ITAT: charitable trust can count income tax paid on earlier year's income as application
The Mumbai bench of the Income Tax Appellate Tribunal dismissed a tax department appeal and upheld a charitable trust's claim of Rs 1.74 crore in tax paid as application of income.
Key points
- The Income Tax Appellate Tribunal in Mumbai dismissed an appeal by the tax department against J V Gokal Charity Trust on 28 October 2026.
- The tribunal upheld the trust's claim that Rs 1.74 crore of income tax paid in 2015-16 counts as application of income for assessment year 2016-17.
- The tribunal held that tax paid on deemed income of an earlier year can be recognised in the year it is paid, but credited only once.
Photo: Marcin Wichary from San Francisco, U.S.A. / Wikimedia Commons, CC BY 2.0 (cropped). Representational image.
The Mumbai bench of the Income Tax Appellate Tribunal (ITAT) has held that a charitable trust can count income tax it paid during a year as an outgoing for that year, even though the tax related to income of an earlier year. In an order pronounced on 28 October 2026, the tribunal dismissed an appeal by the tax department and upheld the trust's claim of about Rs 1.74 crore (Rs 1,73,55,426) for assessment year 2016-17.
What Happened
J V Gokal Charity Trust, registered under Section 12A of the Income-tax Act, had set apart Rs 4.75 crore for a hospital project and placed it with an escrow agent. According to the order, the escrow agreement was terminated, no amount was spent on the project and the trust offered the money as deemed income under Section 11(3) for assessment year 2015-16. The trust paid the tax, made up of TDS of Rs 14,26,864 and self-assessment tax of Rs 1,59,28,562, in September 2015, and claimed it as application of income for 2016-17.
The assessing officer refused the claim because the tax related to an earlier year and the trust followed the cash system of accounting. The Commissioner of Income-tax (Appeals) allowed it, and the department appealed. The tribunal held that a trust on the cash system recognises a tax payment in the year it is made, and that tax on deemed income under Section 11(3) is not excluded for that reason alone. It rejected the department's argument that this gave a double benefit, saying the accumulated income and the tax paid on it are distinct amounts. It directed that the amount receive credit only once in the computation.
What It Means
Trusts that pay tax on accumulated income they could not use within the allowed conditions can, under this order, count that tax as an outgoing in the year of payment. The tribunal noted that Explanation 5 to Section 11(1), inserted by the Finance Act, 2021 with effect from 1 April 2022, limits set-off of excess application of earlier years, and that it did not govern assessment year 2016-17. The rest of the trust's income must still be applied or accumulated as Section 11 requires.
Source: ITAT order
Sources & Citations
- ITAT order — Income Tax Appellate Tribunal