Summary: The Pune Bench of the Income Tax Appellate Tribunal (ITAT) delivered a significant order concerning the taxation of accumulated income for the assessment year (AY) 2023–24 in the case of Yashwantrao Chavan Maharashtra Open University Vs CIT. The sum accumulated in FY 2016–17 was treated as taxable in AY 2023–24 by the CPC due to non-utilization of the funds within the prescribed statutory period. However, the ITAT ruled in favor of the assessee, clarifying that the amendment to the provisions of Section 11(3) is prospective in nature.
1. Facts of the Case
The assessee YCMOU, established by a state legislative act and funded by the Maharashtra Government, with the primary objective of advancing education and knowledge dissemination. It was having a valid registration u/s 12AA of the Income Tax Act. For the assessment year 2023-24, the assessee filed a nil return, claiming exemption of its entire income under Section 11. The only issue involved in the matter related to treatment of ₹ 90,70,20,511 accumulated during FY 2016-17. The CPC claimed the University failed to utilize the accumulated sum for the intended purposes within the permitted time, therefore triggering the deemed income provision in AY 2023-24 as per the provisions of S. 11(3).
The assessee stated that it had used the entire accumulated amount before March 31, 2023. As per the existing law in relevant FY, the institutions were allowed five years plus the immediately following year (making it six years in all) to utilize such sums. If the funds were not used by the end of the sixth year, only then would they be taxable as deemed income in that year.
2. Arguments in the Case
For the assessee:
- The assessee’s counsel argued that the relevant legal provisions in force when the sum was accumulated permitted utilization up to six years from the end of the relevant financial year—the statutory five years, plus the following year as per the explicit language in Section 11(3) before the Finance Act, 2022 amendments.
- It was specifically contended that the stricter limitation introduced by the Finance Act, 2022, which removed the “immediately following year” and restricted the window to five years only, applies prospectively from AY 2023-24. Therefore, it should not affect accumulations made in earlier years. The Counsel cited Supreme Court decision in CIT vs. Vatika Township Pvt. Ltd., (2015) 367 ITR 466 which establishes that new burdensome tax laws should be interpreted as prospective unless clearly stated otherwise.
- The assessee also further argued that as the issue is inherently debatable, it could not be subject to an adjustment by the CPC under the summary assessment mechanism of Section 143(1) of the Act.
For the Revenue:
- The DR countered that the five-year limit was always operative and that unutilized accumulations should be taxed in the sixth year as “deemed income,” regardless of subsequent utilization. They maintained that retrospective application of amendments was not required, as the law on record at the time of assessment governs, regardless of when the accumulation occurred.
3. Decision of ITAT
The ITAT Pune Bench, held in favor of assessee. It specifically found:
- The wording “or in the year immediately following the expiry thereof,” which gave institutions an extra (sixth) year after the standard five-year accumulation period, was only omitted starting AY 2023-24 by the Finance Act, 2022. For accumulations made before this amendment, the six-year window for utilization continued to apply.
- Since the University used the funds before 31.03.2023, i.e., within the permissible six-year period, there was no legal basis for the addition of the amount as “deemed income” in AY 2023-24.
- The Tribunal emphasized that new restrictions or burdens in tax statutes are presumed to apply prospectively unless the legislature explicitly stipulates otherwise, referencing the Supreme Court’s decision in Vatika Township Pvt. Ltd.(supra)
- The ITAT also concurred that adjustments involving debatable or interpretative issues lie outside the automatable scope of Section 143(1) adjustments by the CPC.
- Therefore, the order of the lower authority (CIT(A)) was set aside, and the addition made by the CPC was deleted.
Author Bio
