5.4 Clarifying that application will be allowed only when its actually paid

Trust or institution under both the regimes are required to apply 85% of their income for the purposes specified. As is evident from the word “ application”, it means actually paid. This is the position which has been held by different courts also. Accordingly it is being clarified by inserting Explanations “[Explanation 3 to clause (23C) of section 10 and Explanation to section 11] to provide that any sum payable by any trust under the first or second regime shall be considered as application of income in the previous year in which such sum is actually paid by it irrespective of the previous year in which the liability to pay such sum was incurred by such trust according to the method of accounting regularly employed by it. It is further proposed to insert proviso to the proposed Explanations [Explanation 3 to clause (23C) of section 10 and Explanation to section 11] to provide that where during any previous year, any sum has been claimed to have been applied by such trust, such sum shall not be allowed as application in any subsequent previous year.

These amendments will take effect from 1st April, 2022 and will accordingly apply to the assessment year 2022-23 and subsequent assessment years.

[Clauses 4 and 5]

 

 

 

---

Full Text:

Budget 2022-23 + FINANCE Bill, 2022

Application of income: amounts by trusts treated as applied only when actually paid, with an anti-duplication rule preventing later claims. Explanatory provisions treat sums payable by trusts as application of income in the previous year in which such sums are actually paid, irrespective of when the liability arose under the trust's regular accounting method; a proviso bars treating a sum as applied in a later previous year if it has already been claimed as applied in an earlier year. The amendments apply prospectively to the assessment years following the implementation date.