Income Tax | Cannot Curtail Trust's Time Window For Availing Exemption On Existing Accumulations: ITAT Delhi

In a recent order, a Division Bench, comprising Shri S. Rifaur Rahman (Accountant Member) and Shri Sudhir Kumar (Judicial Member) on effect of amendment restricting the accumulation period for income of charitable/religious trusts under Section 11, it was clarified that the Trust had retained the right to utilize funds till March 31, 2023.

Petitioner, National Foundation for Corporate Governance established under a government-industry partnership jointly by the Ministry of Corporate Affairs with the Confederation of Indian Industry, (NFCG-CII).

NFCG-CII was duly registered Trust under section 12A and 80G of the Income-tax Act, 1961 and continued to claim exemption under Section 11of the Income Tax Act, 1961. It conducted research and case studies as well as organized orientation programmes for Directors and Seminar / Conference in the area of good Corporate Governance. NFCG had also partnered with distinct regulatory bodies focusing on auditing, cost management accounting and taxation.

For the Assessment Year 2023-24 onwards, as a compliance measure Section 11(2)(a) of the Income Tax Act, 1961 was effective April 01, 2023, which stipulated that any unapplied accumulated income was deemed taxable in the previous year marking the end of the 5-year period from accumulation. Earlier, Trusts could accumulate income for up to 5 years under Section 11(2)(a) by filing Form 10.

The Income Tax Authorities took a view that accumulated funds exceeding 15% of the total receipt in the year relevant to Assessment Year 2017-18 remained unutilized for charitable purposes. In turn, the exemption claimed under Section 11 of the Income Tax Act, so much of unutilized amount was disallowed on the ground that amendment was w.e.f. April 01,2023, meaning Assessment Year 2023-24.

Advocate Ekta Mumari contended that amended provision shall apply for the Assessment Year 2024-25, prospectively. It was submitted that NFCG had one year available for utilizing accumulated funds as Section 11 was prospective, applied only to fresh accumulations. She relied on precedents by ITAT, Ahmedabad in the case of Sarangpur Talia's Pole Punch Trust and by ITAT, Mumbai in the case of Archdiocese of Bombay which dealt with the scenario where Trust had accumulated income pertaining to financial years 2016-17 and held that applying amendment to past accumulations would create an lex non cogit ad impossibilia i.e. impossible situation

The Delhi ITAT took note of the Co-ordinate Bench decisions to hold that Amendment by Finance Act 2022 effective April 01, 2023 onwards would not apply to past accumulations.

Case Name: National Foundation for Corporate Governance vs. ITO, Ward 2 (4),

For Petitioner: Advocate Ekta Mumari

For Respondent: Sr. DR. Dheeraj Kumar Jaiswal

Clickhere to read the order.