Charitable Trust Outside Sections 11 & 12: Can Charitable Expenditure Still Be Deducted Under Section 57(iii)?

Mumbai ITAT allows deduction for expenditure towards charitable objects where the trust's income was assessed under “Income from Other Sources”

Background

The taxation of charitable trusts is ordinarily examined within the exemption framework of Sections 11 and 12 of the Income-tax Act, 1961.

But what happens where a charitable trust does not claim the benefit of Sections 11 and 12, and its income is instead assessed under the head “Income from Other Sources”?

Does the non-availability of the charitable exemption regime mean that the receipts of the trust become taxable without allowing expenditure incurred towards its charitable objects?

More particularly:

Can expenditure incurred by such a trust towards its charitable objects qualify for deduction under Section 57(iii)?

The Mumbai Bench of the Income Tax Appellate Tribunal recently examined this issue in Rahulkumar Bajaj Charitable Trust v. DCIT.

The Case

Rahulkumar Bajaj Charitable Trust is a public charitable trust engaged in pursuing charitable objects and activities.

The Trust had initially received shares of Bajaj Auto Limited by way of donation towards its corpus. Pursuant to a scheme of demerger, it subsequently received shares of Bajaj Auto Limited, Bajaj Holdings & Investment Limited and Bajaj Finserv Limited.

Since these investments were not in conformity with the modes prescribed under Section 11(5), the Trust had not claimed the benefit of Sections 11 and 12 from Assessment Year 1993-94 onwards.

Its income was accordingly offered under the head “Income from Other Sources” in the status of an Association of Persons (AOP).

Facts of the Case

For Assessment Year 2018-19, the Trust filed its return declaring total income of approximately ₹3.66 crore.

During the relevant year, it earned:

The Trust claimed that ₹65 lakh had been applied by way of donations to various charitable trusts and institutions having valid exemption certificates and carrying on similar charitable objects.

It treated these donations as expenditure incurred towards the objects of the Trust and claimed deduction under Section 57(iii).

Where Did the Dispute Arise?

The Assessing Officer rejected the deduction under Section 57(iii).

According to the AO, there was no direct nexus between the donations paid and the earning of interest income. The expenditure could therefore not be regarded as having been incurred wholly and exclusively for earning income assessable under “Income from Other Sources”.

The Trust had also made an alternative claim under Section 80G, which was not allowed.

The assessment was consequently completed at approximately ₹4.41 crore, as against the returned income of approximately ₹3.66 crore.

The CIT(A) upheld the disallowance, following which the Trust approached the Mumbai ITAT.

The Central Question

The controversy before the Tribunal essentially turned on the following question:

Where a charitable trust does not claim exemption under Sections 11 and 12 and its income is assessed under “Income from Other Sources”, can expenditure incurred by way of donations in furtherance of its charitable objects be allowed under Section 57(iii)?

The issue therefore involved an important distinction between:

availability of exemption to a charitable trust

and

computation of its taxable income when such exemption is unavailable or not claimed.

Assessee's Position

The Trust contended that although it had not claimed the benefit of Sections 11 and 12, it continued to pursue the charitable objects mandated by its Trust Deed.

The donations of ₹65 lakh were made to eligible charitable trusts and institutions in furtherance of those objects.

Relevant details and supporting documents concerning the donee trusts/institutions were also furnished.

The Trust principally relied upon the Mumbai ITAT decision in Mahakalp Arogya Pratisthan v. ITO, involving Assessment Year 2018-19, where expenditure incurred towards charitable objects had been allowed under Section 57(iii) even though the assessee had not claimed the benefit of Sections 11 and 12.

Revenue's Position

The Revenue relied upon the language of Section 57(iii).

It contended that the provision requires expenditure to be laid out or expended wholly and exclusively for the purpose of making or earning the income.

According to the Revenue, donations made to charitable institutions did not have a direct nexus with the interest income earned from bank deposits.

The conditions prescribed under Section 57(iii), according to the Revenue, were therefore not satisfied.

What Did the Mumbai ITAT Hold?

The Tribunal allowed the Trust's appeal.

It noted that an identical issue had arisen before the Mumbai ITAT in Mahakalp Arogya Pratisthan v. ITO.

In that decision, the coordinate Bench had considered the principle laid down by the Delhi High Court in DDIT (E) v. Petroleum Sports Promotion Board that where charitable exemption is unavailable and income is assessed under the residuary head, Section 57(iii) must still be given due effect while computing taxable income.

Why Was the Earlier Decision Relevant?

The Tribunal compared the facts of the present case with those considered in Mahakalp Arogya Pratisthan and identified three material similarities:

• the assessee had not claimed the benefit of Sections 11 and 12;
• its income was assessed under “Income from Other Sources”; and
• the disputed expenditure represented donations stated to have been made in furtherance of its charitable objects.

The Revenue did not demonstrate any material factual or legal distinction which would make the earlier coordinate Bench decision inapplicable.

Following Mahakalp Arogya Pratisthan, the Tribunal therefore held that the reasoning supporting the disallowance of ₹65 lakh under Section 57(iii) could not be sustained.

Taxation of Income — Not Merely Gross Receipts

An important principle underlying this line of decisions is the distinction between taxation of income and taxation of gross receipts.

The Delhi High Court had examined this issue directly in Petroleum Sports Promotion Board.

In that case, exemption under Section 11 was unavailable because the entity did not possess registration under Section 12A for the relevant years. The Revenue contended that allowing expenditure incurred on sports-promotion activities would indirectly confer upon the assessee the benefit of Section 11.

The High Court rejected this argument.

It held, in substance, that denying an exemption under Section 11 is different from determining taxable income after such exemption has been denied.

Once the Revenue assessed the receipts under the residuary head, the assessment had to be completed under the ordinary computation provisions of the Act and “full play” had to be allowed to Section 57(iii).

The High Court further observed that where genuine expenditure had been incurred towards the very objects for which the entity existed, denying such expenditure could result in taxing gross receipts rather than income.

What Happened to the Alternative Section 80G Claim?

The Trust had also made an alternative claim for deduction under Section 80G.

However, once the Tribunal accepted the principal claim under Section 57(iii), it held that the alternative claim under Section 80G did not require separate adjudication.

The Trust's appeal was accordingly allowed.

Practical Implications

The ruling is relevant for charitable trusts and institutions which, for a particular reason, are outside or not availing the exemption framework under Sections 11 and 12, with their income consequently falling to be computed under the ordinary provisions of the Act.

The decision indicates that non-availability of exemption does not necessarily mean that the entity's receipts become taxable without examining deductions permissible under the head under which the income is assessed.

Where income is assessed under “Income from Other Sources”, the applicability of Section 57(iii) therefore requires independent examination.

However, the ruling should not be understood as establishing that every donation or expenditure towards charitable objects automatically qualifies for deduction under Section 57(iii).

The nature and genuineness of the expenditure, objects of the entity, factual relationship of the expenditure with those objects, head under which the receipts are assessed and applicable judicial precedents remain relevant.

Position under the Income-tax Act, 2025

The Mumbai ITAT decision in Rahulkumar Bajaj Charitable Trust concerns Assessment Year 2018-19 and was rendered under the Income-tax Act, 1961. Accordingly, the judicial ratio discussed above must be understood with reference to the provisions of that Act.

For tax years governed by the Income-tax Act, 2025, the charitable institution provisions have been reorganised under the framework dealing with registered non-profit organisations. The erstwhile provisions relating to charitable income, application and permitted investments are now contained in the corresponding provisions of the 2025 Act. The official CBDT section-mapping material, for instance, maps Section 11(5) of the 1961 Act to Section 350 of the 2025 Act and various components of Sections 11 and 12 to the new NPO provisions.

The deduction in respect of donations corresponding to erstwhile Section 80G is contained in Section 133 of the Income-tax Act, 2025.

Accordingly, while the present judgment interprets the provisions of the Income-tax Act, 1961, the broader conceptual question continues to remain relevant under the 2025 Act:

Where an NPO does not obtain the benefit of the special exemption regime and its receipts fall to be taxed under the ordinary provisions, the applicable charging and computation provisions must independently be examined while determining its taxable income.

The precise treatment under the Income-tax Act, 2025 would nevertheless require examination of the relevant provisions applicable to the particular NPO and the nature of the income and expenditure involved. The Income Tax Department provides the current 2025 Act, as amended by the Finance Act, 2026, through its official statutory portal.

SSB Perspective

The decision in Rahulkumar Bajaj Charitable Trust, when read together with the Delhi High Court ruling in Petroleum Sports Promotion Board, brings into focus an important distinction between exemption of income and computation of taxable income.

Where a charitable trust is unable to claim, or does not claim, exemption under Sections 11 and 12, it does not necessarily follow that its receipts become taxable on a gross basis.

Once exemption is unavailable, two further questions arise:

Under which head is the income assessable?

and

What deductions are permissible under the computation provisions governing that head?

This distinction was considered directly by the Delhi High Court in Petroleum Sports Promotion Board.

There, Section 11 exemption had been denied because the entity did not possess registration under Section 12A for the relevant assessment years. The Revenue argued that allowing expenditure incurred towards sports-promotion activities would indirectly confer the very Section 11 benefit which was otherwise unavailable.

The Delhi High Court rejected that approach.

The Court distinguished between granting an exemption under Section 11 and allowing legitimate expenditure while computing taxable income under “Income from Other Sources.”

It reasoned that once the Revenue chose to assess the receipts under the residuary head, the computation had to thereafter proceed under the provisions applicable to that head, including Section 57(iii).

The High Court also referred to the Supreme Court's decision in CIT v. Rajendra Prasad Moody, 115 ITR 519, for the principle that Section 57(iii) is to be construed broadly and that the somewhat wider language of Section 37(1) does not control its interpretation.

More fundamentally, the High Court recognised the distinction between taxing receipts and taxing income.

In that case, the entity existed solely for promotion of sports and the expenditure was incurred towards those activities. Its genuineness and purpose were not disputed. The High Court observed that denial of such expenditure could effectively result in taxation of gross receipts rather than income.

This provides useful context for understanding the recent Mumbai ITAT ruling.

In Rahulkumar Bajaj Charitable Trust, Sections 11 and 12 benefits had not been claimed since AY 1993-94 and the Trust's income was assessed under “Income from Other Sources”. The ₹65 lakh under dispute represented donations stated to have been made to eligible charitable trusts/institutions pursuing similar charitable objects. The Tribunal considered the position materially comparable with Mahakalp Arogya Pratisthan and consequently allowed the claim under Section 57(iii).

There is, however, an important caution.

Neither the Delhi High Court decision nor the recent Mumbai ITAT ruling should be read as establishing that every expenditure or donation incurred by a charitable entity automatically becomes deductible under Section 57(iii) merely because Sections 11 and 12 are unavailable.

The nature of the entity, its objects, character and genuineness of expenditure, relationship of expenditure with those objects, head under which receipts are assessed and applicable judicial precedents would require examination in each case.

The broader principle emerging from this judicial line may therefore be stated more carefully:

Denial or non-availability of a charitable exemption determines whether the exemption can be claimed; it does not, by itself, determine the amount of taxable income. Once the receipts enter the ordinary computation framework of the Act, deductions permissible under the applicable head must still be examined.

Conclusion

The Mumbai ITAT ruling in Rahulkumar Bajaj Charitable Trust highlights an important aspect of taxation of charitable entities falling outside the Sections 11 and 12 exemption framework.

On the facts before it, the Tribunal allowed the Trust's claim for deduction of ₹65 lakh under Section 57(iii) in respect of donations made in furtherance of its charitable objects.

In doing so, the Tribunal followed Mahakalp Arogya Pratisthan, which had applied the judicial principle recognised by the Delhi High Court in Petroleum Sports Promotion Board.

The Delhi High Court decision provides the broader conceptual foundation: denial of a charitable exemption and computation of taxable income after such denial are two separate questions.

The ruling should nevertheless not be extended into a general proposition that every charitable expenditure qualifies under Section 57(iii).

The more measured takeaway is:

Where a charitable entity falls outside the special exemption regime, its taxable income must still be determined by applying the charging and computation provisions relevant to the head under which its income is assessed.

For tax years governed by the Income-tax Act, 2025, the same conceptual distinction warrants examination within the reorganised statutory framework applicable to NPOs and the ordinary computation provisions of the new Act.

Case Reference

Rahulkumar Bajaj Charitable Trust v. Deputy Commissioner of Income Tax, Circle 26(1), Mumbai

ITA No.: 4587/Mum/2025
Assessment Year: 2018-19
Forum: Income Tax Appellate Tribunal, Mumbai – Bench “D”
Coram: Shri Anikesh Banerjee, Judicial Member and Shri Arun Khodpia, Accountant Member
Date of hearing: 20 August 2026
Date of pronouncement: 31 August 2026
Relevant provisions: Sections 11, 12, 11(5), 57(iii) and 80G of the Income-tax Act, 1961
Outcome: Assessee's appeal allowed.

Judicial References

1. DDIT (E) v. Petroleum Sports Promotion Board
ITA Nos. 262/2013, 264/2013 & 265/2013
Delhi High Court
Decision dated 3 March 2014.

2. Mahakalp Arogya Pratisthan v. ITO
ITA No. 2368/Mum/2022
Mumbai ITAT
Order dated 10 January 2023 — as referred to in Rahulkumar Bajaj Charitable Trust.

3. CIT v. Rajendra Prasad Moody
115 ITR 519 (SC) — as referred to and discussed by the Delhi High Court in Petroleum Sports Promotion Board.

Publication Details

Publication: SSB Tax Insights
Reference: SSB-TI-2026-006
Published by: SSB & Associates, Chartered Accountants
Author: SSB Editorial Team
Reviewed by: C S Sreenivas, Partner
Publication Date: 13th September 2026

Disclaimer

This publication is intended solely for general information and knowledge sharing and should not be construed as professional advice or opinion. The analysis is based on the facts and findings recorded in the judicial decisions referred to above. The applicability of the principles discussed may vary depending upon the facts and circumstances of each case, the nature and objects of the trust or institution, availability of exemption under the applicable provisions, nature of expenditure and the head under which the income is assessable. References to the Income-tax Act, 2025 are intended to provide contemporary statutory context and should not be construed as suggesting that the judicial decisions discussed herein interpreted the provisions of the 2025 Act. Readers should refer to the applicable statutory provisions and judicial precedents and obtain appropriate professional advice before acting on the basis of this publication.

SSB & Associates
Chartered Accountants