FD Interest of Charitable Trust Taxable Without Specific Donor Direction

The Madras High Court has held that interest earned by a charitable trust on fixed deposits is taxable as revenue income when there is no specific direction from the donor that such interest should form part of the corpus.

Case Details

In St. Joseph’s Development Trust v. Income-tax Officer, T.C.A. No. 124 of 2026, the charitable trust earned approximately Rs. 1.82 crore as interest on fixed deposits. Out of this, Rs. 94.67 lakh was credited directly to the “SJDT Sustainable Fund” instead of being credited to the Income and Expenditure Account.

The Trust claimed that the amount represented interest relating to SHG/donor funds held in a custodial capacity and should therefore be treated as corpus under Section 11(1)(d) of the Income-tax Act, 1961.

However, the Assessing Officer treated the amount as taxable income. The NFAC and ITAT also upheld the addition, following which the Trust approached the Madras High Court.

Madras High Court’s Decision

The High Court dismissed the appeal and confirmed the addition of Rs. 94.67 lakh. The Court held that:

• Interest earned on fixed deposits is revenue income accruing to the Trust.

• Corpus exemption under Section 11(1)(d) requires a specific direction from the donor that the contribution should form part of the corpus.

• Merely crediting the interest to a separate fund or Balance Sheet account does not change its character from income to corpus.

• The fact that the underlying funds were received from donors or were intended for SHG activities does not automatically make the interest corpus.

• Where the interest has first accrued to the Trust and is subsequently transferred or utilised for a particular purpose, such utilisation is generally application of income and not diversion of income by overriding title.

The Court also distinguished cases where the donor had specifically directed that interest earned on the contribution should be added to the corpus.

Key Takeaway for Charitable Trusts

Charitable trusts should maintain clear and specific documentation when receiving corpus donations. If the intention is that interest or other accretions earned on such funds should also form part of the corpus, the donor’s written direction should expressly provide for the same.

Simply transferring interest to a corpus fund or showing it separately in the accounts may not be sufficient to claim exemption under Section 11(1)(d).

The judgment highlights the importance of proper donor documentation, accounting treatment and supporting records while claiming tax exemption for charitable trusts.

Need Assistance With Taxation of Charitable Trusts?

If you are a charitable trust, NGO or tax-exempt institution and need assistance in understanding the tax treatment of corpus donations, FD interest, application of income or Section 11 exemptions, professional guidance can help ensure proper compliance and documentation.

For personalised assistance or to discuss your specific case, get in touch with us today.