Accumulation under Section 11(2) is permissible for specific revenue purposes aligned with trust objects.

By | August 5, 2026
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Accumulation under Section 11(2) is permissible for specific revenue purposes aligned with trust objects.

Issue

Whether accumulation of income under Section 11(2) of the Income-tax Act, 1961 is restricted only to capital expenditure/long-term projects, or if it can also be allowed for specific revenue purposes that align with the objects of the trust.

Facts

  • The assessee-trust, registered under Section 12A, was engaged in the construction and maintenance of churches as well as running educational institutions.

  • For Assessment Year 2018-19, the assessee claimed exemption under Section 11 and accumulated income under Section 11(2) for specific purposes, including the maintenance of priests, preachers, and religious functionaries.

  • The Assessing Officer (AO) rejected the claim for accumulation under Section 11(2) regarding the maintenance of priests/preachers/religious functionaries.

  • The AO reasoned that the stated purpose was general in nature and meant for routine operational expenses, such as the payment of salaries.

  • Additionally, protective additions were made by the AO in respect of income accumulation for Assessment Years 2014-15, 2016-17, and 2017-18.

Decision

  • The Court/Tribunal held that accumulation of income under Section 11(2) is not restricted solely to capital expenditure or long-term infrastructure projects.

  • Income can validly be accumulated under Section 11(2) even for revenue purposes, provided the purpose is specific and aligns with the stated objects of the trust.

  • Since the maintenance of priests, preachers, and religious functionaries directly accorded with the primary objectives for which the society was established, the AO was directed to allow the accumulation under Section 11(2).

  • Consequently, the protective additions made by the AO regarding accumulation of income for AYs 2014-15, 2016-17, and 2017-18 were ordered to be deleted in favor of the assessee.

Key Takeaways

  • Scope of Section 11(2) Accumulation: Section 11(2) does not mandate that accumulated funds must only be deployed for capital asset creation; revenue expenditure is equally eligible.

  • Requirement of Specific Purpose: To qualify for accumulation, the intended application of funds must be specific and strictly in furtherance of the trust’s constitutional objectives.

  • Routine Operational Objectives Included: Accumulation for recurring operational costs (such as maintaining religious functionaries or operational staff essential to the trust’s core activities) is legally valid if specified in Form No. 10.

IN THE ITAT HYDERABAD BENCH ‘B’
Medak Catholic Mission
v.
Income-tax Officer
VIJAY PAL RAO, Vice President
and MANJUNATHA. G, Accountant Member
IT Appeal No.1234 (Hyd) of 2025
[Assessment year 2018-19]
JULY  15, 2026
E.S. Ranganath, CA for the Appellant. K. Prasad, Sr. AR for the Respondent.
ORDER
Manjunatha.G, Accountant Member.- This appeal filed by the assessee is directed against the order of the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi, dated 30.05.2025, and pertains to assessment year 2018-19.
2. The assessee has raised the following grounds of appeal:
1) CIT(A) Order and Assessment Order to the extent against the Appellant OR contrary to the law and facts of the case.
2) The Ld. CIT(A) while on the issue on religious activity as object restricted the finding on the accumulation for the maintenance of preachers / priests lacks specificity, definiteness and concreteness as required under Section 11(2) of IT Act as the stated purpose resemble routine operation expenditure akin to salary payment and no finding to the effect that the above said nature of payment is covered under religious activity.
3) The Ld. CIT(A) erred in observing on set off of past accumulation for AY 2014-15, 2015-16 and 2016-17 amounting to Rs.77,23,254/- that the appellant failed to demonstrate that the accumulated funds were utilized within the prescribed five-year period OR had valid approval and documentation under Rule 17 and also the appellant did not substantiate whether Form 10 was filed appropriately in those years Ignoring the fact that the appellant claimed set off for AY 2014-15 only and the Assessing Officer without providing any reason added accumulation made in AY 2016-17 and 2017-18 WHARE no set off claimed in the present assessment year.
4) The Ld. CIT(A) was silent on the issue whether maintenance of preachers / priests / religious functionaries is of religious nature under covered in the objects to carry on religious activity provided at clause 4 of object clause of the Memorandum of Association.
5) The Ld. CIT(A) erred in observing no violation of natural justice is established when assessment is completed and assessment order issued without considering the request for time by the appellant well within the proceedings limitation time.
6) The Ld. CIT(A) erred in observing that reliance on the principle of consistency is misplaced WHARE the facts differ OR WHARE earlier orders were not subject to scrutiny on the same issue as each assessment is a separate proceeding, as the appellant gave instances of earlier assessments with respect to accumulation relating to maintenance of preachers / priests / religious functionaries.
7) The Ld. CIT(A) erred in confirming the addition made in the assessment order by the assessing officer of Rs.1,07,23,250.
8) Appellant prays also to consider the grounds raised before CIT(A) on the assessment proceedings which are to be read along with above grounds made.
9) Appellant prays to add, alter, modify, delete any of the grounds of appeal before hearing of the Appeal.
3. The brief facts of the case are that the assessee, Medak Catholic Mission is a Charitable & Religious Trust, registered u/s.12A of the Income Tax Act, 1961 (in short “the Act”) is engaged in carrying out various Charitable & Religious activities as stated in the Trust Deed which includes construction & maintenance of Churches, running Educational Institutions including Schools and to support and promote the advancement of educational cause. The assessee has filed its Return of Income (RoI) for AY 2018-19 on 21.09.2018 declaring ‘NIL’ income after claiming exemption u/s.11 of the Act. The assessee had also filed Form No.10 and has accumulated unspent income of Rs.1,51,01,831/- u/s.11(2) of the Act for the purpose of maintenance of priests/preachers/religious functionaries, construction of buildings and construction/maintenance of places of worship. The case was selected for scrutiny and during the course of assessement proceedings, the AO noticed that the assessee has accumulated income u/s.11(2) of the Act for general purposes without any specific purpose as required u/s.11(2) of the Act and therefore, called upon the assessee to file its objections, if any, for disallowance of accumulation of income u/s.11(2) of the Act. In response, the assessee submitted that accumulated income u/s.11(2) of the Act is for the achievement of its main objects which includes maintenance of priests/preachers/religious functionaries.
4. The AO after considering relevant submissions of the assessee and also taken note of main object of the assessee Trust which are reproduced in Para No.5 of the AO’s order observed that the purpose of accumulation is general not specific and doesn’t undertake to set-apart to accomplish concrete definite purpose. Unspent money has been earmarked for an explicit purpose. Hence, the claim of exemption u/s.11(2) of the Act can’t be allowed. The AO further observed that without prejudice if you look into the objects for which the Trust was formed which has been stated in Para No.5, it can be seen that maintenance of priests/preachers/religious functionaries is not their objectives. Therefore, observed that income has been accumulated u/s.11(2) of the Act for routine purpose of payment of salaries and other allowances to teachers of a Charitable Institution whose object is to impart education. Therefore, rejected accumulation of income u/s.11(2) of the Act for the purpose of maintenance of priests/preachers/religious functionaries to the extent of Rs.30 lakhs and allowed exemption claimed u/s.11(2) of the Act for balance amount of Rs.1,21,01,831/-.
5. The AO further noted that the assessee has accumulated income u/s.11(2) of the Act for similar purpose of maintenance of priests/preachers/religious functionaries for AY 2014-15 onwards and out of income accumulated for AY 2014-15, the assessee has spent an amount of Rs.14,55,862/- for the year under consideration towards objects of the Trust. Since accumulation of income towards maintenance of priests/preachers/religious functionaries has not been considered as for the specific purpose as required u/s.11(2) of the Act, the AO has made protective addition of Rs.20 lakhs towards accumulated income for AY 2014-15 and spent for the assessement year under consideration. Similarly, the AO had also made protective assessement of income accumulated u/s.11(2) of the Act for AY 2016-17 for Rs.37,23,254/- and for AY 2017-18 for Rs.20 lakhs. Thus, the AO has re-computed the total income of the assessee by allowing application of income u/s.11(1)(a) of the Act and also accumulation of income u/s.11(2) of the Act for Rs.1,21,01,831/-. The balance amount of Rs.50 lakhs has been treated as income of the assessee. Further, the AO had also made addition of Rs.37,23,254/- towards accumulated income for AYs 2016-17 & 2017-18 on protective basis. Thus, the AO has determined total income of the assessee at Rs.1,07,23,250/-.
6. Aggrieved by the assessement order, the assessee preferred an appeal before the Ld.CIT(A). Before the Ld.CIT(A), the assessee has filed detailed written submissions on this issue which has been reproduced at Para No.4.2 on Page Nos.4 to 13 of the Ld.CIT(A)’s order. The sum and substance of the arguments of the assessee before the Ld.CIT(A) are that income accumulated u/s.11(2) of the Act is for the objects of the Trust being construction & maintenance of Churches and places of worship which includes maintenance of priests/preachers/religious functionaries. The assessee further submitted that as per the provisions of Sec.11(2) of the Act, there is no specific bar on accumulation of income for revenue purposes, if such accumulation is for the purpose of achievement of objects of the Trust. The Ld.CIT(A) after considering the relevant submissions of the assessee and also taken note of the decision of the Hon’ble Madhya Pradesh High Court in the case of CIT v. Hotel & Restaurant Association 261 ITR 190 (Delhi) and also the decision of the Hon’ble Supreme Court in the case of CIT v. Nagpur Hotel Owners Association 247 ITR 201 (SC) held that accumulation u/s.11(2) of the Act must be for a definite purpose linked to capital expenditure or long term projects but not for routine payments. Therefore, rejected the explanation of the assessee and sustained the additions made by the AO towards rejection of accumulation of income u/s.11(2) of the Act for the year under consideration and also protective addition towards accumulation of income u/s.11(2) of the Act for the very same purpose for earlier assessement years.
7. Aggrieved by the order of the Ld.CIT(A), the assessee is now in appeal before this Tribunal.
8. The Ld. Counsel for the assessee, Shri E.S.Ranganath, CA, submitted that the Ld.CIT(A) erred in sustaining the additions made by the AO towards rejection of accumulation of income u/s.11(2) of the Act, without appreciating the relevant facts. He further submitted that as per provisions of Sec.11(2) of the Act, there is no specific bar on accumulation of income for Revenue purposes, if such purpose is as per the objects of the Trust. The Ld. Counsel for the assessee further submitted that the assessee is a Charitable & Religious Trust engaged in the activity of construction & maintenance of Churches and religious places of worship and also running schools. The assessee received contribution from foreign countries for specific purpose of construction & maintenance of Churches. The unspent amount has been accumulated or set-apart u/s.11(2) of the Act for the purpose of construction of buildings or places of worship and also for maintenance of priests/preachers/religious functionaries and the said activity is as per the main objects of the assessee Trust. The AO & the Ld.CIT(A) without appreciating the relevant facts simply disallowed the accumulation of income u/s.11(2) of the Act.
9. The Ld. Counsel for the assessee further submitted that as regards assessement of accumulation of income u/s.11(2) of the Act for AYs 2014-15, 2016-17 & 2017-18, the AO is completely erred in making such assessement, even though, the accumulation of income can be applied for objects of the Trust up to five years. In the present case, the assessement year under consideration is not falling within the period of five years as per Section 11(2) of the Act and therefore, the AO ought not to have assessed accumulation of income for earlier assessement years on protective basis. Therefore, he submitted that the additions made by the AO should be deleted.
10. The Ld.Sr.AR for the Revenue, on the other hand, supporting the orders of the AO & the Ld.CIT(A) submitted that going by the objects of the Trust and the purpose of accumulation of income u/s.11(2) of the Act, it is very clear that the assessee has accumulated unspent amount of income for the purpose of routine payment of salaries and other expenses and thus, the purpose of accumulation of income u/s.11(2) of the Act can’t be considered as specific purpose. The Ld.Sr.AR further submitted that the assessee is accumulating income year-on-year by noticing the unspent amount of income only for the purpose of avoidance of payment of taxes but not for the purpose of accumulation of income for specific purpose of any long-term projects or capital expenditure. The AO after noticing the relevant facts has rightly computed the income by rejecting accumulation or set-apart of income u/s.11(2) of the Act for the purpose of maintenance of priests/preachers/religious functionaries. Therefore, he submitted that the orders of the AO & the Ld.CIT(A) should be upheld.
11. We have heard both the parties, perused the materials available on record and had gone through the orders of the authorities below. There is no dispute with regard to the fact that the assessee society is registered u/s.12A of the Act as Charitable & Religious Trust. It is also not in dispute that the objects for which the society is established is to do all activities according to the catholic religious principles and to support and promote the advancement of educational cause particularly schools, colleges, cultural, technical and medical sciences for all persons irrespective of religion, race, caste community or social status. The assessee has carried out its activities in accordance with its main objectives by constructing and maintaining Churches as per Catholic religious principles and also running school. The assessee mainly receives income in the form of contributions from various foreign countries and institutions, individuals with a specific purpose of construction and maintenance of religious places for worship as per Catholic religious principles and also for maintenance of schools. The assessee claims exemption u/s.11 of the Act. Further, the assessee also accumulates or set-apart income u/s.11(2) of the Act for specific purposes which includes construction of buildings, construction/maintenance of places of worship and maintenance of priests/preachers/religious functionaries. The AO accepted accumulation of income u/s.11(2) of the Act towards construction of buildings and construction/maintenance of places for worship. However, rejected accumulation of income u/s.11(2) of the Act towards maintenance of priests/preachers/religious functionaries on the ground that said purpose is general in nature and for the purpose of routine payment of salaries & other expenses.
12. We have gone through the relevant reasons given by the AO for rejection of accumulation of income u/s.11(2) of the Act for the purpose of maintenance of priests/preachers/religious functionaries in light of evidences filed by the assessee and we ourselves don’t subscribe to the reasons given by the AO/Ld.CIT(A) for the simple reason that, as per provisions of Sec.11(2) of the Act, where 85% of the income referred to in Clause (a) or Clause (b) to sub-section (1) read with explanation to Section 11 of the Act is not applied to charitable or religious purpose in India during the previous year but accumulated or set-apart either in full or any part for application to such purposes in India, such income so accumulated or set-apart shall not be included in the total income of the previous year of the person in receipt of the income, provided such person furnishes a statement in the prescribed form and in the prescribed manner to the AO stating the purpose for which income is being accumulated or set-apart and the period for which the income is to be accumulated which shall not exceed five years. In other words, for accumulation of income u/s.11(2) of the Act, the person claiming exemption u/s.11 of the Act needs to file Form No.10 along with resolution of the board of trustees of the Trust indicating the purpose for which such income is accumulated and the period up to such period such income is accumulated not exceeding five years. From the reading of Section 11(2) of the Act, accumulation of income u/s.11(2) of the Act is not restricted only to accumulation for the purpose of capital expenditure or long-term projects but it can be accumulated even for Revenue purposes, however, such purpose should be specific and it should be as per the objects of the Trust. This principle is supported by the decision of the Hon’ble Delhi High Court in the case of Director of Income-tax (Exemption) v. Daulat Ram Education Society [2005] 278 ITR 260  (Delhi)/ITA No.644/2005 order dated 24.08.2005 where it has been held as under:
4. The Tribunal has placed reliance upon the judgment of a Division Bench of this Court in CIT v. Hotel and Restaurant Association 261 ITR 190. In that case also the assessee had accumulated the unspent amount for being spent on more than one purposes specified by it. The question for consideration was whether it was necessary for the assessee to make a specific mention of any purpose or purposes to enable it to accumulate the income. The court held that Section 11(2) of the Act did not prohibit plurality of purposes. The court also held that the purposes which the assessee had specified formed part of its objects and were charitable in nature. The position is no different in the instant case. Here too, out of 29 purposes/ objects stipulated in the memorandum of association, the assessee has specified eight purposes in Form No. 10 for which it was accumulating the unspent income while claiming benefit under Section 11. It is not the case of the Revenue that any of these eight purposes are not charitable or that the same do not figure in the memorandum of association. In the circumstances, just because more than one purpose have been specified and just because details about the plans which the assessee has for spending on such purposes are not given may not be sufficient to deny the exemption admissible to it under Section 11. So long as one or more of the purposes specified by the assessee find place in the objects for which the society has been incorporated and so long as the said purpose are charitable in character, the benefit admissible under Section 11 must flow to the assessee.
13. In the present case, there is no dispute with regard to the fact that accumulation of income u/s.11(2) of the Act is for the purpose of maintenance of priests/preachers/religious functionaries and such purposes is in accordance with Clause (i) of the objectives, for which, the Society is established which is evident from relevant objects reproduced by the AO in Para No.5 of his order. Since the income has been accumulated for specific purpose of maintenance of priests/preachers/religious functionaries and further, such purpose is as per the main objects of the assessee Trust, in our considered view, the reasons given by the AO and confirmed by the Ld.CIT(A) for rejection of accumulation of income u/s.11(2) of the Act to the extent of Rs.30 lakhs accumulated for the purpose of maintenance of priests/preachers/religious functionaries can’t be upheld. Therefore, we direct the AO to allow accumulation of income u/s.11(2) of the Act for Rs.30 lakhs for maintenance of priests/preachers/religious functionaries.
14. Coming back to additions made towards accumulation of income for AYs 2014-15, 2016-17 & 2017-18. The AO made protective assessement of income accumulated for AY 2014-15 for Rs.20 lakhs for the purpose of maintenance of priests/preachers/religious functionaries and spent for the year towards objects of the Trust on the ground that the above purpose is not a specific purpose and not as per the main objectives of the Trust. The AO has made a similar protective assessement of income accumulation for AY 2016-17 for Rs.37,23,254/- and for AY 2017-18 for Rs.20 lakhs on very same ground. Since we have accepted accumulation of income u/s.11(2) of the Act for the purpose of maintenance of priests/preachers/religious functionaries and direct the AO to delete addition towards accumulation of income for Rs.20 lakhs for the assessement year under consideration, the protective additions made by the AO for Rs.20 lakhs for AY 2014-15, Rs.37,23,254/- for AY 2016-17 and further Rs.20 lakhs for AY 2017-18 can’t be upheld. Therefore, we direct the AO to delete protective addition made towards rejection of accumulation of income u/s.11(2) of the Act for AYs 2014-15, 2016-17 & 2017-18. In other words, we direct the AO to accept income computed by the assessee Trust/Society after accumulating u/s.11(2) of the Act and delete the addition made towards total income of Rs.1,07,23,250/-.
15. In the result, appeal filed by the assessee is allowed.