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Facts
The assessee trust accumulated funds in FY 2016-17 and FY 2017-18. The Assessing Officer (AO) and CIT(A) added the unutilized portions of these funds to the assessee's income for AY 2023-24, citing an amendment to Section 11(3) of the Income Tax Act. The assessee argued that the amendment was prospective and did not apply to prior accumulations.
Held
The Tribunal held that the amendment to Section 11(3) of the Income Tax Act by the Finance Act, 2022, is prospective and applies only to accumulations from AY 2023-24 onwards. For prior accumulations, the pre-amendment provisions allowing a six-year period for utilization are applicable. Therefore, the additions made by the AO and confirmed by the CIT(A) were set aside.
Key Issues
Whether the amendment to Section 11(3) of the Income Tax Act by the Finance Act, 2022, applies retrospectively to accumulations made in earlier years, or if it is prospective in nature.
Sections Cited
11(3), 143(1), 11(2), 11(5), 139, 12AA, 12AB, 10(23C), 11(3)(c), 11(3)(d), 11(2)(a), 11(3)(c), 13(1)(c), 11(2)(a), 11(3)(c)
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Income Tax Appellate Tribunal, MUMBAI “D” BENCH : MUMBAI
Before: SHRI VIKRAM SINGH YADAV & SHRI ANIKESH BANERJEE
Assessment Year : 2023-24 Shri Dadar Digamber Jain The CIT (Exemption), Mumukshu Mandal, Ward-2(3), 271/293, 271/293, vs. Mumbai. N.C. Kelkar Road, Opp: Shivaji Park, P.O. Dadar (West) Mumbai-400028. PAN : AACTS8044A (Appellant) (Respondent) For Assessee : Shri A.N. Shah For Revenue : Shri Annavaram Kosuri Date of Hearing : 11-06-2025 Date of Pronouncement : 15-07-2025 O R D E R PER VIKRAM SINGH YADAV, A.M : This is an appeal filed by the assessee against the order of the Ld.Addl/JCIT(A)-2, Delhi [„Ld.CIT(A)‟], dated 05-03-2025, pertaining to Assessment Year (AY) 2023-24, wherein the assessee has taken the following grounds of appeal:
“1. On the facts and in the circumstances of the case and in law, the learned CIT (A)-NFAC erred in deciding the appeal by holding as follows: a) The learned CIT (A) erred in making addition of Rs 35,66,540/- on account of utilization of Accumulated Amount u/s 11(3) for AY 2016-17 & Rs 40,00,000/- for AY 2017-18 without considering the correct provision stated for the same. b) The learned CIT(A) failed to correctly interpret the amendment in section 11(3)(c) and proviso after clause 11(3)(d) while calculating the period of expiry for utilization of accumulated fund and erroneously confirming the addition of the same to the Total Income of the appellant. c) The learned CIT(A) failed to appreciate and consider that accumulated amount in FY 2016-17 i.e relevant to AY 2017-18 can be utilized before 31.03.2023 & also further failed to consider that accumulated amount in FY 2017-18 can be utilized before 31.03.2024 2. On the facts and in the circumstances of the case and in law, the learned CIT (A) erred in passing order without giving adequate opportunity of being heard through Video conferencing which is contrary to provisions of law and natural justice. The order passed in violation of the principles of natural justice is of no value as held by the Supreme Court in R.B. Shreeram Durga Prasad and Fatechand Nursing Das v. Settlement Commission [1989] 43 Taxman 34 (SC).”
Briefly the facts of the case are that the assessee trust filed its original return of income on 31-10-2023 for the impugned A.Y. 2023-24, declaring total income of Rs. 14,37,197/-. The return was processed and in terms of intimation issued u/s. 143(1) of the Act, assessed income was determined at Rs. 90,03,740/- as per details below:
Particulars Amount (Rs.) Amount (Rs.) Total Income as per Return of 14,37,197/- Income Additions to total income: Unutilised set aside funds w.r.t. 40,00,000/- FY. 2017-18 Unutilised set aside funds w.r.t. 35,66,540/- 75,66,540/- FY. 2016-17 Assessed Total Income 90,03,737/-
3. Being aggrieved, the assessee carried the matter in appeal before the Ld.CIT(A), who vide order dated 05-03-2025, upheld the additions made by the AO and confirmed the total income of the assessee at Rs.90,03,737/- and against the said order and findings of the ld CIT(A), the assessee is in appeal before us.
4. During the course of hearing, the Ld. AR drawn our reference to the table below, wherein the set aside funds were used in the following manner:- FY. Amount of Due date for Amount Balance to be Remarks accumulation utilization utilised added to on 01-04-2022 (before before due income due pending amendment date Rs. to exceeding utilization Rs. in law) Rs. time limit as per Section 11(3) Rs. 2016- 50,00,000/- 31.03.2023 35,66,540/- 14,33,460/ The learned AO 17 erred in adding to (5+1 years (Suo moto total income from offered to amount of 31.03.2017) Income in Rs.35,66,540/- A.Y 2023-24) even though the same was utilised for the objects of the Trust before due date (Page No1-3 of Paper Book) 2017- 40,00,000/- 31.03.2024 40,00,000/- Not The learned AO 18 (5+1 years (Utilised applicable for erred in from before AY. 2023-24 retrospectively 31.03.2018) 31.3.2024) applying the amendment w.e.f. 01.04.2022, and thereby proceeded to add Rs. 40,00,000/- to the Total Income for Assessment year 2023-24 before the lapse of time period of utilization. (Page No of 1-3 of Paper Book)
5. It was submitted by the ld AR that as evident from particulars in the aforesaid table, the accumulation made u/s. 11(2) for the FY. 2016-17 had to be utilized by 31st March 2023. It was submitted that the 5-year period ended on 31st March 2022, and as per law, then prevailing when the provision was introduced, one additional year was allowed for utilization, which ends on 31st March 2023. It was submitted by the ld AR that the assessee had accumulated Rs. 63,00,000/- in FY. 2016-17 (i.e., AY. 2017- 18) and out of this, Rs. 13,00,000/- was utilized in earlier years, and Rs. 35,66,540/- was utilized during the relevant AY. 2023-24. The remaining balance of Rs. 14,33,460/-was voluntarily disallowed by the assessee in the return of income. Hence, the Ld.AR submitted that the assessee utilized the funds within the legally allowed time frame, i.e., till FY. 2022- 23, in line with Section 11(3) of the Act, as it existed before being amended by the Finance Act, 2022 and, therefore, argued that the addition of Rs. 35,66,540/- to the total income by the AO/CPC was incorrect and this mistake was further wrongly upheld by the Ld.CIT(A)-(NFAC).
6. It was further submitted by the Ld.AR that similarly, for the accumulation made u/s. 11(2) of the Act in FY. 2017-18, the funds had to be utilized by 31st March 2024. This is because the five year period ended on 31st March 2023, and the additional one-year grace period ends on 31st March 2024. The assessee had accumulated Rs. 48,00,000/- in FY. 2017- 18 and out of this amount, Rs. 8,00,000/- was used in earlier years and Rs. 40,00,000/- was utilized in the relevant financial year 2023-24 and submitted that the utilization falls within the allowed time frame (ie, up to FY. 2023-24), in accordance with Section 11(3) of the Act as it stood before the amendment by the Finance Act, 2022. Hence, the Ld.AR argued that the addition of Rs. 40,00,000/- to the total income by AO/CPC was erroneous, and this was also wrongly confirmed by the Ld.CIT(A)-NFAC.
7. It was submitted by the Ld.AR that the erroneous addition made by the authorities is due to incorrect interpretation of section 11(3) of the Income Tax Act, 1961 as amended by the Finance Act, 2022, which reads as under:
(3) Any income referred to in sub-section (2) which:- a) is applied to purposes other than charitable or religious purposes as aforesaid or ceases to be accumulated or set apart for application thereto, or b) ceases to remain invested or deposited in any of the forms or modes specified in sub-section (5), or c) is not utilised for the purpose for which it is so accumulated or set apart during the period referred to in clause (a) of that sub-section or in the year immediately following the expiry thereof, d) is credited or paid to any trust or institution registered under section 12AA 73 [or section 12AB] or to any fund or institution or trust or any university or other educational institution or any hospital or other medical institution referred to in sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) of clause (23C) of section 10.
It was submitted by the Ld.AR that pursuant to the provisions of Section 11(3)(c) of the Income-tax Act, 1961, any portion of income which has been set aside or accumulated for application towards a specified purpose shall be utilized for such purpose within a period of five years from the end of the previous year in which such income was set aside. An additional grace period of one year was earlier permitted under the erstwhile provision, allowing utilization within a total period of six years. Illustratively, if the funds were set aside during the Financial Year 2016- 17, the permissible period for utilization would extend up to 31st March 2023, being six years from 31st March 2017. Should the accumulated income remain unutilized beyond the said period, it shall be deemed income of the financial year 2023-24 and taxed accordingly. However, with effect from 1st April 2023, the phrase "in the year immediately following the expiry thereof has been omitted from the statute. Consequently, the grace period of one additional year stands withdrawn, thereby effectively reducing the permissible period for utilization from six years to five years. But the same will have a prospective effect and not a retrospective effect. It was submitted that the same is apparent from the case laws cited below that amendments are always prospective until and unless the language of the statue itself envisages that the amendment is sought to be retrospective. In this connection, the Ld. AR drawn our reference to the following decisions: a. Asst.Commissioner of Income Tax Vs. NCC Ltd. (157 taxmann.com144) (ITAT Hyderabad). b. Indian Bank Vs. Commissioner of Income Tax (151 taxmann.com 205) (High Court of Calcutta) c. MAJ Hospital Vs. Deputy Commissioner of Income Tax (100 taxmann.com 1) (ITAT Cochin).
9. The Ld.AR further submitted that the Ld. CIT(A) erred in not considering the decision of ld Add/JCIT-1 Gurugram dated 31-01-2025 on the similar issue dealt with in case of another charitable trust i.e., Shri Premvardhak Shewatambar Murtipujak Tapagachha Jain Singh, for A.Y 2023-24 though the same was brought to his notice by the assessee during the first appellate proceedings. Further, our reference was drawn to another decision of Ld.Add/JCIT(A)-4, Chennai dated 17-03-2025 in case of Shri Dahanukarwadi Mahavir Nagar Shwetamber Murtipujak Jain Sangh for AY. 2023-24 wherein under identical facts and circumstances of the case, relief relating to earlier accumulations have been allowed and the amendment has been held to be prospective in nature.
10. It was accordingly submitted that the Ld.CIT(A) erred in misapplying the amendment made to Section 11(3)(c) by the Finance Act, 2022. It was submitted that the amendment received the Presidential assent on 30th March 2022 and is prospective in nature, applicable only to accumulations made under Section 11(2) on or after 1st April 2022 (i.e. from AY. 2023-24 onwards) and prayed that the amended provisions cannot be applied retrospectively to accumulations made in earlier years since the assessee rightly utilized the accumulation for FY. 2016-17 (AΥ. 2017-18) by 31st March 2023, and for FY. 2017-18 (ΑΥ. 2018-19) by 31st March 2024, both within the permissible time limits as per the law prevailing before the amendment and any disallowance made on the basis of the amended Section 11(3)(c) of the Act is legally untenable and is liable to be quashed by deleting the addition made by the AO and confirmed by the Ld.CIT(A).
11. Per contra, the Ld. DR is heard, who has relied on the order passed by the Ld. CIT(A). It was submitted that as per the amendment by the Finance Act, 2022 w.e.f 01-04-2023 i.e, applicable for FY 2022-23 relevant to impugned assessment year 2023-24, which is under consideration, it requires that the amount of accumulated income is to be spent by the end of the fifth year, but the same has not been done before the due date prescribed by the Act applicable for the impugned assessment year 2023- 24, thus, the same cannot be allowed. It was further submitted by the Ld. DR that the taxing statutes are to be construed literally even if it causes hardship. It is not available to the appellate authority to intend or insert its interpretation when the plain language has laid down what is intended by the legislature in clear words and language. It was accordingly submitted by the Ld. DR that the addition made by the AO and confirmed by the Ld. CIT(A) be upheld and the grounds of appeal of the assessee be dismissed.
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 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.
In the instant case, the matter under consideration relates to accumulation of income done by the assessee pertaining to the FY. 2016- 17 and FY. 2017-18 and as such, there is no amendment or change in law and the assessee continues to remain eligible insofar as the period for which the income can be accumulated or set apart which remains at five years and there has been no change which has been brought in by the Finance Act, 2022.
Moving further, in terms of sub-section (3) of section 11, it talks about the situations where the income so accumulated and referred to in sub- section (2) can be brought to tax in the hands of the trust or the institution. There has been an amendment to sub-section (3) by the Finance Act, 2022, w.e.f. 1st April, 2023 and it is therefore relevant to look at the un-amended provisions and the amendment which has been brought in by the Finance Act, 2022.
The provisions of sub-section (3) to section 11, prior to its amendment by the Finance Act, 2022 read as under: “(3) Any income referred to in sub-section (2) which- (a) is applied to purposes other than charitable or religious purposes as aforesaid or ceases to be accumulated or set apart for application thereto, or (b) ceases to remain invested or deposited in any of the forms or modes specified in sub-section (5), or (c) is not utilised for the purpose for which it is so accumulated or set apart during the period referred to in clause (a) of that sub-section or in the year immediately following the expiry thereof, (d) is credited or paid to any trust or institution registered under section 12AA for section 12AB) or to any fund or institution or trust or any university or other educational institution or any hospital or other medical institution referred to in sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) of clause (23C) of section 10. shall be deemed to be the income of such person of the previous year in which it is so applied or ceases to be so accumulated or set apart or ceases to remain so invested or deposited or credited or paid or, as the case may be, of the previous year immediately following the expiry of the period aforesaid."
The provisions of sub-section (3) to section 11, as amended by the Finance Act, 2022 read as under: “(3) Any income referred to in sub-section (2) which- (a) is applied to purposes other than charitable or religious purposes as aforesaid or ceases to be accumulated or set apart for application thereto, or (b) ceases to remain invested or deposited in any of the forms or modes specified in sub-section (5), or (c) is not utilised for the purpose for which it is so accumulated or set apart during the period referred to in clause (a) of that sub-section, (d) is credited or paid to any trust or institution registered under section 12AA for section 12AB) or to any fund or institution or trust or any university or other educational institution or any hospital or other medical institution referred to in sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) of clause (23C) of section 10. shall be deemed to be the income of such person of the previous year,- (i) in which it is so applied or ceases to be so accumulated or set apart under clause (a); or (ii) in which it ceases to remain so invested or deposited under clause (b); or (iii) being the last previous year of the period, for which the income is accumulated or set apart but not utilised for the purpose for which it is so accumulated or set apart under clause (c); or (iv) in which it is credited or paid to any fund or institution or trust or any university or other educational institution or any hospital or other medical institution under clause (d).
17. We, therefore, find that under the un-amended law where the accumulated income is not utilized for the specific purposes during the period of five years or in the year immediately following the expiry of that period, then the accumulation to the extent not so utilized will be chargeable to tax as income of the previous year immediately following the expiry of that period. In other words, the assessee gets an extended period of one more year, in total, six years for utilization of accumulated income and on expiry of the said period, by virtue of the deeming fiction, the unutilised accumulated income shall be brought to tax in the previous year following the expiry of period of six years.
The Finance Act, 2022 has amended and omitted the extra period of one year following the expiry of the initial period of accumulation of five years. Therefore, unlike under the un-amended provisions wherein the income which is not utilized for the purposes it was accumulated can be brought to tax on the expiry of the sixth year, under the amended law, that income can be brought to tax on the expiry of five years itself.
Therefore, on a combined reading of sub-section (2) to Section 11 and sub-section (3) to Section 11 of the Act, we find that there is no change as such which has been brought about by the Finance Act, 2022 in terms of the initial period of accumulation which remains at five years, however, the extended period of accumulation of one year is no more is available to the trust or the institution. The said amendment has been brought in by the Finance Act, 2022 w.e.f. 1st April, 2023 and to apply in relation to AY. 2023-24 and subsequent assessment years.
20. The question that arises for consideration is whether the said amendment relates to existing accumulations which already stood for prior years or relates to fresh accumulations for the financial year 2022-23 onwards. In this regard, we have gone through the Finance Bill, 2022 and the Memorandum explaining the provisions in the Finance Bill, 2022 and find that the amendment has been brought in the provisions of section 11 as well as section 10(23C) of the Act with a view to bring consistency in the two exemption regimes which have been provided under the Act and as part of that, the instant amendment has also been carried out. There is nothing which has been specified as to limiting the extended period of accumulation already available to the trust or institution in respect of income already accumulated for earlier years. The said amendment has been clearly stated to take effect from 1st April, 2023 and to apply in relation to AY. 2023-24 and subsequent assessment years.
Therefore, both in terms of language as well as the intent, we find that the amendment which has been brought in by the Finance Act, 2022 relates to accumulation of income pertaining to previous year starting from 1st April, 2022 onwards relevant to AY. 2023-24 and subsequent assessment years and in that sense, has to be applied prospectively in respect of fresh accumulations and not in respect of existing accumulations which continue to remain guided by the erstwhile provisions at the relevant point in time when the accumulations were made in the respective financial years.
We find that similar view has been taken by the Co-ordinate Pune Benches in case of Yashwantrao Chavan Maharashtra Open University vs. CIT, Exemption (in pertaining to AY.2023-24, wherein the Co-ordinate Bench referring to the provisions of the Finance Act, 2022, the memorandum explaining the Financial Bill, 2022 and drawing support from the decision of the Hon‟ble Supreme Court in case of Vatika Township has held that where in terms of provisions at the time of accumulation, the assessee has utilized the amount in the year immediately following the prescribed period of 5 years and the amendment to the provisions of section 11(3) are held to be prospective in nature, no adjustment is warranted and the action of the AO/CPC was set- aside. We can gainfully refer to the findings of the Co-ordinate Bench which reads as under:
“15. We have heard the rival arguments made by both the sides, perused the order passed by the CPC and the Ld. Addl / JCIT(A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find the assessee in the instant case filed its return of income on 30.11.2023 declaring total income as Nil. Since the assessee has accumulated an amount of Rs.90,70,20,511/- during the financial year 2016-17 and has utilized the same by 31.03.2023 i.e. in the 6th year of accumulation, the CPC taxed it in the 6th year i.e. financial year 2022-23. We find in appeal the Ld. Addl / JCIT(A) upheld the addition made by the CPC, the reasons of which have already been reproduced in the preceding paragraphs. It is the submission of the Ld. Counsel for the assessee that the provisions of the Income Tax Act, 1961 as applicable to assessment year 2023-24 provides for taxation in the 5th year only and not in 6th year, therefore, taxing it in the 6th year ought to be deleted. It is his submission that for the amounts which are accumulated in assessment year 2017-18, the amount was taxable only if such accumulated amount was not applied within 6 years from the year of accumulation i.e. 5 years plus one year. Since the assessee has applied such accumulated amount within 6 years therefore, it is not taxable in that year also. It is also his alternate submission that since the issue is a debatable one, therefore, no adjustment can be made by the CPC. Further, it is his submission that the amendment to section 11(3) of the Act is to be applicable prospectively i.e. applicable for the amounts accumulated from assessment year 2023-24 and onwards and not for the amounts which were accumulated earlier.
16. We find some force in the arguments of the Ld. Counsel for the assessee on this issue. The provisions of section 11(2) and 11(3) of the Act as stood at the relevant time read as under:
“11(1)….. (2) Where eighty-five per cent of the income referred to in clause (a) or clause (b) of sub-section (1) read with the Explanation to that sub-section is not applied, or is not deemed to have been applied, to charitable or religious purposes in India during the previous year but is accumulated or set apart, either in whole or in part, for application to such purposes in India, such income so accumulated or set apart shall not be included in the total income of the previous year of the person in receipt of the income, provided the following conditions are complied with, namely:—
(a) such person furnishes a statement in the prescribed form and in the prescribed manner to the Assessing Officer, stating the purpose for which the income is being 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;
(b) the money so accumulated or set apart is invested or deposited in the forms or modes specified in sub-section (5); (c) the statement referred to in clause (a) is furnished on or before the due date specified under sub-section (1) of section 139 for furnishing the return of income for the previous year:
Provided that in computing the period of five years referred to in clause (a), 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 injunction of any court, shall be excluded.
Explanation.—Any amount credited or paid, out of income referred to in clause (a) or clause (b) of sub-section (1), read with the Explanation to that sub-section, which is not applied, but is accumulated or set apart, to any trust or institution registered under section 12AA [or section 12AB] or to any fund or institution or trust or any university or other educational institution or any hospital or other medical institution referred to in sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) of clause (23C) of section 10, shall not be treated as application of income for charitable or religious purposes, either during the period of accumulation or thereafter.
(3) Any income referred to in sub-section (2) which— (a) is applied to purposes other than charitable or religious purposes as aforesaid or ceases to be accumulated or set apart for application thereto, or (b) ceases to remain invested or deposited in any of the forms or modes specified in sub-section (5), or (c) is not utilised for the purpose for which it is so accumulated or set apart during the period referred to in clause (a) of that sub-section [or in the year immediately following the expiry thereof], [or section 12AB (d) is credited or paid to any trust or institution registered under section 12AA ] or to any fund or institution or trust or any university or other educational institution or any hospital or other medical institution referred to in sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) of clause (23C) of section 10, [shall be deemed to be the income of such person of the previous year in which it is so applied or ceases to be so accumulated or set apart or ceases to remain so invested or deposited or credited or paid or, as the case may be, of the previous year immediately following the expiry of the period aforesaid+”
A perusal of the above shows that the words “or in the year immediately following the expiry thereof” was omitted by the Finance Act, 2022 w.e.f. 01.04.2023 which is applicable for assessment year 2023-24 onwards. It is an admitted fact that when the trust accumulated an amount of Rs.90,70,20,511/- during the financial year 2016-17 it was required to utilize the same within a period of 5 years from the end of the relevant assessment year or in the year immediately following the expiry thereof. In other words, the assessee was required to utilize the same before the end of the 6th year i.e. financial year 2022 23. The assessee in the instant case undisputedly has utilized the amount before 31.03.2023.
18. We find the relevant provisions of Memorandum explaining provisions of the Finance Bill, 2022 read as under:
“4. Bringing consistency in the provisions of two exemption regimes As mentioned earlier, there is a requirement for alignment of certain provisions of the two regimes as they both intend to grant similar benefit.
4.1 Accumulation provisions i) Under the existing provisions of the Act, a trust or institution is required to apply 85% of its income during any previous year. However, if it is not able to apply 85% of its income during the previous year, it is allowed to accumulate such income for a period not exceeding 5 years as per the following provisions, namely:
(I) sub-section (2) of section 11 of the Act for the trusts or institution under the second regime; and (II) third proviso to clause (23C) of section 10 of the Act for trusts or institution under the first regime. ii) However, the accumulation of income, as per the provisions of sub-section (2) of section 11 of the Act is allowed subject to the fulfilment of certain conditions while there are no such conditions specifically provided under the third proviso to clause (23C) of section 10 of the Act; iii) Similarly, sub-section (3) of section 11 of the Act provides for the specific previous year in which the accumulated income will be subjected to tax in case of different types of violations. It, inter alia, provides that if the accumulated income is not applied within 5 years, it shall be taxed in the 6th year. While, on the other hand, there are no such specific provisions under clause (23C) of section 10 of the Act and therefore, if the accumulated income is not applied within 5 years, the same shall be taxed in the 5th year itself. iv) In order to bring consistency in the two regimes, the following are proposed:-
A) It is proposed to amend the provisions of sub-section (3) of section 11 of the Act to provide that any income referred to in sub-section (2) which is not utilised for the purpose for which it is so accumulated or set apart shall be deemed to be the income of such person of the previous year being the last previous year of the period, for which the income is accumulated or set apart under clause (a) of subsection (2) of section 11, but not utilised for the purpose for which it is so accumulated or set apart.
B) It is proposed to insert Explanation 3 to the third proviso to clause (23C) of section 10 of the Act to provide that for the purposes of determining the amount of application under this proviso, where eighty-five per cent of the income referred to in clause (a) of the third proviso, is not applied, wholly and exclusively to the objects for which the trust or institution under the first regime is established, during the previous year but is accumulated or set apart, either in whole or in part, for application to such objects, such income so accumulated or set apart shall not be included in the total income of the previous year of the person in receipt of the income, provided the following conditions are complied with, namely:— (a) such person furnishes a statement in the prescribed form and in the prescribed manner to the Assessing Officer, stating the purpose for which the income is being 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;
(b) the money so accumulated or set apart is invested or deposited in the forms or modes specified in sub-section (5) of section 11; and (c) the statement referred to in clause (a) of Explanation 3 is furnished on or before the due date specified under sub-section (1) of section 139 for furnishing the return of income for the previous year; C) It is proposed to insert a proviso to the proposed Explanation 3 to the third proviso to clause (23C) of section 10 of the Act to provide that in computing the period of five years referred to in sub-clause (a), 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 injunction of any court, shall be excluded.
D) It is also proposed to insert an Explanation (Explanation 4) to third proviso to clause (23C) of section 10 to provide that any income referred to in the proposed Explanation 3 shall be deemed to be the income of the previous year in which the following takes place—
(a) the income is applied for purposes other than wholly and exclusively to the objects for which the trust or institution under the first regime is established or ceases to be accumulated or set apart for application thereto, or (b) the income ceases to remain invested or deposited in any of the forms or modes specified in sub-section (5) of section 11, or (c) the income is not utilised for the purpose for which it is so accumulated or set apart during the period referred to in clause (a) of the proposed Explanation 3, (d) the income is credited or paid to any trust or institution under the first or second regime.
For the circumstances referred to in clause (c), it is proposed that the income shall be deemed to be the income of previous year which is the last previous year of the period, for which the income is accumulated or set apart under sub-clause (a) of clause (iii) of the proposed Explanation 3, but not utilised for the purpose for which it is so accumulated or set apart.
E) It is proposed to insert an Explanation (Explanation 5) to third proviso to clause (23C) of section 10 of the Act to enable the Assessing Officer to allow trusts or institutions under the first regime in circumstances beyond their control to apply such accumulated income for such other purpose in India as is specified in the application by such person subsequent to fulfilment of specified conditions. These other purposes are required to be in conformity with the objects for which the trust or institution under the first regime is established. If it is done, the provisions of Explanation 4 to third proviso to clause (23C) of section 10 shall apply as if the purpose specified by such person in the application under this Explanation were a purpose specified in the notice given to the Assessing Officer under clause (a) of the proposed Explanation 3 of the third proviso to clause (23C) of section 10.
F) It is proposed to insert a proviso to proposed Explanation 5 to third proviso to clause (23C) of section 10 of the Act to provide that the Assessing Officer shall not allow the application of any accumulated income, as referred to in the proposed Explanation 3, to be credited or paid to any trust or institution under the first or second regime, as referred to in clause (d) of proposed Explanation 4 to the third proviso to clause (23C) of section 10 v) These amendments will take effect from 1st April, 2023 and will accordingly apply in relation to the assessment year 2023-24 and subsequent assessment years. *Clauses 4 and 5 +”
19. We find the Hon'ble Supreme Court in the case of CIT vs. Vatika Township Pvt. Ltd. (2014) 367 ITR 466 (SC) on the issue of interpretation of taxing statutues about retrospective amendment and prospective amendment, has held as under:
“30. A legislation, be it a statutory Act or a statutory Rule or a statutory Notification, may physically consists of words printed on papers. However, conceptually it is a great deal more than an ordinary prose. There is a special peculiarity in the mode of verbal communication by a legislation. A legislation is not just a series of statements, such as one finds in a work of fiction/non fiction or even in a judgment of a court of law. There is a technique required to draft a legislation as well as to understand a legislation. Former technique is known as legislative drafting and latter one is to be found in the various principles of „Interpretation of Statutes‟. Vis-à-vis ordinary prose, a legislation differs in its provenance, lay-out and features as also in the implication as to its meaning that arise by presumptions as to the intent of the maker thereof.
Of the various rules guiding how a legislation has to be interpreted, one established rule is that unless a contrary intention appears, a legislation is presumed not to be intended to have a retrospective operation. The idea behind the rule is that a current law should govern current activities. Law passed today cannot apply to the events of the past. If we do something today, we do it keeping in view the law of today and in force and not tomorrow‟s backward adjustment of it. Our belief in the nature of the law is founded on the bed rock that every human being is entitled to arrange his affairs by relying on the existing law and should not find that his plans have been retrospectively upset. This principle of law is known as lex prospicit non respicit : law looks forward not backward. As was observed in Phillips vs. Eyre[3], a retrospective legislation is contrary to the general principle that legislation by which the conduct of mankind is to be regulated when introduced for the first time to deal with future acts ought not to change the character of past transactions carried on upon the faith of the then existing law.
The obvious basis of the principle against retrospectivity is the principle of 'fairness‟, which must be the basis of every legal rule as was observed in the decision reported in L‟Office Cherifien des Phosphates v. Yamashita-Shinnihon Steamship Co.Ltd[4]. Thus, legislations which modified accrued rights or which impose obligations or impose new duties or attach a new disability have to be treated as prospective unless the legislative intent is clearly to give the enactment a retrospective effect; unless the legislation is for purpose of supplying an obvious omission in a former legislation or to explain a former legislation. We need not note the cornucopia of case law available on the subject because aforesaid legal position clearly emerges from the various decisions and this legal position was conceded by the counsel for the parties. In any case, we shall refer to few judgments containing this dicta, a little later.
We would also like to point out, for the sake of completeness, that where a benefit is conferred by a legislation, the rule against a retrospective construction is different. If a legislation confers a benefit on some persons but without inflicting a corresponding detriment on some other person or on the public generally, and where to confer such benefit appears to have been the legislators object, then the presumption would be that such a legislation, giving it a purposive construction, would warrant it to be given a retrospective effect. This exactly is the justification to treat procedural provisions as retrospective. In Government of India & Ors. v. Indian Tobacco Association [5], the doctrine of fairness was held to be relevant factor to construe a statute conferring a benefit, in the context of it to be given a retrospective operation. The same doctrine of fairness, to hold that a statute was retrospective in nature, was applied in the case of Vijay v. State of Maharashtra & Ors. [6] It was held that where a law is enacted for the benefit of community as a whole, even in the absence of a provision the statute may be held to be retrospective in nature. However, we are confronted with any such situation here.
In such cases, retrospectively is attached to benefit the persons in contradistinction to the provision imposing some burden or liability where the presumption attaches towards prospectivity. In the instant case, the proviso added to Section 113 of the Act is not beneficial to the assessee. On the contrary, it is a provision which is onerous to the assessee. Therefore, in a case like this, we have to proceed with the normal rule of presumption against retrospective operation. Thus, the rule against retrospective operation is a fundamental rule of law that no statute shall be construed to have a retrospective operation unless such a construction appears very clearly in the terms of the Act, or arises by necessary and distinct implication. Dogmatically framed, the rule is no more than a presumption, and thus could be displaced by out weighing factors.”
We find the Bangalore ‘C' Bench of the Tribunal in the case of M/s. Phulchand Gulabchand Charitable Trust vs. ITO (supra) has observed as under: “3. The facts are that assessee had surplus income of Rs.1,93,64,000 in FY 2007 08 relevant to AY 2008-09 on account of sale of immovable property of the assessee trust. The objects of the trust, we may notice, was to run schools, colleges, dispensaries, Dharmashalas, etc. The assessee could not apply the aforesaid surplus for charitable purposes in AY 2008-09 and had applied for accumulation of such surplus in terms of section 11(2) of the Act. As per the provisions of section 11(2), accumulation is allowed for a period of 5 years. It is not in dispute that such accumulation was allowed by the AO for the AY 2008-09.
In AY 2013-14 which is the Assessment year in appeal, the AO held that since the five years period expires in AY 2013-14, and since the assessee did not utilize the sum accumulated for charitable purpose in terms of section 11(3)(c) of the Act, the sum accumulated and which remains unspent for charitable purposes, shall be deemed to be income of the person, of the previous year, immediately following the expiry of the period aforesaid. The relevant provisions of Sec.11(3) read as follows:
“(3) Any income referred to in sub-section (2) which—
(a) is applied to purposes other than charitable or religious purposes as aforesaid or ceases to be accumulated or set apart for application thereto, or (b) ceases to remain invested or deposited in any of the forms or modes specified in sub- section (5), or (c) is not utilised for the purpose for which it is so accumulated or set apart during the period referred to in clause (a) of that subsection or in the year immediately following the expiry thereof, (d) is credited or paid to any trust or institution registered under section 12AA or to any fund or institution or trust or any university or other educational institution or any hospital or other medical institution referred to in sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) of clause (23C) of section 10, shall be deemed to be the income of such person of the previous year in which it is so applied or ceases to be so accumulated or set apart or ceases to remain so invested or deposited or credited or paid or], as the case may be, of the previous year immediately following the expiry of the period aforesaid.”
A reading of Clause (c) of Sec.11(3) of the Act would show that the time allowed for applying accumulation for charitable purpose is 5 year and one year following the expiry of 5 years. This is clear from the expression used “or in the year immediately following the expiry thereof”. The previous year following the expiry of period of 5 years from AY 2008- 09 will be AY 2014-15 and not AY 2013-14. This appeal relates to AY 2013-14 in which the AO sought to apply the provisions of section 11(3)(c). The Assessee did not raise such a plea regarding the applicability of the aforesaid provisions in AY 2014-15 only.
There is a reference to section 11(3)(d) in the order of AO, which in our opinion, is not the correct provision of law. Since the assessee did not give any explanation in not utilising the surplus funds accumulated, the AO brought to tax a sum of Rs.1,93,54,000.
Before the CIT(Appeals), the plea of assessee was that it had utilised the accumulated surplus for construction of a hostel building and products accounts evidencing income & expenditure towards the same. This plea of the assessee was rejected for the following reasons:-
“5.0) I have gone through the facts of the case and the submissions of the appellant. The provisions of section 11(2)(a) is as under: "If the accumulated amount or any part thereof is not utilised for the specified purposes during the period of accumulation or during the year immediately following the expiry thereof, the amount which has not been so utilised will be liable to tax as income of the previous year immediately following the expiry of the accumulation period." In course of appellate proceedings the appellant has not furnished any details before me with regard to the said claim of expenditure pertaining to construction of hostel building and the advances given for the construction of building over the periods, which it claimed. A simple claim of maintenance of book of account is not sufficient. Further no details whatsoever were furnished before me regarding the claim that advance for purchase of property was made, with any corroborative evidence, that it incurred expenditure out of the above surplus amount. In absence of the above, I do not hesitate in concluding that the action of the AO was correct and the addition was made rightly. The grounds 1 to 4 and 6 are hereby dismissed.”
8. The Assessee did not raise plea regarding the applicability of the aforesaid provisions of Sec.11(3)(c ) of the Act only in AY 2014-15 only. Aggrieved by the order of CIT(Appeals), the assessee has preferred the present appeal before the Tribunal.
As we have already noticed, the period of 5 years for spending the accumulated surplus for AY 2008-09 “or in the year immediately following the expiry thereof” is only AY 2014-15. This aspect has been highlighted by the assessee in ground Nos.2 to 4 in its appeal before the Tribunal, which reads as follows:-
“2. That the learned CIT( A) ought to have appreciated that u/s 11(3)(c) of the Income Tax Act, 1961 provides that accumulated income should be utilized during the 5 years period of accumulation or in the year immediately following the expiry thereof. That means, in the facts & circumstances of this case, the assesee at liberty to utilize the accumulated surplus up to 31-03- 2014. Now in this case, the assessee has utilized of Rs,1,67,47,400/- as investment in poor student hostel in the year 2013-14. Therefore, there is no contravention of section 11(3) and the accumulated surplus up to 31-3-2013 cannot become deemed income of the assessee for the assessment year 2013-14.
That the learned CIT(A) has failed to take note of the AO assessment order u/s.143(3) of the Act, dated 26..12,2016 for the A Y 2014-15, Wherein the learned .A0 has concluded the assessment after considering the bonafide explanation offered by the assessee and allowed the claim of Rs.1„67,47,400/- out of total surplus of Rs.1,93,54,529/- and the remaining balance of Rs:26 07,129 was treated as income u/s. 13(1)(c) of the Act.
4. That the learned CIT(A) has failed to appreciate the fact that the appellant has furnished all the details with regard to claim of expenditure pertaining to construction of hostel building and other advances given for building over the periods have been produced before the AO during the course of assessment proceedings for the A Y 2014-15 and the same was considered and accepted by the AO.”
The ld. counsel for the assessee has also filed before us a copy of the order of assessment for AY 2014-15 wherein the AO has accepted the utilization of accumulated surplus in AY 2008-09 for charitable purpose in AY 2014-15. The ld. Counsel for the assessee drew our attention to the fact that the assessee had spent a sum of Rs.1,67,47,400 and to this extent, the application of income for charitable purposes has been accepted by the AO in AY 2014-15 in the order of assessment dated 26.12.2016 passed u/s. 143(3) of the Act.
The ld. DR while relying on the order of CIT(Appeals) submitted that this aspect has not been examined either by the AO or the CIT(Appeals) and therefore the issue should be sent back to the AO for fresh consideration in the light of order of assessment for AY 2014-15.
12. We have considered the rival submissions and are of the view that the issue raised now before the Tribunal in the form of grounds of appeal
which we have extracted in the earlier part of the order should be considered by the AO. If AY 2013-14 is not the period within which the accumulated surplus has to be applied, then the addition made should be deleted. We therefore set aside the order of CIT(Appeals) and remand this issue for fresh consideration by the AO, after affording opportunity of being heard to the assessee.
13. In the result, the appeal by the assessee is treated as allowed for statistical purposes.”
21. In light of the above discussion, we are of the considered opinion that since the assessee in the instant case has utilized the accumulated surplus funds in the year immediately following the prescribed period of 5 years i.e. before 31.03.2023 and the amendment to the provisions of section 11(3) are held to be prospective in nature, therefore, the Ld. Addl / JCIT(A) in our opinion is not justified in upholding the intimation of the CPC making adjustment of Rs.90,70,20,511/- u/s 11(3) as deemed income of the assessee which was accumulated in the financial year 2016-17 and when the provisions at the relevant time prescribed the utilization of the amount within a period of 5 years or in the year immediately following the prescribed period of 5 years. Even otherwise also we find merit in the argument of the Ld. Counsel for the assessee that the 5 year period ends on 31.03.2022 and therefore the unutilized amount could have been brought to tax in assessment year 2022-23 and not in assessment year 2023-24. In the light of the above discussion, we set aside the order of the Ld. Addl / JCIT(A) on this issue and direct the Assessing Officer/CPC to delete the adjustment. The grounds raised by the assessee are accordingly allowed.”
23. Further, our reference was drawn to the decision of the Ld.Add/JCIT(A)-4, Chennai in case of Shri Dahanukarwadi Mahavir Nagar Shwetamber Murtipujak Jain Sangh for AY. 2023-24 wherein it was held that though the amendment to section 11(3)(c) was introduced from A.Y 2023-24, the same can‟t be applied for accumulations made in the earlier years as the Finance Act 2022 has not enacted this amendment retrospectively and is prospective in nature and the omission of words “or in the year immediately following the expiry thereof” in section 11(3)(c) is applicable for the accumulations made from A.Y 2023-24 and not for the earlier years. Nothing has been brought on record as to whether the Revenue has challenged the said decision and thus, the same also supports the case of the assessee.
In light of the aforesaid discussion, we find merit in the contentions advanced by the Ld.AR that as far as the accumulation relating to the period of FYs. 2016-17 and 2017-18 are concerned, the assessee had the time window till 31-03-2023 and 31-03-2024 respectively by which it has to utilize accumulated income and in that view of the matter, the amendment brought in by the Finance Act, 2022 does not debar the assessee from availing the said time window in respect of existing accumulations and the amendment have to be read prospectively in respect of fresh accumulations for the period pertaining to previous year starting from 1st April, 2022 onwards.
Further, we find that for FY 2016-17, the assessee has utilized Rs. 35,66,540/- during the financial year 2022-23 within the specified time period of six years and thus, the same cannot be brought to tax and the remaining un-utlised amount of Rs 14,33,460/- has been suo-moto offered by the assessee in its return of income. Thus, the whole of the additions pertaining to FY 2016-17 amounting to Rs.35,66,540/- deserve to be set- aside and is hereby set-aside.
For FY 2017-18, the assessee has time window to utilize the accumulated income till 31-03-2024 and thus, the question of bringing the same to tax during the impugned assessment year 2023-24 doesn‟t arise at first place and the question of taxability will arise in subsequent assessment year 2024-25 only where the assessee fails to utilize the accumulated income. The assessee has claimed before us that it has utilized Rs. 40,00,000/- in subsequent financial year 2023-24, however, we are not going to examine the same as we are concerned with assessment year 2023-24 and not assessment year 2024-25 and the same is thus not subject matter of present appeal and it is open for the assessee to explain the same before the AO should the need for the same arise in the subsequent assessment year. Therefore, as far as the impugned assessment year is concerned, no addition can be made for accumulation of income pertaining to FY.2017-18 as the assessee continues to be guided by the provisions as existed at the relevant point in time and the time window of six years as so provided and the amendment made by the Finance Act, 2022 cannot curtail the said time window and has to be applied prospectively in respect of fresh accumulations. Thus, the whole of the additions pertaining to FY.2017-18 amounting to Rs 40,00,000/- deserve to be set-aside and is hereby set-aside.
In the result, the appeal of the assessee is allowed.