ITAT Delhi Bench rules in favor of National Foundation for Corporate Governance, allowing utilization of accumulated funds under the unamended provisions of the Income-tax Act, 1961.
In a significant ruling, the Income Tax Appellate Tribunal (ITAT) Delhi Bench 'E' has delivered a judgment favoring the National Foundation for Corporate Governance regarding the interpretation of the amendment to Section 11(3) of the Income-tax Act, 1961. The Tribunal clarified that the amendment, introduced by the Finance Act, 2022, effective from April 1, 2023, is prospective, allowing trusts to utilize accumulated income within the timeframe applicable under the unamended provisions for financial years prior to FY 2022-23.
The case arose when the Centralized Processing Centre (CPC) disallowed the exemption under Section 11 for the National Foundation for Corporate Governance, a trust registered under Section 12A and 80G of the Income-tax Act. The CPC contended that the trust had failed to utilize accumulated funds within the stipulated five-year period, as per the amended provisions effective from FY 2022-23. The Assessing Officer upheld the CPC's decision, leading to an appeal by the trust.
The ITAT bench, comprising Shri S. Rifaur Rahman and Shri Sudhir Kumar, observed that the amendment to Section 11(3) does not retroactively affect trusts' ability to use accumulated funds within the timeframe established before the amendment. Drawing from precedents set by similar cases, such as Sarangpur Talia's Pole Punch Trust v. ITO and Archdiocese of Bombay v. DCIT(E), the Tribunal highlighted that the amendment should not be interpreted in a way that creates an impossible situation for assessees.
The Tribunal emphasized the doctrine of impossibility, asserting that legal obligations should be applied practically and reasonably, ensuring that the accumulated funds can still be utilized within the originally provided timeframe under the Act. The judgment aligns with previous ITAT decisions, underscoring the prospective nature of the amendment and affirming that it applies to fresh accumulations from the assessment year 2023-24 onwards.
This ruling provides much-needed clarity for trusts dealing with accumulated funds and reinforces the principle that amendments to tax laws should not impose retroactive obligations that would lead to unfair or unreasonable outcomes.
Bottom Line:
Amendment to Section 11(3) of the Income-tax Act, 1961, brought by Finance Act, 2022, is prospective in nature and does not debar trusts from utilizing accumulated income within the time window applicable under the unamended provisions.
Statutory provision(s): Income-tax Act, 1961, Section 11(3)
