Accumulated charitable funds and s.11 exemption: retrospective application of Finance Act 2022 rejected; six-year window preserved for prior accumulations.

Amendment requiring utilisation of accumulated charitable receipts within five years for newly accumulated funds from 1 April 2022 was examined; the amended provision is to be applied prospectively, so accumulations made before the amendment remain governed by the earlier six-year utilisation window and cannot be curtailed retrospectively. The doctrine of impossibility was noted in support of prospective application. Consequently, no disallowance arises for income accumulated in financial year 2016-17 under the pre-amendment regime, and the appeal against disallowance of exemption succeeds.

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Issues: Whether the amendment made by the Finance Act, 2022 (omitting the additional one-year period following the five-year accumulation period under section 11(3)) applies to amounts accumulated prior to 1-4-2022 (thus affecting assessment year 2023-24) or must be given prospective effect so that existing accumulations retain the earlier time window for utilisation.

Analysis: The Tribunal examined the effect of the Finance Act, 2022 amendments to sections 11(2) and 11(3) concerning the period for utilisation of accumulated charitable funds. The Tribunal considered coordinate bench decisions addressing identical facts which held that the omission of the additional one-year period is prospective and does not curtail the time window available for accumulations made prior to 1-4-2022. The Tribunal noted that applying the amendment to existing accumulations would render utilisation impossible in many cases and relied on the principle against interpreting amendments so as to produce impossible or absurd results. The Tribunal followed those coordinate decisions and applied the prior law's time window to the accumulations in question.

Conclusion: The Tribunal concluded that the Finance Act, 2022 amendment to sections 11(2) and 11(3) is prospective and does not apply to accumulations made before 1-4-2022; therefore the assessee was entitled to the earlier time window for utilisation and the additions were disallowed in favour of the assessee.

Ratio Decidendi: An amendment that removes an existing additional period for utilisation must be given prospective effect where applying it retrospectively would make utilisation of prior accumulations impossible; accordingly, the pre-amendment accumulation/utilisation time window governs accumulations made before 1-4-2022.

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