5 Years vs. 6 Years Controversy for utilisation of accumulated amount for trust: ITAT Held that the CPC cannot apply statutory amendments retrospectively
The department has started denying exemptions to charitable trusts by silently applying an amendment retrospectively while processing returns u/s. 143(1) of the IT Act.
Section Involved:
– Section 11(3) of IT Act
– If 85% of trust’s income is not applied during previous year, such income is not taxable if it is accumulated/set apart & utilized in future within specified time period.
– Such section came to be amended by Finance Act, 2022.
Position Prior to amendment:
– Maximum period allowed for “accumulation/set apart” – 5 years
– Maximum period allowed for “utilization” – Period of accumulation/set apart (5 years) + 1 additional year = 6 years
– Non utilization within “6 years” – Deemed income of 6th year
Position Post amendment:
– Maximum period allowed for accumulation/set apart – 5 years – “no change”
– Maximum period allowed for “utilization” – Period of accumulation/set apart (5 years) – “1 additional year removed”
– Non utilization within “5 years” – Deemed income of 5th year
What CPC did:
– Amendment made u/s. 11(3) is effective w.e.f. 01.04.2023 (A.Y. 2023-24)
– CPC started targeting accumulations made in A.Y. 2017-18 whose 6 years ends in A.Y. 2023-24
– Revenue contended that law got amended on 01.04.2023 & hence, all the accumulations (including accumulations made in preceding years) need to be utilized within 5 years
Our submissions before the Tribunal:
– Substantive amendments cannot be applied retrospectively
– On 31.03.2023, old law was prevailing granting 1 additional year for utilization (A.Y. 2023-24 available for utilization)
– On 01.04.2023, new law came into force taking away 1 additional year (A.Y. 2023-24 thus not available for utilization).
– This results in an impossible situation which can never be the intention of legislature
What Tribunal held:
– Amendment u/s. 11(3) is applicable prospectively.
– Amended provisions only apply to fresh accumulations made for A.Y. 2023-24 onwards and not to the accumulations made in preceding years
Key takeaway:
– CPC system may continue to target accumulations made in other years (A.Y. 2018-19 to 2022-23) despite ITAT rulings.
– Professionals must keep a close eye on processing of returns u/s. 143(1) of the Act
– Proceed for filing appeal before CIT(A) instead of resorting to rectification proceedings since it is not a mistake apparent on record but a deliberate attempt of the department to deny exemptions on their own understanding of law.
The copy of the order is as under:
