Accumulation of Income Under Section 11(2) Not Confined to Capital Expenditure; Maintenance of Priests/Preachers Held a Specific Purpose Aligned to Trust's Objects: ITAT

Case: Medak Catholic Mission v. Income-tax Officer

ITA Nos.: 1234 (Hyd) of 2025

ITAT: Hyderabad

Assessment Year: 2018-19

Date of Order: 15 July 2026

Brief Facts:

• The assessee was a charitable and religious trust registered under section 12A, was engaged in construction and maintenance of churches and in running educational institutions.

• For the year under consideration, the assessee claimed exemption under section 11 and accumulated income under section 11(2) for specific purposes, including maintenance of priests/preachers/religious functionaries, construction of buildings, and construction/maintenance of places of worship.

• The Assessing Officer accepted the accumulation towards construction-related purposes but rejected the portion earmarked for maintenance of priests/preachers/religious functionaries, holding that this was a general purpose for routine payment of salaries and allowances and not among the trust's stated objectives.

• The Assessing Officer also made protective additions in respect of similar accumulations claimed for earlier assessment years, on the same ground.

• On appeal, the Commissioner (Appeals) held that accumulation under section 11(2) must be for a definite purpose linked to capital expenditure or long-term projects and not for routine payments, and accordingly sustained both the disallowance for the year under consideration and the protective additions for the earlier years.

• Aggrieved, the assessee preferred an appeal before the ITAT.

Observations:

The Tribunal noted that:

• There was no dispute that the assessee-society was registered under section 12A as a charitable and religious trust, and that it had carried out its objects by constructing and maintaining churches and running schools.

• On a plain reading of section 11(2), the Tribunal held that accumulation of income is not restricted to capital expenditure or long-term projects; it can also be accumulated for revenue purposes, provided the purpose is specific and is in accordance with the objects of the trust- a principle supported by the Delhi High Court's ruling in Director of Income-tax (Exemption) v. Daulat Ram Education Society.

• The Tribunal found that accumulation for maintenance of priests/preachers/religious functionaries was for a purpose specifically covered by the trust's objects, as evident from the objects reproduced by the Assessing Officer himself in his order. Since the purpose was both specific and aligned with the trust's main objects, the reasons given by the Assessing Officer and affirmed by the Commissioner (Appeals) for rejecting the accumulation could not be upheld.

• The Tribunal accordingly directed the Assessing Officer to allow the accumulation of income claimed under section 11(2) for maintenance of priests/preachers/religious functionaries.

• On the protective additions for the earlier years, the Tribunal held that since accumulation for maintenance of priests/preachers/religious functionaries had now been accepted as a valid specific purpose, the protective additions made on the same ground for those years could also not be sustained, and directed the Assessing Officer to delete them
  

Accordingly, the Tribunal held that accumulation of income under section 11(2) is not confined to capital expenditure or long-term projects but extends to revenue purposes as well, so long as the purpose is specific and in accordance with the objects of the trust. Since maintenance of priests/preachers/religious functionaries was found to be a purpose specifically covered by the assessee's objects, the Assessing Officer was directed to allow the accumulation claimed for this purpose. Consequently, the connected protective additions made for the earlier assessment years on the same ground were also directed to be deleted. Accordingly, the appeal filed by the assessee was allowed.