient institution and the source of funds utilised rather than by the underlying purpose of the payment. Since TERI and Quality Council of India were admittedly institutions registered under section 12AA of the Act and the payments were made out of accumulated income, the conditions prescribed under section 11(3)(d) stood fully satisfied.

7. On the issue of validity of rectification under section 154 of the Act, the CIT(Appeals) held that there was no debatable question requiring elaborate investigation. According to the CIT(Appeals), the assessment records themselves clearly disclosed that the payments were made out of accumulated funds and that the recipients were institutions registered under section 12AA of the Act. Since the statutory consequence flowing from such payments was specifically provided under section 11(3)(d) of the Act, the omission to bring the amount of ₹57,89,046 to tax during the original assessment constituted a clear mistake apparent from the record. The CIT(Appeals) therefore upheld the action of the Assessing Officer in invoking section 154 and held that the rectification proceedings had been initiated validly.

8. The CIT(Appeals) held that the assessee had violated the conditions governing utilisation of accumulated income under section 11(2) of the Act, that the payments made to TERI and Quality Council of India were squarely covered by section 11(3)(d) of the Act, and that the Assessing Officer was justified in treating ₹57,89,046 as taxable income of the year.

9. The assessee is in appeal before us against the order passed by CIT(Appeals) dismissing the appeal of the assessee.

10. Before us, the Counsel for the assessee submitted that the very foundation of the impugned rectification proceedings under section 154 of the Act is misconceived inasmuch as the issue sought to be rectified had already been examined by the Assessing Officer during the course of the original assessment proceedings under section 143(3) of the Act. The Counsel for the assessee submitted that while framing the original assessment, the Assessing Officer had called for complete details regarding utilization of accumulated funds and, after examining the nature of the payments made to TERI and Quality Council of India, had consciously formed a view that such payments were the expenditure incurred for carrying out the charitable activities of the assessee and did not fall within the ambit of section 11(3)(d) of the Act. According to the Counsel, what has been sought to be done through the rectification order is merely a change of opinion on the very same set of facts, which is impermissible within the limited scope of section 154 of the Act. The Counsel for the assessee took us through various documents placed in the Paper Book, including pages 57, 131, 134 and other relevant pages, to demonstrate that the payments made to TERI and Quality Council of India were not in the nature of donations, grants or general financial assistance to another charitable institution but were payments made against specific assignments entrusted to such organizations. It was submitted that the assessee, having regard to the specialized nature of the projects undertaken by it, did not possess the requisite technical expertise and infrastructure to carry out the activities on its own and, therefore, engaged reputed institutions such as TERI and Quality Council of India as implementing agencies. The Counsel pointed out that TERI had issued invoice upon completion of the assigned work, that tax had been deducted at source on such payments, and that the relationship between the assessee and the recipient organizations was that of a service recipient and service provider rather than that of a donor and donee. It was further submitted that the work undertaken by the recipient organizations was carried out strictly in accordance with the directions, requirements and specifications prescribed by the assessee trust and that the resultant outputs belonged to the assessee and were intended to further its own charitable objects. The Counsel further submitted that the payments were earmarked for specific and purposes and were not general charitable contributions placed at the disposal of the recipient organizations for utilization at their discretion. According to the Counsel, the assessee retained complete control over the utilization of funds, monitored the progress of the work and ensured that the amounts were spent only for the designated purposes. It was submitted that the recipient organizations had no liberty to deploy the funds in any manner they deemed fit and were required to utilize the same strictly in accordance with the terms and conditions prescribed by the assessee. Thus, the payments did not have the characteristics of a donation or inter-charitable organization transfer and were, in substance, expenditure incurred by the assessee through specialized agencies for implementation of its charitable programmes. The Counsel submitted that section 11(3)(d) of the Act was introduced to curb the mischief of rolling over or parking accumulated funds by one charitable institution with another charitable institution, thereby enabling indefinite retention of exempt income without actual application towards charitable purposes. The Counsel for the assessee submitted that the legislative intent behind the provision was to prohibit mere transfer of accumulated funds from one charitable organization to another and not to disallow genuine expenditure incurred for execution of charitable projects through expert agencies. In the present case, there was no rolling over or parking of funds, as the amounts paid to TERI and Quality Council of India stood fully utilized for the specific purposes for which they were released. The funds were not retained by the recipient organizations as part of their corpus or accumulated income but were spent for carrying out the designated assignments entrusted by the assessee. Therefore, according to the Counsel, the mischief sought to be addressed by section 11(3)(d) was completely absent on the facts of the case. It was thus contended that at the very least the issue involved a highly debatable question as to whether the impugned payments constituted inter-charitable organization transfers attracting section 11(3)(d) of the Act or were expenditure incurred by the assessee for carrying out its “own” charitable activities through specialized agencies. Such determination necessarily required examination of agreements, invoices, nature of services rendered, ownership of output and manner of utilization of funds. Consequently, the issue could not by any stretch be regarded as a mistake apparent from the record amenable to rectification under section 154 of the Act. The Counsel therefore submitted that the rectification order passed by the Assessing Officer and sustained by the CIT(Appeals) deserves to be quashed both on jurisdictional grounds as well as on merits.

11. In response, the Ld. DR placed reliance on the observations made by the Assessing Officer and Ld. CIT(Appeals) in their respective orders. The Ld. DR submitted that the such interpretation militates against the plain language of Statute which prohibits such donations to other trusts and therefore there is no infirmity in the order of Ld. CIT (Appeals) so as to call for any interference.

12. We have heard the rival contentions and perused the material available on record. The assessee has challenged the order of the Ld. CIT(Appeals) confirming the rectification order passed under section 154 of the Act whereby a sum of ₹57,89,046 paid out of income accumulated under section 11(2) of the Act to institutions registered under section 12AA of the Act, namely TERI and Quality Council of India, has been treated as income of the assessee under section 11(3)(d) of the Act.

13. Ground No. I relates to the violation of principles of natural justice by CIT(Appeals) on account of non-grant of personal hearing through video conferencing. From the material available on record, it is evident that notices were issued during the appellate proceedings and detailed written submissions were filed by the assessee which have been extensively reproduced and dealt with by the CIT(Appeals). The assessee has not been able to demonstrate any specific prejudice caused on account of non-grant of video conference hearing or point out any material which could not be brought on record before the appellate authority. It is a settled proposition that unless prejudice is established, a mere procedural irregularity would not render the proceedings void. In the facts of the present case, we are satisfied that adequate opportunity was granted and the assessee’s contentions were duly considered. Accordingly, Ground No. I is dismissed.

14. According to the assessee, the Assessing Officer had consciously examined the issue during the original assessment proceedings and therefore the subsequent rectification amounts to an impermissible review of the assessment order. We are however unable to accept this contention.

15. The assessment records shows that while framing the original assessment, the Assessing Officer had already invoked the provisions relating to accumulation under section 11(2) of the Act and disallowed a sum of ₹6,00,000 on account of transfer of accumulated funds to another charitable institution. Subsequently, the Assessing Officer observed from the very same assessment records that additional payments amounting to ₹57,89,046 had also been made out of accumulated funds to institutions registered under section 12AA of the Act but had escaped consideration in the assessment order. Thus, the rectification proceedings were not initiated on the basis of any fresh investigation or subsequent material but on the basis of admitted facts already available on record.

16. The crucial question is whether application of section 11(3)(d) of the Act to these admitted facts gives rise to a debatable issue. In our considered opinion, it does not. The Statutory scheme governing charitable accumulations leaves little scope for ambiguity. Section 11(1) of the Act grants exemption in respect of income applied for charitable purposes. Section 11(2) of the Act creates a limited exception permitting accumulation of income beyond the prescribed limits, subject to fulfillment of stringent Statutory conditions. Such accumulation is a conditional benefit and not an unrestricted exemption.

17. This legislative intent is reflected in the Explanation to section 11(2) and section 11(3)(d) of the Act. Section 11(3)(d), as applicable to the year under consideration, specifically provides that where any income referred to in section 11(2) of the Act is paid or credited to any trust or institution registered under section 12AA or covered under section 10(23C), such amount shall be deemed to be the income of the transferor trust in the year in which it is so paid or credited. The language employed by Parliament is explicit and unqualified. Notably, the Legislature has used the words “paid or credited” and not “donated”, “contributed”, “granted” or any other restrictive expression. Therefore, once the accumulated income is transferred to another institution enjoying charitable registration, the deeming fiction becomes automatically operative.

18. The Statute does not confer any discretion upon the Assessing Officer to examine whether such payment was made as donation, grant, project expenditure, consultancy charges, research fees, implementation cost or under any other nomenclature. The provision is recipient-centric and not purposecentric. The only facts required to attract section 11(3)(d) are whether the source of funds is accumulation under section 11(2) of the Act and the recipient is another institution registered under section 12AA of the Act. Once these jurisdictional facts exist, the Assessing Officer has no authority to carve out exceptions based upon the nature of services rendered, the existence of invoices, the intended utilization of funds or the control exercised by the transferor trust over the project.

19. The Hon’ble Supreme Court in CIT v. Tara Agencies 292 ITR 444 (SC) (On a clear construction and interpretation of section 35B(1A), the assessee’s activity amounted to ‘processing’ only and the same did not amount to either ‘production’ or ‘manufacture’. The term ‘processing’ has not been included in section 35B(1A), therefore, the assessee was not entitled to weighted deduction under section 35B(1A) and Commissioner of Customs v. Dilip Kumar & Co. 69 GST 239/361 ELT 577 (SC), wherein it was held that where Statutory language is plain and unambiguous, courts must give effect to the legislative mandate and cannot create exceptions on equitable considerations. Therefore, the distinction sought to be introduced by the assessee between donations and project expenditure is not borne out from the language of section 11(3)(d) of the Act.

20. The assessee has argued that TERI and Quality Council of India acted merely as implementing agencies and rendered services against consideration. However, acceptance of such an interpretation would substantially defeat the object behind the statutory provision. If transfers of accumulated funds could escape section 11(3)(d) of the Act merely because they are routed through project agreements, consultancy contracts, research assignments or implementation arrangements, then charitable institution would be enabled to transfer accumulated income to another exempt institution while avoiding the consequences contemplated by the Act. The recipient institution could issue invoices, prepare reports, designate itself as an implementing agency and yet retain the funds within the charitable sector. Such an interpretation could enable perpetual circulation of accumulated income amongst charitable institutions and render section 11(3)(d) virtually redundant.

21. The legislative history itself demonstrates that the intention has been to prohibit precisely such indirect transfers of accumulated income. Prior to the amendments, charitable institutions were claiming application of income by transferring funds to other charitable institutions. The statutory framework was altered to ensure that the trust obtaining the benefit of accumulation must itself utilize such income. The interpretation canvassed by the assessee would effectively restore the position which was consciously intended to be eliminated.

22. We therefore find that no debatable issue arises on the admitted facts of the present case. The omission to apply section 11(3)(d) to the amount of ₹57,89,046 constituted a mistake apparent from the record and was therefore rectifiable under section 154 of the Act.

Ground No. III relates to the addition of ₹57,89,046 by invoking section 11(3)(d) of the Act. (Merits of the case)

23. The assessee has contended that the payments were relates project expenditure incurred under its control and supervision and therefore cannot be regarded as inter-charitable organization donations.

24. We are unable to agree with the above contention of the Counsel for the assessee. The statutory scheme of sections 11(2) and 11(3)(d) leaves no scope for the distinction sought to be drawn by the assessee. Parliament has deliberately adopted a broad formulation by employing the expression “paid or credited”. The Legislature has not provided that the provision will apply only where the transfer takes the form of a donation. Nor has it provided that the provision will cease to operate where the recipient institution utilizes the funds for a specified purpose, acts under the supervision of the donor trust, raises invoices or provides reports and deliverables. The Tribunal cannot introduce into the Statute qualifications which Parliament has consciously omitted.

25. The learned Counsel for the assessee made detailed and persuasive submissions before us that the funds were not available for unrestricted use by the recipient institutions and were earmarked for specific projects. In our view, such considerations are legally irrelevant for the purposes of section 11(3)(d) of the Act. The Legislature has not made the actual utilization of funds by the recipient institution a determinative factor. The statutory trigger is the act of payment or crediting of accumulated income to another institution enjoying charitable registration. Once that event occurs, the deeming provision comes into operation irrespective of the purpose, modality or contractual structure of the transfer.

26. We also find considerable force in the reasoning adopted by the CIT(Appeals) that acceptance of the assessee’s interpretation would facilitate abuse, avoidance and subversion of the legislative framework through artificial arrangements. Every transfer of accumulated income could then be disguised as project expenditure, research fees, consultancy charges, implementation costs or programme management expenses. The recipient trust could continue to enjoy exemption while the transferor trust simultaneously claims compliance with section 11(2). Such an interpretation would defeat the object of the Act and permit indirectly what the Statute expressly prohibits directly.

27. The principles enunciated by the Hon’ble Supreme Court in the case of Mc Dowell & Co. Ltd. v. CTO 154 ITR 148 (SC), CIT v. Durga Prasad More [1971] 82 ITR 540 (SC) and Sumati Dayal v. CIT 214 ITR 801 (SC) support the proposition that statutory provisions must be interpreted in a manner which advances the legislative object and prevents avoidance through legal form or artificial structuring. The interpretation suggested by the assessee would enable accumulated funds to be routed through other exempt entities while formally avoiding the prohibition contained in section 11(3)(d) of the Act, thereby frustrating the very purpose of the provision.

28. An equally important aspect which, in our considered view, goes to the root of the controversy is the fundamental distinction maintained by the Legislature between application of income under section 11(1)(a) of the Act and utilization of accumulated income under section 11(2) of the Act. Section 11(1)(a) of the Act deals with income derived during the year and applied towards charitable purposes during the same year. Under the judicial precedents governing section 11(1)(a) of the Act, contributions made by one charitable institution to another charitable institution have, in certain circumstances, been recognized as constituting valid application of income. However, Parliament consciously adopted a materially different statutory framework in relation to income accumulated under section 11(2) of the Act. Unlike section 11(1)(a), section 11(2) of the Act grants a special concession whereby a trust is permitted to defer application of income beyond the relevant year, notwithstanding the general requirement of immediate application. Since accumulation under section 11(2) is a departure from the normal rule contained in section 11(1)(a), The Act has imposed stricter safeguards governing the subsequent utilization of such accumulated income. It is precisely for this reason that section 11(3)(d) of the Act was enacted. While section 11(1)(a) is concerned with the concept of “application” of current income, section 11(3)(d) regulates the manner in which income accumulated under section 11(2) of the Act can thereafter be utilized. The legislative focus under section 11(3)(d) of the Act is not whether the recipient institution applies the funds for charitable purposes, but whether the trust which enjoyed the statutory benefit of accumulation has transferred such accumulated income to another exempt institution. Therefore, the Legislature has consciously treated accumulated income under section 11(2) of the Act differently from current income governed by section 11(1)(a) of the Act. The very object of section 11(3)(d) of the Act is to ensure that a trust which obtains the benefit of accumulation does not discharge its statutory obligation by merely routing the accumulated funds through another charitable institution enjoying exemption.

29. Viewed in this context, the assessee’s argument effectively seeks to import principles applicable to section 11(1)(a) into a field specifically governed by section 11(2) and section 11(3)(d). Such an approach would blur a distinction consciously drawn by the Act. If transfers of accumulated income to another charitable institution were to be permitted on the ground that the recipient institution undertakes charitable activities, renders services, raises invoices or executes projects on behalf of the transferor trust, the special restrictions enacted under section 11(3)(d) would become largely redundant. Parliament was aware that charitable institutions may interact through grants, projects, research assignments, consultancy arrangements and implementation contracts; nevertheless, while enacting section 11(3)(d), it chose to employ the broad expression “paid or credited” to another institution registered under section 12AA. The provision thus evidences a clear legislative intent that what may be permissible as application of income under section 11(1)(a) is not necessarily permissible once such income enters the special regime of accumulation under section 11(2). The distinction is deliberate, substantive and forms the very basis of the statutory prohibition contained in section 11(3)(d).

30. With regard to the contentions of the learned Counsel for the assessee that section 11(3)(d) of the Act restricts a transfer of accumulated income to another charitable institution and would not apply where the recipient institution merely acts as an implementing agency for execution of the very purpose for which accumulation was permitted, and that the same is not a transfer of accumulated funds contemplated by section 11(3)(d) of the Act, we are unable to accept the aforesaid contention. In our considered view, the distinction sought to be drawn between a “transfer” of accumulated income and “expenditure” incurred through an implementing agency finds no support in the language employed in section 11(3)(d) of the Act. Section 11(3)(d) of the Act does not restrict its operation to donations, grants or voluntary contributions but uses the wider expression “paid or credited” to any trust or institution registered under section 12AA of the Act. The provision therefore does not make the applicability of the deeming fiction dependent upon the nomenclature, contractual form or characterization of the payment. Once accumulated income stands paid or credited to another institution enjoying charitable exemption, the statutory consequence follows. The Legislature has not carved out any exception where the recipient institution acts as a consultant, research partner, project executor or implementing agency, nor has it made the retention of supervision or control by the transferor trust a relevant consideration. Acceptance of the assessee’s interpretation would require the Tribunal to read into the provision qualifications which are conspicuously absent and would make the applicability of section 11(3)(d) dependent upon the manner in which parties choose to structure their arrangements. Such an interpretation would dilute the plain language of the provision and undermine the legislative objective underlying the restrictions governing utilization of accumulated income under section 11(2) of the Act. Accordingly, we are unable to accept the contention that the impugned payments fall outside the ambit of section 11(3)(d) merely because the recipient institutions are described as implementing agencies or because the payments are characterized as project expenditure.

31. The above view taken by us is also supported by the decision of the Punjab & Haryana High Court in the case of Maharaja Ranjit Singh War Museum Society, Ludhiana v. CIT  (Punjab & Haryana). In that case, the High Court was concerned with the tax consequences arising from the transfer of accumulated income by one charitable trust to another trust. The Court held that once income has been accumulated under section 11(2) of the Act, such accumulation remains subject to the conditions prescribed by the statute and any utilization thereof has to be tested in the light of sections 11(2) and 11(3) of the Act. The High Court held that, after the insertion of section 11(3)(d) of the Act, payment or credit of accumulated funds to another trust constitutes a deemed application which is contravention to the permitted mode of utilization and therefore attracts the deeming fiction contained in section 11(3) of the Act. The decision thus recognizes that accumulated income under section 11(2) of the Act stands on a different footing from income applied under section 11(1)(a) and a transfer of accumulated funds to another trust cannot be treated as a utilization permissible under Law merely because the recipient is also engaged in charitable activities. This reasoning directly supports the view taken by us that the controversy must be examined within the specific statutory framework governing accumulation and not on the broader concept of charitable application of income. The High Court also considered the reliance placed on the earlier decision in the case of CIT v. M.CT. Muthiah Chettiar Family Trust [2000] 245 ITR 400 (Madras) and distinguished the same. The High Court held that the decision in the case of Muthiah Chettiar (supra) was rendered in the context of the law as it stood prior to the legislative amendments introducing the specific consequences now embodied in section 11(3)(d) of the Act. At the time when Muthiah Chettiar (supra) was decided, the statute did not contain the present deeming provision treating transfer of accumulated funds to another trust as a violation attracting taxation of such accumulation. The High Court therefore held that the ratio of Muthiah Chettiar (supra) could not govern cases arising under the amended statutory regime where Parliament has expressly provided for the treatment of accumulated income transferred to another trust. Thus, the distinction drawn by the High Court makes it clear that decisions rendered under the pre-amended law cannot override the clear legislative mandate introduced subsequently.

31.1 Accordingly, we hold that the CIT(Appeals) was justified in confirming the addition of ₹57,89,046 under section 11(3)(d) of the Act. Ground No. III is dismissed.

32. Ground No. IV relates to levy of interest under sections 234A and 234B of the Act. The levy of interest under the aforesaid provisions is mandatory and consequential in nature. The Assessing Officer shall re-compute the same, if required, while giving effect to this order. Accordingly, this ground is dismissed.

33. Ground No. V being general in nature does not call for any separate adjudication.

34. In the result, the appeal filed by the assessee is dismissed.

35. Assessee has raised the following grounds of appeal:

GROUND NO. II: INVOKING AND RECTIFYING ORDER U/S 154 BASED ON AUDIT OBJECTION

In any case, the question whether section 11(3)(d) applied only to payments by way of donation and not to the bearing of part expenses of an identified project was an issue on which two views were possible, and as the original assessment order had for valid reasons adopted one view adopting a different view was not permissible on the basis

that the change in view was a mere rectification of a mistake apparent from the record.

3. The Appellant prays that the Order u/s 154 of the Act confirmed by the Hon’ble ADDL/JCIT(A) be held to be without jurisdiction and/or contrary to the rules of natural justice and/or is bad in Law and consequently/otherwise be cancelled.

GROUND NO. III: ADDITION OF Rs. 37,43,575/- U/S 11(2) OF THE ACT

3. The Appellant prays that the addition by applying section 11(3)(d) to the expenses of Rs. 37,43,575/- being expenses incurred on various projects be deleted.

1. The Hon’ble ADDL/JCIT(A) erred in confirming the computation of the tax liability of the Appellant by applying Maximum Marginal Rate(‘MMR’) instead of the normal slab rates which is applicable to a trust registered u/s 12AA of the Act.

2. The Hon’ble ADDL/JCIT (A) erred in law and on facts in failing to appreciate that:

(a) section 164(2) of the Income-tax Act, 1961 provides that where income is derived from property held under trust wholly for charitable or religious purposes, tax shall be charged only on such portion of the relevant income as is not exempt under sections 11 and 12, and such non-exempt income is to be assessed as the income of an Association of Persons (AOP) and accordingly, the said income is chargeable to tax at the normal slab rates applicable to an AOP, and not at the Maximum Marginal Rate (MMR).; and

The proviso to section 164(2) clearly stipulates that tax at MMR is applicable only in cases where the exemption of the trust is denied under section 13 and is not applicable to income charged to tax u/s 11(3)(d).

3. The Appellant prays that it be held that the tax liability of the Appellant is to be computed as per slab rates and consequentially or otherwise, the differential demand arrived at by applying MMR be deleted.

1. On the facts and in the circumstances of the case in law, the Hon’ble ADDL/JCIT(A) erred in confirming of charging of interest u/s. 234D of the Act amounting to Rs. 77,470/-.

2. The Appellant prays that the interest charged u/s 234D of the Act be deleted.

1. On the facts and in the circumstances of the case in law, the Hon’ble ADDL/JCIT(A) erred in confirming the charging of interest u/s. 234B and 234C of the Act amounting to Rs. 1,39,234/-

2. The Appellant prays that the interest charged u/s 234B and 234C of the Act be deleted.

The Appellant craves leaves to add to, alter, amend and / or delete all or any of the above grounds of appeal.

36. As the facts in this appeal are identical to ITA No. 08/Mum/2026 for the A.Y 2013-14 (except variance in figures), the decision rendered in above paragraphs would apply mutatis mutandis for this appeal as well. Accordingly, the grounds of appeal of the present appeal also stand dismissed.

37. In the result, both the appeals filed by the assessee are dismissed.