Utilisation of accumulated surplus under section 11(3): Finance Act 2022 amendment applies prospectively, preventing retrospective taxation.

Finance Act, 2022 reduces maximum permissible accumulation period from ten years to five years effective 01.04.2023; this amendment is substantive and not curative or clarificatory, so it operates prospectively and cannot be applied to prior accumulations for taxability. Reliance on recent tribunal and Supreme Court principles supports prospective operation where legislative intent for retrospection is absent. Consequently, taxation of accumulated surplus claimed within the previously permissible period is not sustainable, and the assessees challenge succeeds.

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Issues: Whether the amendment made by the Finance Act, 2022 to Section 11(3) of the Income-tax Act, 1961 (reducing permissible accumulation period) applies retrospectively to accumulated income of earlier years (specifically accumulations of A.Y. 2017-18) or operates prospectively with effect from A.Y. 2023-24.

Analysis: The Tribunal examined the legislative change introduced by the Finance Act, 2022 (effective 01.04.2023 for A.Y. 2023-24) which reduced the permissible accumulation period and considered competing characterisations of the amendment as substantive (prospective) versus clarificatory/curative (retrospective). The Tribunal reviewed relevant judicial authorities including precedent on operation of statutory amendments and legislative intent, noting that absent explicit language indicating retrospective effect or a clarificatory character, substantive amendments operate prospectively. The Tribunal also considered coordinate-bench decisions holding the Finance Act, 2022 amendment to be prospective in relation to utilisation of accumulated surplus under Section 11(3), and found those authorities persuasive and binding for the issue before it. Applying these principles to the facts, the Tribunal held that the funds accumulated in A.Y. 2017-18 fell within the accumulation period governed by the pre-amendment law and that the Finance Act, 2022 did not retrospectively curtail that period to render the application by the assessee taxable in A.Y. 2023-24.

Conclusion: The appeal of the revenue is dismissed and the addition of Rs. 3 crores under Section 11(3) is deleted; the decision is in favour of the assessee.

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