Shaanti Foundation, a Charitable institution registered under section 12AB is engaged in preservation of forests. The accountant of the institution…

(i) As per Explanation to section 11, any sum payable by any trust or institution shall be treated as application of income only in the previous year when such sum is actually paid by it. This is irrespective of the previous year in which the liability to pay such sum was incurred or method of accounting regularly employed by it. Thus, expenditure is allowed as application only when the payment is actually made and not when the liability is incurred. In the present case, though the Shaanti Foundation follows mercantile system of accounting, electricity expenses of 1,20,000 incurred during the P.Y. 2024-25 would be allowable as application of income only in the P.Y. 2025-26 as actual payment is made on 15th April, 2025. (ii) As per section 11 (7) , where a trust or an institution has been granted registration for purposes of availing exemption under section 12AB, such trust or institution cannot claim any exemption under any provision of section 10 [other than exemption of agricultural income under section 10 (1) ]. Accordingly, agricultural income of 10,00,000 would be exempt under section 10 (1) in the hands of Shaanti Foundation registered under section 12AB. (iii) In case a trust is unable to apply the minimum of 85% of its income during the previous year from the reason that the whole or any part of the income has not been received during that year, the period of application is extended to cover the previous year in which the income is actually received or the previous year immediately following the previous year in which the income was received. Accordingly, in the present case, income of 1,00,000 which was received on 31st August, 2025 can be applied during the P.Y. 2025-26, being the year in which such amount is received or in the P.Y. 2026-27, being the P.Y. immediately following the P.Y. 2025-26.