Accumulated Income Applied for Educational Purposes Across Multiple Schools Held Eligible for Exemption under Section 11(2) - ITAT

Case: Salwan Education Trust v. Deputy Commissioner of Income-tax (Exemptions)

Court: ITAT Delhi

Assessment Year: 2018-19

ITA No.: IT Appeal No. 5275 (Delhi) of 2024

Date of Order: December 12, 2025

Brief Facts:

• The assessee was a charitable trust registered under section 12A of the Income-tax Act, 1961 and was engaged solely in the field of education by running multiple schools.

• For Assessment Year 2013-14, the trust filed Form No. 10 and accumulated income under section 11(2) for the specific purpose of construction of school buildings at two identified schools.

• During the relevant assessment year, the accumulated funds were utilised towards capital and revenue expenditure incurred across several schools run by the trust.

• The Assessing Officer held that expenditure incurred on schools other than those specifically mentioned in Form No. 10 amounted to diversion of funds and treated the unutilised balance as taxable under section 11(3).

• This view was upheld by the Commissioner (Appeals), leading to the appeal before the Tribunal.

Observations of the Tribunal:

The Tribunal observed that:

• The sole and dominant object of the assessee-trust was imparting education, which is a recognised charitable purpose under the Act. It noted that the entire expenditure, whether capital or revenue, was incurred exclusively for educational activities, and no part of the funds was used for non-charitable purposes.
  

• Placing reliance on judicial precedents, particularly DIT (Exemptions) v. Daulat Ram Education Society, the Tribunal held that section 11(2) does not prohibit application of accumulated income towards multiple purposes, provided such purposes are covered within the charitable objects of the trust.
  

• The Tribunal further held that procedural lapses or absence of prior approval would not disentitle the assessee from exemption where the substantive condition of application of income towards charitable objects stands fulfilled.

Hence, the Tribunal held that application of accumulated income towards capital and revenue expenditure across various schools run by the trust constituted valid charitable application. Since the entire expenditure was incurred towards the sole object of education, the benefit of exemption under section 11(2) was held to be available to the assessee.

Accordingly, the additions made under section 11(3) were deleted, and the appeal of the assessee was allowed in favour of the trust.