SARANGPUR TALIAS POLE PUNCH TRUST,AHMEDABAD vs. THE ITO, WARD-2, EXEMPTION, AHMEDABAD

The brief facts of the case are that the assessee, Sarangpur Talia’s Pole Punch Trust, was denied exemption under section 11 of the Income Tax Act (Act) in respect of ₹2,00,000/- of accumulated income. In the order passed u/s 143(1) of the Act, the CPC disallowed this amount on the ground that it remained unutilized at the end of the fifth financial year from the year of accumulation (i.e., FY 2021–22, being the fifth year from FY 2016–17), and added the same to the total income of the trust, resulting in a demand of ₹78,660/-. The CPC added this amount on the basis that since the assessee trust had not utilized the accumulated income within the statutorily prescribed period of five years, the exemption under section 11(2) of the Act could not be granted, even though the amount was in fact admittedly spent in the sixth year (i.e. FY 2022–23).

The CIT(A) upheld the disallowance and dismissed the appeal of the Act. It was contended before the CIT(A) that the amendment to section 11(3), which imposed a strict requirement for the utilization of accumulated income within five years, only came into effect on 01.04.2022, just one day before the end of the fifth year (i.e., on 31.03.2022). The assessee submitted that it was impossible for trusts to comply with this new requirement within such a short notice. The assessee further highlighted that this issue was not unique Sarangpur Talia’s Pole Punch Trust vs. ITO(E) Asst.Year –2023-24 - 3– to them, but affected thousands of trusts across the country, prompting widespread representations and requests for relief from CBDT under section 119(2)(b). A copy of such representation dated 06.02.2025 addressed to the Member (Legislation), CBDT, was placed on record. However, the CIT(A), while acknowledging the above facts, held that the amendment was already part of the statute applicable to A.Y. 2022–23 and that Taxing Statutes must be interpreted strictly, regardless of any hardship or administrative difficulty. Relying on a series of judicial precedents, the CIT(A) held that there was no room for liberal or equitable interpretation in the application of a taxing statute. Since the amount of ₹2,00,000/- was admittedly utilized in the sixth year, the requirement of section 11(3) of the Act, as amended, was not fulfilled, and thus the exemption could not be allowed. The appeal was therefore dismissed, and the addition by the CPC was sustained.

The assessee is in appeal before us against the order passed by CIT(Appeals) dismissing the appeal of the assessee. We are of the considered view that the present issue is directly covered in favour of the assessee by the Ahmedabad ITAT decision in the case of Meshri Mahajan Vanda vs. Income-tax Officer (Exemption) [2025] 178 taxmann.com 93 (Ahmedabad - Trib.)[02-09-2025] in which ITAT held where assessee trust accumulated income pertaining to financial years 2016-17, assessee had time window till 31-3-2023 by which it could utilize accumulated income. The amendment brought in by Finance Act, 2022, did not debar assessee from availing said time window in respect of existing accumulations and amendment had to be read prospectively in respect of fresh accumulations for Sarangpur Talia’s Pole Punch Trust vs. ITO(E) Asst.Year –2023-24 - 4– period pertaining to previous year starting from 1-4-2022 onwards. While passing the order, ITAT made the following observations:

We have heard the rival contentions and perused the material on record. We note that the present issue is directly covered in favour of the assessee in light of the Ahmedabad ITAT decision in the case of Shri Krishnanagar Vaishvsamaj (supra). It would be useful to reproduce the relevant extracts of the Ruling, for ready reference: "7. We have considered the rival submissions. In the present case, the assessee had accumulated fund of Rs.4,60,000/- in the F.Y. 2016-17. As per provisions of Section 11(2) of the Act, a trust is required to apply 85 % of income during any previous year to charitable or religious purposes. However, if it is not able to apply 85% of its income during the previous year, it is allowed to accumulate such income for the period offive years. In fact, the time limit of accumulation was earlier ten years which was restricted to five years w.e.f. 01.04.2016. The provision of Section 11(3) of the Act stipulates that if the income so accumulated is not utilised within the prescribed period, it shall be subjected to tax at the end of such period. In this regard, it is relevant to reproduce the Section 11(3) of the Act at relevant point of time which is 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 subsection (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 72[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, 74[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]. 72 Words "or in the year immediately following the expiry thereof' shall be omtt. by the Act No. 6 of2022, w.e.f. 1-4-2023.

In the result, appeal of the assessee is allowed. "

Further, in the case of Yashwantrao Chavan Maharashtra Open University v. CIT(E) [2025] 175 taxmann.com 988 (Pune - Trib.)/ITA No. 505/pun/2025 vide order dated 23.06.205, the Pune ITAT while dealing with similar set of facts and issue for consideration, made the following observations: "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 202324. 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