Changing the purpose of accumulation of income in Form No. 10 after its filing: Section 11(3A)

Trust, NGO, NPO etc are allowed to accumulate up to 15% of the income earned during the year for application for charitable or religious purposes in India in future without any restrictions and limitations. However, if such trust wants to accumulate addition to 15% of the income subject to the compliance of the following conditions:

1. such Trust furnishes a declaration in Form No. 10 electronically either under digital signature or electronic verification code to the Assessing Officer, stating the purpose for which the income is being accumulated or set apart and
2. The period for which the income is to be accumulated or set apart cannot exceed five years;
3. Such amount which is so accumulated or set apart is invested or deposited in the forms or modes specified in section 11(5);
4. the statement i.e., Form No. 10 is required to be furnished on or before the due date specified under section 139(1) for furnishing the return of income for the previous year.
5. While reckoning the period of five years referred to in clause (a), the period during which the income could not be applied for the purpose for which it is so accumulated or set apart, due to an order or injunction of any court, shall be excluded.

We have discussed in our earlier article at https://thetaxtalk.com/2020/08/31/charitable-trust-accumulation-of-income-u-s-112-its-application-thereafter-confusions-clarifications/ as to whether trust can generalize ‘towards the object of trust” in Form No. 10 so as to get the benefit of carry forward or not?

Another question received by me is whether trust who has filed Form No. 10 for taking the benefit of accumulation u/s 11(2) can be changed afterwards?

Whether the amount could be utilized for purposes other than the purpose for which accumulation is sought u/s 11(2)?

It is worthwhile here to reproduced section 11(3A) which reads as under:

(3A) Notwithstanding anything contained in sub-section (3), where due to circumstances beyond the control of the person in receipt of the income, any income invested or deposited in accordance with the provisions of clause (b) of sub-section (2) cannot be applied for the purpose for which it was accumulated or set apart, the Assessing Officer may, on an application made to him in this behalf, allow such person to apply such income for such other charitable or religious purpose in India as is specified in the application by such person and as is in conformity with the objects of the trust; and thereupon the provisions of sub-section (3) shall apply as if the purpose specified by such person in the application under this sub-section were a purpose specified in the notice given to the Assessing Officer under clause (a) of sub-section (2):

Provided that the Assessing Officer shall not allow application of such income by way of payment or credit made for the purposes referred to in clause (d) of sub-section (3) of section 11:

Provided further that in case the trust or institution, which has invested or deposited its income in accordance with the provisions of clause (b) of sub-section (2), is dissolved, the Assessing Officer may allow application of such income for the purposes referred to in clause (d) of sub-section (3) in the year in which such trust or institution was dissolved.

Following are the key feature of section 11(3A):

1. It comes to play only when there are situations which can be considered as “circumstances beyond the control of the trust”. Only if it exists, the trust can take shelter of section 11(3A).
2. For taking the shelter of section 11(3A), trust has to approach the Assessing Officer with a request to allow application of accumulated income for some other charitable or religious objects. However, such other purposes should be in conformity with the objects of the trust.
3. If AO confirms or approves the application and grants permission then the trust can utilize the accumulated amount for such other purposes as approved by the AO.
4. AO is not under an obligation to approve such other purpose. It is his discretion. The word used is “May” which also means “May Not”. His decision has to be based upon the basic principle underlying section 11(3A) is “circumstances beyond the control of the trust”. If AO uses discretion without this basic underlying principle, it may turn otherwise for the AO.
5. Another question is whether the application has to be done within a period of 5 years or it can be done afterwards? It may be noted that sub-section 3A to section 11 only authorizes AO to allow the use of funds for other objects. It nowhere authorizes AO to extend the period of 5 years. In short, a request letter to the AO as well as application of money after approval by AO is subject to the original conditions of 5 years. AO don’t have power to condone the period of application of money u/s 11(3A).