TaxTMI 
TaxTMI 
2025 (8) TMI 296
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....pret 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)." 2. 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 i....
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....e 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 yea....
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.... 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 Murtipuja....
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....d confirmed by the Ld. CIT(A) be upheld and the grounds of appeal of the assessee be dismissed. 12. 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.....
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....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. 15. 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 th....
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....tilization 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. 18. 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. 19. 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....
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....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 t....
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.... 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 sectio....
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....rovisions 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 las....
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....e 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 accumulat....
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.... 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. 3....
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.... 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." 20. 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....
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.... 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. 6. 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. 7. 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 ....
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.... 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." 10. 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. 11. The ld. DR while relying on the order of CIT(Appeals) submitted that this aspect has not been examined eith....
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....rlier 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. 24. 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. 25. Further, we find that for FY 2016-17, the assessee has utilized Rs. ....