MEDAK CATHOLIC MISSION,HYDERABAD vs. ITO., EXEMPTION WARD-1(2), HYDERABAD

आदेश / O R D E R PER MANJUNATHA.G, AM:

This appeal filed by the assessee is directed against the order of the

Commissioner of Income Tax (Appeals), National Faceless Appeal Centre

(NFAC), Delhi, dated 30.05.2025, and pertains to assessment year 2018-

19.

1) CIT(A) Order and Assessment Order to the extent against the Appellant OR contrary to the law and facts of the case.

2) The Ld. CIT(A) while on the issue on religious activity as object restricted the finding on the accumulation for the maintenance of preachers / priests lacks specificity, definiteness and concreteness as required under Section 11(2) of IT Act as the stated purpose resemble routine operation expenditure akin to salary payment and no finding to the effect that the above said nature of payment is covered under religious activity.

3) The Ld. CIT(A) erred in observing on set off of past accumulation for AY 2014-15, 2015-16 and 2016-17 amounting to Rs.77,23,254/- that the appellant failed to demonstrate that the accumulated funds were utilized within the prescribed five-year period OR had valid approval and documentation under Rule 17 and also the appellant did not substantiate whether Form 10 was filed appropriately in those years Ignoring the fact that the appellant claimed set off for AY 2014-15 only and the Assessing Officer without providing any reason added accumulation made in AY 2016-17 and 2017-18 WHARE no set off claimed in the present assessment year.

4) The Ld. CIT(A) was silent on the issue whether maintenance of preachers / priests / religious functionaries is of religious nature under covered in the objects to carry on religious activity provided at clause 4 of object clause of the Memorandum of Association.

5) The Ld. CIT(A) erred in observing no violation of natural justice is established when assessment is completed and assessment order issued without considering the request for time by the appellant well within the proceedings limitation time.

6) The Ld. CIT(A) erred in observing that reliance on the principle of consistency is misplaced WHARE the facts differ OR WHARE earlier orders were not subject to scrutiny on the same issue as each assessment is a separate proceeding, as the appellant gave instances of earlier assessments with respect to accumulation relating to maintenance of preachers / priests / religious functionaries.

7) The Ld. CIT(A) erred in confirming the addition made in the assessment order by the assessing officer of Rs.1,07,23,250.

8) Appellant prays also to consider the grounds raised before CIT(A) on the assessment proceedings which are to be read along with above grounds made.

9) Appellant prays to add, alter, modify, delete any of the grounds of appeal before hearing of the Appeal.

Mission is a Charitable & Religious Trust, registered u/s.12A of the Income

Tax Act, 1961 (in short “the Act“) is engaged in carrying out various

Charitable & Religious activities as stated in the Trust Deed which includes

construction & maintenance of Churches, running Educational Institutions :: 3 :: including Schools and to support and promote the advancement of

educational cause. The assessee has filed its Return of Income (RoI) for

AY 2018-19 on 21.09.2018 declaring ‘NIL’ income after claiming

exemption u/s.11 of the Act. The assessee had also filed Form No.10 and

has accumulated unspent income of Rs.1,51,01,831/- u/s.11(2) of the Act

for the purpose of maintenance of priests/preachers/religious

functionaries, construction of buildings and construction/maintenance of

places of worship. The case was selected for scrutiny and during the

course of assessement proceedings, the AO noticed that the assessee has

accumulated income u/s.11(2) of the Act for general purposes without

any specific purpose as required u/s.11(2) of the Act and therefore, called

upon the assessee to file its objections, if any, for disallowance of

accumulation of income u/s.11(2) of the Act. In response, the assessee

submitted that accumulated income u/s.11(2) of the Act is for the

achievement of its main objects which includes maintenance of

priests/preachers/religious functionaries.

also taken note of main object of the assessee Trust which are

reproduced in Para No.5 of the AO’s order observed that the purpose of

accumulation is general not specific and doesn’t undertake to set-apart to

accomplish concrete definite purpose. Unspent money has been

earmarked for an explicit purpose. Hence, the claim of exemption

u/s.11(2) of the Act can’t be allowed. The AO further observed that :: 4 :: without prejudice if you look into the objects for which the Trust was

formed which has been stated in Para No.5, it can be seen that

maintenance of priests/preachers/religious functionaries is not their

objectives. Therefore, observed that income has been accumulated

u/s.11(2) of the Act for routine purpose of payment of salaries and other

allowances to teachers of a Charitable Institution whose object is to

impart education. Therefore, rejected accumulation of income u/s.11(2)

of the Act for the purpose of maintenance of priests/preachers/religious

functionaries to the extent of Rs.30 lakhs and allowed exemption claimed

u/s.11(2) of the Act for balance amount of Rs.1,21,01,831/-.

u/s.11(2) of the Act for similar purpose of maintenance of

priests/preachers/religious functionaries for AY 2014-15 onwards and out

of income accumulated for AY 2014-15, the assessee has spent an

amount of Rs.14,55,862/- for the year under consideration towards

objects of the Trust. Since accumulation of income towards maintenance

of priests/preachers/religious functionaries has not been considered as for

the specific purpose as required u/s.11(2) of the Act, the AO has made

protective addition of Rs.20 lakhs towards accumulated income for AY

2014-15 and spent for the assessement year under consideration.

Similarly, the AO had also made protective assessement of income

accumulated u/s.11(2) of the Act for AY 2016-17 for Rs.37,23,254/- and

for AY 2017-18 for Rs.20 lakhs. Thus, the AO has re-computed the total :: 5 :: income of the assessee by allowing application of income u/s.11(1)(a) of

the Act and also accumulation of income u/s.11(2) of the Act for

Rs.1,21,01,831/-. The balance amount of Rs.50 lakhs has been treated

as income of the assessee. Further, the AO had also made addition of

Rs.37,23,254/- towards accumulated income for AYs 2016-17 & 2017-18

on protective basis. Thus, the AO has determined total income of the

assessee at Rs.1,07,23,250/-.

appeal before the Ld.CIT(A). Before the Ld.CIT(A), the assessee has filed

detailed written submissions on this issue which has been reproduced at

Para No.4.2 on Page Nos.4 to 13 of the Ld.CIT(A)’s order. The sum and

substance of the arguments of the assessee before the Ld.CIT(A) are that

income accumulated u/s.11(2) of the Act is for the objects of the Trust

being construction & maintenance of Churches and places of worship

which includes maintenance of priests/preachers/religious functionaries.

The assessee further submitted that as per the provisions of Sec.11(2) of

the Act, there is no specific bar on accumulation of income for revenue

purposes, if such accumulation is for the purpose of achievement of

objects of the Trust. The Ld.CIT(A) after considering the relevant

submissions of the assessee and also taken note of the decision of the

Hon’ble Madhya Pradesh High Court in the case of CIT v. Hotel &

Restaurant Association reported in [2003] 261 ITR 190 (MP) and also the

decision of the Hon’ble Supreme Court in the case of CIT v. Nagpur Hotel :: 6 :: Owners Association reported in [2001] 247 ITR 201 (SC) held that

accumulation u/s.11(2) of the Act must be for a definite purpose linked to

capital expenditure or long term projects but not for routine payments.

Therefore, rejected the explanation of the assessee and sustained the

additions made by the AO towards rejection of accumulation of income

u/s.11(2) of the Act for the year under consideration and also protective

addition towards accumulation of income u/s.11(2) of the Act for the very

same purpose for earlier assessement years.

appeal before this Tribunal.

submitted that the Ld.CIT(A) erred in sustaining the additions made by

the AO towards rejection of accumulation of income u/s.11(2) of the Act,

without appreciating the relevant facts. He further submitted that as per

provisions of Sec.11(2) of the Act, there is no specific bar on

accumulation of income for Revenue purposes, if such purpose is as per

the objects of the Trust. The Ld. Counsel for the assessee further

submitted that the assessee is a Charitable & Religious Trust engaged in

the activity of construction & maintenance of Churches and religious

places of worship and also running schools. The assessee received

contribution from foreign countries for specific purpose of construction &

maintenance of Churches. The unspent amount has been accumulated or :: 7 :: set-apart u/s.11(2) of the Act for the purpose of construction of buildings

or places of worship and also for maintenance of

priests/preachers/religious functionaries and the said activity is as per the

main objects of the assessee Trust. The AO & the Ld.CIT(A) without

appreciating the relevant facts simply disallowed the accumulation of

income u/s.11(2) of the Act.

assessement of accumulation of income u/s.11(2) of the Act for AYs

2014-15, 2016-17 & 2017-18, the AO is completely erred in making such

assessement, even though, the accumulation of income can be applied for

objects of the Trust up to five years. In the present case, the

assessement year under consideration is not falling within the period of

five years as per Section 11(2) of the Act and therefore, the AO ought not

to have assessed accumulation of income for earlier assessement years

on protective basis. Therefore, he submitted that the additions made by

the AO should be deleted.

orders of the AO & the Ld.CIT(A) submitted that going by the objects of

the Trust and the purpose of accumulation of income u/s.11(2) of the Act,

it is very clear that the assessee has accumulated unspent amount of

income for the purpose of routine payment of salaries and other expenses

and thus, the purpose of accumulation of income u/s.11(2) of the Act :: 8 :: can’t be considered as specific purpose. The Ld.Sr.AR further submitted

that the assessee is accumulating income year-on-year by noticing the

unspent amount of income only for the purpose of avoidance of payment

of taxes but not for the purpose of accumulation of income for specific

purpose of any long-term projects or capital expenditure. The AO after

noticing the relevant facts has rightly computed the income by rejecting

accumulation or set-apart of income u/s.11(2) of the Act for the purpose

of maintenance of priests/preachers/religious functionaries. Therefore, he

submitted that the orders of the AO & the Ld.CIT(A) should be upheld.

record and had gone through the orders of the authorities below. There

is no dispute with regard to the fact that the assessee society is

registered u/s.12A of the Act as Charitable & Religious Trust. It is also

not in dispute that the objects for which the society is established is to do

all activities according to the catholic religious principles and to support

and promote the advancement of educational cause particularly schools,

colleges, cultural, technical and medical sciences for all persons

irrespective of religion, race, caste community or social status. The

assessee has carried out its activities in accordance with its main

objectives by constructing and maintaining Churches as per Catholic

religious principles and also running school. The assessee mainly receives

income in the form of contributions from various foreign countries and

institutions, individuals with a specific purpose of construction and :: 9 :: maintenance of religious places for worship as per Catholic religious

principles and also for maintenance of schools. The assessee claims

exemption u/s.11 of the Act. Further, the assessee also accumulates or

set-apart income u/s.11(2) of the Act for specific purposes which includes

construction of buildings, construction/maintenance of places of worship

and maintenance of priests/preachers/religious functionaries. The AO

accepted accumulation of income u/s.11(2) of the Act towards

construction of buildings and construction/maintenance of places for

worship. However, rejected accumulation of income u/s.11(2) of the Act

towards maintenance of priests/preachers/religious functionaries on the

ground that said purpose is general in nature and for the purpose of

routine payment of salaries & other expenses.

rejection of accumulation of income u/s.11(2) of the Act for the purpose

of maintenance of priests/preachers/religious functionaries in light of

evidences filed by the assessee and we ourselves don’t subscribe to the

reasons given by the AO/Ld.CIT(A) for the simple reason that, as per

provisions of Sec.11(2) of the Act, where 85% of the income referred to

in Clause (a) or Clause (b) to sub-section (1) read with explanation to

Section 11 of the Act is not applied to charitable or religious purpose in

India during the previous year but accumulated or set-apart either in full

or any part for application to such purposes in India, such income so

accumulated or set-apart shall not be included in the total income of the previous year of the person in receipt of the income, provided such

person furnishes a statement in the prescribed form and in the prescribed

manner to the AO stating the purpose for which income is being

accumulated or set-apart and the period for which the income is to be

accumulated which shall not exceed five years. In other words, for

accumulation of income u/s.11(2) of the Act, the person claiming

exemption u/s.11 of the Act needs to file Form No.10 along with

resolution of the board of trustees of the Trust indicating the purpose for

which such income is accumulated and the period up to such period such

income is accumulated not exceeding five years. From the reading of

Section 11(2) of the Act, accumulation of income u/s.11(2) of the Act is

not restricted only to accumulation for the purpose of capital expenditure

or long-term projects but it can be accumulated even for Revenue

purposes, however, such purpose should be specific and it should be as

per the objects of the Trust. This principle is supported by the decision of

the Hon’ble Delhi High Court in the case of Director of Income Tax

(Exempt) v. Daulat Ram Education Society in ITA No.644/2005 order

dated 24.08.2005 where it has been held as under:

accumulation of income u/s.11(2) of the Act is for the purpose of

maintenance of priests/preachers/religious functionaries and such

purposes is in accordance with Clause (i) of the objectives, for which, the

Society is established which is evident from relevant objects reproduced

by the AO in Para No.5 of his order. Since the income has been

accumulated for specific purpose of maintenance of

priests/preachers/religious functionaries and further, such purpose is as

per the main objects of the assessee Trust, in our considered view, the

reasons given by the AO and confirmed by the Ld.CIT(A) for rejection of

accumulation of income u/s.11(2) of the Act to the extent of Rs.30 lakhs

accumulated for the purpose of maintenance of

priests/preachers/religious functionaries can’t be upheld. Therefore, we

direct the AO to allow accumulation of income u/s.11(2) of the Act for

Rs.30 lakhs for maintenance of priests/preachers/religious functionaries.

AYs 2014-15, 2016-17 & 2017-18. The AO made protective assessement

of income accumulated for AY 2014-15 for Rs.20 lakhs for the purpose of

maintenance of priests/preachers/religious functionaries and spent for the :: 12 :: year towards objects of the Trust on the ground that the above purpose is

not a specific purpose and not as per the main objectives of the Trust.

The AO has made a similar protective assessement of income

accumulation for AY 2016-17 for Rs.37,23,254/- and for AY 2017-18 for

Rs.20 lakhs on very same ground. Since we have accepted accumulation

of income u/s.11(2) of the Act for the purpose of maintenance of

priests/preachers/religious functionaries and direct the AO to delete

addition towards accumulation of income for Rs.20 lakhs for the

assessement year under consideration, the protective additions made by

the AO for Rs.20 lakhs for AY 2014-15, Rs.37,23,254/- for AY 2016-17

and further Rs.20 lakhs for AY 2017-18 can’t be upheld. Therefore, we

direct the AO to delete protective addition made towards rejection of

accumulation of income u/s.11(2) of the Act for AYs 2014-15, 2016-17 &

2017-18. In other words, we direct the AO to accept income computed by

the assessee Trust/Society after accumulating u/s.11(2) of the Act and

delete the addition made towards total income of Rs.1,07,23,250/-.

Order pronounced on the 15th day of July, 2026, in Hyderabad.

Sd/- Sd/- (िवजय पाल राव) (मंजूनाथा. जी) (VIJAY PAL RAO) (MANJUNATHA.G) उपा�� /VICE-PRESIDENT लेखा सद�/ACCOUNTANT MEMBER Hyderabad, dated 15.07.2026. TLN

आदेशकी �ितिलिप अ�ेिषत/ Copy of the order forwarded to:

िनधा�रती/The 1 : Medak Catholic Mission, 1-8-11/1/A, Street No.8, Ravindra Nagar Colony, Habsiguda, Assessee Hyderabad-500007, Telangana. राज�/ The Revenue 2 : The ITO, Exemption Ward-1(2), Hyderabad.

3 The Principal Commissioner of Income Tax, Hyderabad. िवभागीय�ितिनिध, आयकर अपीलीय अिधकरण, हैदराबाद / DR, ITAT Hyderabad. 4 गाड�फ़ाईल / Guard file 5

आदेशानुसार / BY ORDER Digitally signed by TUMMALACHARLA TUMMALACHARLA LAKSHMI NARAYANA DN: cn=TUMMALACHARLA LAKSHMI LAKSHMI NARAYANA, c=IN, o=INCOME TAX APPELLATE TRIBUNAL, ou=INCOME TAX NARAYANA APPELLATE TRIBUNAL, CHENNAI BENCH Date: 2026.07.15 15:40:09 +05'30'

Sr. Private Secretary ITAT, Hyderabad