ITAT Delhi: Impermissible Investment Under Section 13(1)(d) Does Not Strip Charitable Trust of Entire Section 11 Exemption — TERI Case

A critical question frequently confronted in trust taxation is this: when a registered charitable institution holds investments outside the modes prescribed under Section 11(5) of the Income Tax Act, 1961, does the consequential violation of Section 13(1)(d) result in complete withdrawal of exemption across all income of the trust? The Delhi Bench of the Income Tax Appellate Tribunal has addressed this issue with clarity in the matter of DCIT (Exemption) v. The Energy and Resources Institute, ITA Nos. 5991 and 5992/Del/2026, relating to Assessment Years 2016–17 and 2017–18, with the order pronounced on 28 September 2026.

The Tribunal's answer is unambiguous: the loss of exemption arising from a Section 13(1)(d) violation is confined strictly to the income derived from the non-compliant investments. Where no income was earned from those investments during the relevant year, the institution's remaining income continues to qualify for relief under Section 11 and Section 12 of the Act.

Background: Who Is TERI and What Triggered the Dispute?

The Energy and Resources Institute (TERI) is a society registered under the Societies Registration Act, 1860, bearing registration number S-7159 dated 12.03.2003. It also holds registration under Section 12A of the Income Tax Act, 1961, granted vide order dated 01.07.2005, and has been granted approval under Section 80G vide order dated 01.05.2012.

TERI's primary mandate involves preservation of the environment — an activity squarely covered under the fifth limb of the definition of "charitable purpose" as set out in Section 2(15) of the Act.

During scrutiny for Assessment Years 2016–17 and 2017–18, the Assessing Officer (AO) observed that TERI held investments amounting to ₹2,44,39,291 in joint ventures involving foreign entities, specifically Glori Energy Inc., TIME (Kuwait), and ONGC TERI Biotech Ltd. These investments were held in the form of shares.

TERI's position before the AO was straightforward:

  • No fresh investment had been made during either assessment year under consideration.
  • No income — whether in the form of dividends, capital gains, interest, or any other receipt — had been earned from these holdings during the relevant previous years.

Despite this, the AO concluded that TERI's continued holding of these shares amounted to a violation of the prescribed investment modes under Section 11(5), thereby attracting Section 13(1)(d). On this basis, he denied exemption under Section 11 read with Section 12 across the entire income of TERI. For AY 2017–18, the assessment was completed at a total taxable income of ₹16,19,74,743.

The Statutory Framework: Reading Section 13(1)(d) Carefully

Before examining the dispute, it is useful to set out the relevant portion of Section 13 of the Income Tax Act, 1961, as reproduced in the Tribunal's order:

**Section 13(1)(d)😗* "Nothing contained in section 11 or section 12 shall operate so as to exclude from the total income of the previous year of the person in receipt thereof — in the case of a trust for charitable or religious purposes or a charitable or religious institution, any income thereof, if for any period during the previous year —
(i) any funds of the trust or institution are invested or deposited after the 28th day of February, 1983 otherwise than in any one or more of the forms or modes specified in sub-section (5) of section 11; or
(ii) any funds of the trust or institution invested or deposited before the 1st day of March, 1983 otherwise than in any one or more of the forms or modes specified in sub-section (5) of section 11 continue to remain so invested or deposited after the 30th day of November, 1983; or
(iii) any shares in a company, other than — (A) shares in a public sector company; (B) shares prescribed as a form or mode of investment under clause (xii) of sub-section (5) of section 11, are held by the trust or institution after the 30th day of November, 1983, to the extent of such deposits or investments referred to in sub-clauses (i), (ii) and (iii)..."

The operative phrase — "to the extent of such deposits or investments" — is the interpretive linchpin. The statute does not say that the entirety of the trust's income is forfeited. The forfeiture applies only to the extent of the impermissible investment, i.e., the income flowing from it.

What the CIT(A) Decided