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Facts
The revenue appealed against the order of the Ld.CIT(A) which deleted an addition of Rs. 3 crores. The addition was made by the AO under Section 11(3) for income accumulated in AY 2017-18 and applied in AY 2023-24.
Held
The Tribunal held that the amendment to Section 11(3) by the Finance Act, 2022, was substantive and operated prospectively, not retrospectively. Therefore, the accumulation period for the subject year remained governed by the pre-amendment provisions.
Key Issues
Whether the amendment to Section 11(3) of the Income Tax Act, 1961, by the Finance Act, 2022, is retrospective or prospective in nature regarding the application of accumulated income.
Sections Cited
143(1), 250, 139(1), 11(3), 11(2), 43B, 11(5), 139, 113, 92F, 158BB, 145, 158BE, 11
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Income Tax Appellate Tribunal, MUMBAI BENCH “B”, MUMBAI
Before: SHRI ANIKESH BANERJEE & SHRI OMKARESHWAR CHIDARA
Date of hearing : 11/08/2025 Date of pronouncement : 14/08/2025 O R D E R Per Anikesh Banerjee (JM):
The instant appeal of the revenue was filed against the order of the Learned Commissioner of Income-tax (Appeal) / Addl. / JCIT(A)-1, Chandigarh [in short, ‘the Ld.CIT(A)] passed under section 250 of the Income-tax Act, 1961 (in short, ‘the Act’) for Year 2023-24, date of order 28/02/2025. The impugned order emanated from the order of the CPC, Bengaluru (in short, ‘Ld.AO’) passed under section 143(1) of the Act, date of order 20/12/2024.
2 ITA 2927/Mum /2025 Basilica of our Lady of the Mount 2. The brief facts of the case are that the assessee filed the return under section 139(1) of the Act and the return was processed under section 143(1) of the Act. While processing the return, the Ld.AO rejected the assessee’s claim of Rs.3 crores under section 11(3) of the Act and added back with the total income of the assesse for impugned assessment year. The Ld.AO made the addition under section 11(3) for differential sum of Rs.3 crores being the amount applied for specific objects in F.Y. 2022-23 related to A.Y. 2023-24 out of accumulation made under section 11(2) of the Act for A.Y. 2017-18. The Ld. AO considered the amendment to Finance Act, 2022 and held that the amount of Rs.3 crores cannot be added. The Ld. AR stated that under section 11(3) of the Act for this impugned assessment year as being the sixth year of Accumulation for accumulation of income under section 11(2) of the Act. The aggrieved assessee filed an appeal before the Ld.CIT(A). The Ld.CIT(A) considering the submission of the assesse allowed the appeal by deleting the addition. Being aggrieved, the revenue filed an appeal before us.
The Ld.DR argued and filed a written note dated 08/08/2025 which is placed on the record. The relevant paragraphs of the written note is extracted below:- “The Revenue Department respectfully submits that the Commissioner of Income Tax (Appeals) (CIT(A)) erred in allowing the appeal of the Basilica of Our Lady of the Mount and deleting the addition of 23,00,00,000 made by the Assessing Officer under Section 11(3) of the Income Tax Act, 1961, for Assessment Year (AY) 2023-24. The CIT(A)'s order is unsustainable in law, as it fails to recognize the clarificatory and retrospective nature of the amendment to Section 11(3) introduced by the Finance Act, 2022. The amendment to Section 11(3) of the Income Tax Act, 1961, introduced by the Finance Act, 2022, is unequivocally clarificatory and procedural in nature, aimed at aligning the provision with its original legislative intent of ensuring timely application of accumulated funds by charitable 3 ITA 2927/Mum /2025 Basilica of our Lady of the Mount institutions. By curtailing the period for utilization of unapplied accumulated income to 5 years, effective from AY 2023-24, the amendment prevents indefinite deferral of charitable expenditures and potential misuse of exemptions under Section 11. This clarificatory character necessitates its retrospective application to all pending assessments, including those involving accumulations from prior years like AY 2017-18, where the income was applied in AY 2023-24-the year under consideration. Background of the Case The Basilica of Our Lady of the Mount, a charitable institution, filed its return of income for AY 2023-24, declaring nil income. The Assessing Officer, through the Centralized Processing Centre (CPC), issued an intimation under Section 143(1), computing a taxable income of 13.00.00.000 under Section 11(3). This addition arose because income accumulated in AY 2017-18 was applied in AV 2023-24, which the Assessing Officer deemed impermissible under the amended Section 11(3), The appellant appealed to the CIT(A), who allowed the appeal, holding that the pre-amended Section 11(3), which permitted application of accumulated income within 6 years, applied to the AY 2017-18 accumulation. The CIT(A) ruled that the Finance Act, 2022, amendment, effective from AY 2023-24, was not retrospective and thus did not apply to earlier accumulations. Consequently, the addition and interest levies were deleted. The Revenue Department now appeals before the ITAT, arguing that the CIT(A)'s interpretation is erroneous and that the amendment to Section 11(3) should apply retrospectively.” The Ld.DR also argued that the amendment made in Finance Act, 2022 is curative in nature, so the retrospective amendment should be accepted and accordingly, the addition made by the Ld.AO should be upheld.
The Ld.AR argued and fully relied on the order of Ld.CIT(A). The relevant paragraphs of the impugned appellate order is reproduced as below:- “5.4 As per section 11(3) amended by Finance Act, 2022 w.e.f. 2023-24, the accumulated income can be applied within 5 years from year of accumulation and not so applied, it will be 4 ITA 2927/Mum /2025 Basilica of our Lady of the Mount taxed in the 5th year self. By applying these amended provisions to the appellant’s case, the income accumulated in the FY. 2016-17 and not applied upto F.Y. 2021-22, was taxable in A.Y. 2022-23. This makes clear that the accumulated income pertaining to A.Y. 2017-18 is not taxable in AY. 2009-24 under the post-amended provisions of section 11(3) of the Act also 5.5 The amended provisions of section 15(3) of the Act by the Finance Act, 2012 have been made applicable to Assessment Year 2023-24 and subsequent assessment years. However, the intention of the legislature behand these amendments can not be to curtail the period of accumulation from 5 years done in compliance with the law existing at the relevant time to 5 years and to tax the unutilized accumulated income in 5th year instead of 6th years even the same has been applied in 6th year. Therefore, the amendments in section 11(3) vide Finance Act 2022 cannot be interpreted to apply retrospectively to AY 2017-18 without the law specifically staling so There is one more point necessary for consideration. The Finance Bill, 202 vide which the amendments in the provisions of section 11(3) of the Act wors proposed was passed by the Parliament on 25th March, 2022 and received the consent of the President on 30th March, 2022 and became Act on that date. So, F the amended provision is interpreted to held that the appellant was required to apply the income accumulated in F.Y. 2016-17 upto 31-03-2022, he was having only one day to spend the entire amount to prevent the charge of tax on such accumulated income it would have created nearly Impossible circumstances for the appellant which can not be the intention of the Legislature 5.6 In view of the above facts, relevant provisions of the Act and the julάτω pronouncements mentioned above, the addition of Rs.3.00.00.000/- made by the CPC by not allowing the application of accumulated income of A.Y. 2017-18 the current year is not sustainable in the eyes of law and therefore the same is Quinter Accordingly, the Grounds No. 1-8 are allowed.”
The Ld.AR further argued that the assessee accumulated the funds from A.Y. 2017-18 amount to Rs.3 crores and as per the Finance Act, 2001, the said period of accumulation for maximum period of 10 years, but by virtue of amendment in Finance Act, 2022 with effect from 01/04/2023, the accumulation of any income 5 ITA 2927/Mum /2025 Basilica of our Lady of the Mount restricted for a maximum period of 5 years. So, in question of applicability of tax, the said amendment is not retrospective, but a prospective amendment. Considering this, the Ld.AR respectfully relied on the order of co-ordinate bench of ITAT, Mumbai Bench “D” in the case of Shri Dadar Digambe Jain Mumukshu Mandal vs CIT (Exemption)
date of pronouncement 15/07/2025. The relevant paragraph 12 is reproduced below:- “12. We have heard the rival contentions and perused the material available on record. The issue under consideration relates to accumulation of income relating to FY. 2016-17 and FY. 2017-18 which could not be utilized in the respective financial years and accumulated for utilization in the subsequent financial years and the taxability of such accumulated income and whether the same can be brought to tax in the impugned assessment year 2023-24. The relevant provisions under consideration are sub-section (2) to Section 11 and sub-section (3) to Section 11. Under the existing provisions of the Act, a trust or institution is required to apply 85% of its income during the relevant previous year. Sub-section (2) to Section 11 provides that where the trust or institution is not able to apply 85% of its income during the previous year, it is allowed to accumulate or set apart either in whole or in part for application to such purposes in India and in such a scenario, income so accumulated or set apart shall not be included in the total income of the previous year of such trust or institution. However, the same is subject to satisfaction of certain conditions, namely, such trust or institution has to furnish a statement as so prescribed to the Assessing officer stating the purpose for which the income is to be accumulated or set apart and the period for which the income is to be accumulated or set apart which shall in no case exceed five years. Secondly, the money so accumulated or set apart is invested or deposited in the forms or mode specified in section 11(5). Thirdly, the statement so referred is furnished on or before the date specified under sub-section (1) of section 139 for furnishing the return of income. It has been further provided that in computing the period of five years, the period during which the income could not be applied for the purpose for which it is so accumulated or set apart due to an order or injection of any court shall be excluded. We, therefore, find that as per sub-section (2) to section 11 of the Act, the assessee has to comply with the aforesaid three conditions as so 6 ITA 2927/Mum /2025 Basilica of our Lady of the Mount specified and the period for which the income can be accumulated is for a maximum period of five years. Here it is relevant to note that earlier, the period of accumulation was for a maximum period of ten years and by virtue of Finance Act 2001, the said period of accumulation has been amended and has been restricted for a maximum period of five years in respect of any income accumulated or set apart on or after 01-04-2001. As far as accumulation of any income prior to 01-04-2001, the same continues to be guided by the erstwhile provision and the accumulation continued for period of ten years.”
We have heard the rival submissions and perused the material available on record. The assessee has claimed adjustment of Rs.3 crores under Section 11(3) read with Section 11(2) of the Act. Under the amendment introduced by the Finance Act, 2001, the maximum permissible period of accumulation was ten years. However, pursuant to the Finance Act, 2022, this period has been reduced to five years, with effect from 01.04.2023, applicable for A.Y. 2023-24, in relation to Section 11(3) of the Act. In the present case, the funds in question were duly accumulated in A.Y. 2017-18. The revenue’s contention is that the aforesaid amendment has retrospective effect and, therefore, the ten-year accumulation period should not be accepted. The Ld. DR placed reliance on the decision of the co-ordinate bench of the ITAT, Mumbai Bench “F” in Fiduciary Shares & Stock (P) Ltd. v. ACIT, order dated 13.05.2016, wherein the Bench, after considering the judgment of the Hon’ble Supreme Court in Allied Motors (P) Ltd. v. CIT [224 ITR 677], held that the first proviso to Section 43B of the Act was curative in nature and, therefore, had retrospective operation from 01.04.1984, being the date on which the section was introduced into the statute. In rebuttal, the Ld. AR submitted that, for purposes of taxability, the amendment in question cannot be applied retrospectively, as it is not 7 ITA 2927/Mum /2025 Basilica of our Lady of the Mount curative or clarificatory but substantive in nature, and hence must operate prospectively. It was further contended that the alleged taxability of Rs.3 crores in accumulated surplus falls within the permissible six-year period and, therefore, the amendment has no application to the assessee’s case. The Ld. AR further submitted that the issue stands squarely covered by the decision of the co-ordinate bench of the ITAT, Pune Bench “B” in Yashwantrao Chavan Maharashtra Open University v. CIT (Exemption), order dated 23.06.2025, wherein it was held that the amendment introduced by the Finance Act, 2022, is not retrospective in nature insofar as it relates to the utilisation of accumulated surplus under Section 11(3) of the Act. The said view has also been followed by the co-ordinate bench of the ITAT, Mumbai Bench “D” in Shri Dadar Digamber Jain Mumukshu Mandal (supra). In addition, reliance has been placed on the judgment of the Hon’ble Supreme Court in CIT-I, New Delhi v. Vatika Township (P) Ltd. [2014] 49 taxmann.com 249 (SC), order dated 15.09.2014, wherein it was held: “39……………………… (d) There are some other circumstances which reflect the legislative intent. The problem which was highlighted in the Conference of Chief Commissioners on the rate of surcharge applicable is noted above. In view of the aforesaid difficulties pointed out by the Chief Commissioners in their Conference, it becomes clear that as per the provisions then enforced, levy of surcharge in the block assessment on the undisclosed income was a difficult proposition. It is for this reason retrospective amendment to Section 113 was suggested. Notwithstanding the same, the legislature chose not to do so, as is clear from the discussion hereinafter. “Notes on Clauses” appended to Finance Bill, 2002 while proposing insertion of proviso categorically states that “this amendment will take effect from 1st June, 8 ITA 2927/Mum /2025 Basilica of our Lady of the Mount 2002”. These become epigraphic words, when seen in contradistinction to other amendments specifically stating those to be clarificatory or retrospectively depicting clear intention of the legislature. It can be seen from the same notes that few other amendments in the Income Tax Act were made by the same Finance Act specifically making those amendments retrospectively. For example, clause 40 seeks to amend S.92F. Clause iii (a) of S.92F is amended “so as to clarify that the activities mentioned in the said clause include the carrying out of any work in pursuance of a contract.” This amendment takes effect retrospectively from 01.04.2002. Various other amendments also take place retrospectively. The Notes on Clauses show that the legislature is fully aware of 3 concepts:
(i) prospective amendment with effect from a fixed date; (ii) retrospective amendment with effect from a fixed anterior date; and (iii) clarificatory amendments which are retrospective in nature. Thus, it was a conscious decision of the legislature, even when the legislature knew the implication thereof and took note of the reasons which led to the insertion of the proviso, that the amendment is to operate prospectively. Learned counsel appearing for the assessees sagaciously contrasted the aforesaid stipulation while effecting amendment in Section 113 of the Act, with various other provisions not only in the same Finance Act but Finance Acts pertaining to other years where the legislature specifically provided such amendment to be either retrospective or clarificatory. In so far as amendment to Section 113 is concerned, there is no such language used and on the contrary, specific stipulation is added making the provision effective from 1st June, 2002. (e) There is yet another very interesting piece of evidence that clarifies the provision beyond any pale of doubt, viz. understanding of CBDT itself regarding this provision. It is contained in CBDT circular No.8 of 2002 dated 27th August, 2002, with the subject “Finance Act, 2002 – Explanatory Notes on provision relating to Direct Taxes”. This circular has been issued after the passing of the Finance Act, 2002, by which amendment to Section 113 was made. In this circular, various amendments to the Income Tax Act are 9 ITA 2927/Mum /2025 Basilica of our Lady of the Mount discussed amply demonstrating as to which amendments are clarificatory/retrospective in operation and which amendments are prospective. For example, explanation to Section 158BB is stated to be clarificatory in nature. Likewise, it is mentioned that amendments in Section 145 whereby provisions of that section are made applicable to block assessments is made clarificatory and would take effect retrospectively from 1st day of July, 1995. When it comes to amendment to Section 113 of the Act, this very circular provides that the said amendment along with amendments in Section 158BE, would be prospective i.e. it will take effect from 1st June, 2002.” The ratio laid down in Vatika Township (supra) thus supports the assessee’s contention that a substantive amendment, in the absence of explicit legislative intent to the contrary, operates prospectively. In view of the above facts and judicial pronouncements, we find that the issue is already decided in favour of the assessee. Respectfully following the aforesaid binding precedents, we hold that the addition of Rs.3 crores is unsustainable in law and the same is deleted. We accordingly uphold the order of the Ld. CIT(A) and dismiss the grounds raised by the Revenue.
In the result, the appeal of the revenue bearing is dismissed.