YASHWANTRAO CHAVAN MAHARASHTRA OPEN UNIVERSITY,NASHIK vs. EXEMPTION CIRCLE,A BAD, AURANGABAD

Facts of the case, in brief, are that the assessee Yashwantrao Chavan Maharashtra Open University (YCMOU) is established by Yashwantrao Chavan Maharashtra Open University Act, 1989. The sole object of the assessee is education, more particularly described as „to advance and disseminate learning and knowledge by a diversity of means‟. It is primarily financed by the Government of Maharashtra in terms of allotment of lands in different cities of Maharashtra, construction of buildings providing the infrastructure, financing the recurring cost of such institution. It has been granted registration u/s 12AA of the Income Tax Act, 1961 (hereinafter referred to as „the Act‟) by the CIT(Exemption), Pune vide letter dated 25.07.2016 and the registration was renewed under the new law. It filed its return of income for the impugned assessment year 2023-24 declaring total income as Nil after claiming exemption u/s 11 of the Act. During the financial year 2016-17 the trust had accumulated an amount of Rs.90,70,20,511/- which was required to be utilized within 5 years and if not utilized then unutilized amount, if any, was taxable in 6th year. The CPC in the Intimation u/s 143(1) of the Act added an amount of Rs.90,70,20,511/- u/s 11(3) of the Act as deemed income.

Before the Ld. Addl / JCIT(A) it was submitted that the above accumulation amount was already fully utilized by the trust in financial year 2022-23. It was submitted that as per section 11(3) of the Act as stood at that time (at the time of accumulation i.e. as on 31.03.2017), accumulated amount of Rs.90,70,20,511/- was required to be utilized by 31.03.2022. In case the same is not utilized, then the amount was taxable in the year 2023-24 only if such amount is unutilized by 31.03.2023. Since the assessee has already utilized an amount of Rs.90,70,20,511/- before the end of 31.03.2023, therefore, the CPC is not justified in making the addition. It was further submitted that the amendment to section 11(3) restricting the non-utilization to 5 years is applicable from assessment year 2023-24 and to be applied prospectively. The assessee also submitted that the adjustment made by the CPC is outside its purview as there was neither any arithmetical error nor any incorrect claim which is apparent in the return of income filed u/s 139(1) of the Act.

However, the Ld. Addl / JCIT(A) was not satisfied with the arguments advanced by the assessee and dismissed the appeal by observing as under: “3.3 Thus, as per these provisions income accumulated during A.Y. 2017-18 was required to be utilized upto A.Y. 2022-23 (till 31.03.2022). Since the appellant was not able to utilise it within stipulated time, according to provisions of Section 11 (3) of Income Tax Act, the amount of Rs.90,70,20,511/- is taxable as deemed income during the instant assessment year. Further, since the accumulated amount had to be utilized upto AY 2022-23, the ground of appeal

The Ld. Counsel for the assessee strongly challenged the order of the Ld. Addl / JCIT(A) dismissing the appeal. He submitted that financial year 2022-23 i.e. assessment year 2023-24 is the 6th year. Since the prevailing law provides for addition in the 6th year, if the accumulated amount is not utilized by the end of 31.03.2023, therefore, no addition can be made in the assessment year 2023-24. He submitted that the conditions as per the law prevailing at the time of accumulation i.e. assessment year 2017-18 are to be applied. Since all the conditions as per law of assessment year 2017-18 have been complied with, therefore, no addition is warranted. Further, the issue being a debatable one, no addition could have been made by the CPC u/s 143(1) of the Act. The Ld. Counsel for the assessee drew the attention to the provisions applicable for assessment year 2017-18 to 2022-23 and the amended provisions for assessment year 2023-24.

Referring to the following decision, he submitted that the amendment should be considered prospectively and the condition for utilization as existed in the year of accumulation has to be applied: CIT vs. Vatika Township Pvt. Ltd. (2015) 367 ITR 466 a)

Referring to the following decisions, he submitted that the issue being a debatable one, no adjustment can be made by the CPC u/s 143(1) of the Act: a) CIT vs. M/s. Mekins Agro Products Ltd. vide ITTA No.111 of 2003 b) Khatau Junkar Ltd. & Anr. vs. Pathania & Anr reported in 196 ITR 55 (Bom)

The Ld. DR on the other hand strongly supported the order of the Ld. Addl / JCIT(A). He submitted that the assessee had applied the accumulated amount of Rs.90,70,20,511/- which was accumulated during the assessment year 2017-18 for charitable or religious purposes / scientific research / social science or statistical research during the previous year 2022-23. The assessee has claimed this application of Rs.90,70,20,511/- in the Income Tax Return for AY 2023-24 as application out of the accumulated income of earlier years He submitted that section 11 and section 13 of the Income-tax Act were amended by the Finance Act, 2015 with effect from 01.04.2016. Consequently, the Income-tax Rules, 1962 were also amended vide the Income-tax (1st Amendment) Rules, 2016. As per the amended provisions of the Act, read with Rule 17 of the Rules, income accumulated under Section 11(2) is subject to application within a maximum permissible period of five years. In other words, income in excess of 15% of the total income (i.e. income not applied during the previous year) cannot be retained indefinitely by a charitable or religious organization. In cases where such income is not applied during the relevant financial year, the organization is required to either exercise the option to apply the unutilized income in the immediate next financial year by filing Form 9A electronically, or accumulate the unutilized income for a maximum period of five years by filing Form 10 electronically, specifying the purpose and period of accumulation. He submitted that failure to comply with these procedural and substantive requirements may result in the forfeiture of exemption under Section 11 and attract tax liability on the accumulated income. The incomes so accumulated (vide Form 10) will not be included in the total income of the NGO if the following conditions are applied:  Such trust or institution furnishes Form No. 10-notice of accumulation of income by charitable trust or institution electronically to AO, on or before the due date for filing the return of income.  Mention the purpose for which income is being accumulated or set aside.  Income shall not be accumulated for more than 5 years.  Money so accumulated or set aside is invested or deposited in specified mode as mentioned under section 11(5).

The Ld. CIT-DR drew the attention of the Bench to the provisions of section 11(2) and 11(3), Rule 17, Form 9A, 10 etc and submitted that in this case, the accumulated fund was utilized in FY 2022-23, which is after the expiration of the five-year permissible period (i.e. beyond 31.03.2022). Since the income was required to be utilized by 31.03.2022, the failure to use the funds within the prescribed time frame renders the utilization invalid for claiming exemption under section 11. As the accumulated funds were not utilized within the prescribed five- year period, the income will be subject to taxation as deemed income in Assessment Year 2023-24, even though the trust used the funds in FY 2022-23.

He drew the attention of the Bench to the provisions of section 11(3) and submitted that any income accumulated for charitable purposes but not utilized within the specified period is deemed to be the income of the trust in the year immediately following the expiry of the five-year period. In this case, the deemed income will be taxable in AY 2023-24. Consequently, the accumulated funds utilized in FY 2022-23 after the expiry of the five-year period will be treated as deemed income and taxed as part of the trust's total income for Assessment Year 2023-24. Therefore, the utilization of the accumulated funds in FY 2022-23, after the expiration of the five-year period, does not qualify for exemption under Section 11, and the unutilized portion of the income will be deemed income and subject to taxation in Assessment Year 2023-24. He accordingly submitted that since the assessee has not utilized the accumulated portion of income of assessment year 2017-18 by 31.03.2022, the unutilized amount becomes taxable as deemed income in assessment year 2023-24. The amendment by the Finance Act, 2023 is not applicable to this case as it only affects the accumulations whose 5th year period ends on or after 01.04.2023. He accordingly submitted that the order of the Ld. Addl / JCIT(A) being in accordance with law should be upheld and the grounds raised by the assessee be dismissed.

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.

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], (d) is credited or paid 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 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]”

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.

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. 31. 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. 4. 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.

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. 9. 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:-

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.

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

In the result, the appeal filed by the assessee is allowed.