Compliance of provisions of Sec.11(2) & 11(3). - Income Tax - 1559/CBDT

INSTRUCTION NO. 1559/CBDT Dated: April 23, 1984 Under section 11(2) of the Income-tax Act, 1961, charitable and religious trusts are permitted to accumulate income derived from property held under trust provided an application is made to the Income-tax Officer in the prescribed form within the prescribed period specifying the object of accumulation, the period of accumulation and the amount sought to be accumulated. The amount sought to be accumulated is also required to be invested in the forms and modes prescribed in section 11(5) of the Act. 2. Under section 11(3) of the Act, if any income which is accumulation in terms of section 11(2) is (i) applied for a purpose other than charitable and religious purposes or (ii) ceases to be invested and deposited in the prescribed modes or (iii) is not utilised for purposes for which it is accumulated during the period of accumulation or in the year immediately, following the expiry of the period, the income is deemed to be arising in the year when any of the above three occurs. 3. On the recommended actions of the Public Accounts Committee, the Board had occasion to have a simple study conducted on the application of sections 11(2) and 11(3) with particular reference to the term 'utilised'. The study has revealed that there is no control or even any check exercised by Income-tax Officer once he allows accumulation of income under section 11(2) of the Act. 4. It would be observed that a duty is cast on the Income-tax Officer to ensure that the income which is allowed to be accumulated with his permission, is brought within the discipline of section 11(2) read with section 11(3) . With a view to ensuring that the Income-tax Officer maintains a check on the fulfilment of provisions of section 11(2) and 11(3), a register is prescribed as given in Annexure I. This register is maintained by the Income-tax Officers and they should give a cross-reference to the register by noting the serial number of the case of the trust in which application is allowed in the first instance, on the case papers. This will ensure that for every subsequent assessment, the Income-tax Officer will be in a position to know that accumulation has been allowed in the case and that the continued fulfilment of the requirements of law has to be checked up. The Income-tax Officer should make entries in the register in respect of each of the assessment years taken up by him, so that the register will be self-contained with reference to the requirements of section 11(2) and 11(3) of the Act. 5. The above referred register will come into force with immediate effect and should be made available in the prescribed form to the I.T.Os, having jurisdiction over trusts. 6. Inspecting Assistant Commissioners of Income-tax concerned will make inspection of this register an integral part of their inspection of the Income-tax Officer's work. 7. The attention of the Income-tax Officers is drawn specifically at the requirement of section 11(3)(c) and particularly to the term 'utilised'. They are advised to ensure that the amount accumulated is actually utilised for the permitted purpose. In doing so, the Income-tax Officers must exercise all care to see that the accumulated income is applied in real sense of utilisation. 8. These instructions may be brought to the notice of all the Income-tax Officers working in your charge.