ITAT Allows Section 11 Exemption in Updated Return for Years Before AY 2023-24

In a significant ruling, the Income Tax Appellate Tribunal (ITAT), Pune Bench held that charitable trusts cannot be denied exemption under Section 11 merely because the claim was made through an updated return filed under Section 139(8A). The Tribunal clarified that the restriction introduced by the Finance Act, 2023 applies only from Assessment Year 2023-24 onwards.

Key Takeaways

• In a significant ruling, the Income Tax Appellate Tribunal (ITAT), Pune Bench held that charitable trusts cannot be denied exemption under Section 11 merely because the claim was made through an updated return filed under Section 139(8A).
• The VakilKaro Brief: ITAT Allows Section 11 Exemption in Updated Return for Pre-2023 Assessment Years The Update The ITAT Pune ruled that trusts filing updated returns under Section 139(8A) for years before AY 2023-24 cannot be denied exemption under Section 11.
• The Impact Charitable trusts that filed updated returns before the Finance Act 2023 amendment can still claim exemption if the return falls within the broader timeline under Section 139.
• In the updated return, the trust declared income after offering short-term and long-term capital gains and simultaneously claimed exemption under Section 11 for income applied toward charitable purposes.
• Conclusion The ITAT Pune decision provides clarity on the availability of Section 11 exemption in cases where trusts filed updated returns before the amendment introduced by the Finance Act, 2023.

The VakilKaro Brief: ITAT Allows Section 11 Exemption in Updated Return for Pre-2023 Assessment Years

The Update

The ITAT Pune ruled that trusts filing updated returns under Section 139(8A) for years before AY 2023-24 cannot be denied exemption under Section 11.

The Impact

Charitable trusts that filed updated returns before the Finance Act 2023 amendment can still claim exemption if the return falls within the broader timeline under Section 139.

The Action

Trusts should review past updated returns and ensure compliance with filing timelines under Section 139 when claiming exemptions.

Background of the Case

The case involved a public charitable trust engaged in activities for the benefit of society. For Assessment Year 2022-23, the trust filed an updated return under Section 139(8A) of the Income Tax Act.

In the updated return, the trust declared income after offering short-term and long-term capital gains and simultaneously claimed exemption under Section 11 for income applied toward charitable purposes.

However, while processing the return under Section 143(1), the Central Processing Centre (CPC) rejected the claim of exemption and assessed the income at a substantially higher figure.

Legal Provisions Involved

The dispute primarily revolved around the interpretation of Sections 11, 12A, and 139 of the Income Tax Act.

Section 11 grants exemption to income derived from property held for charitable or religious purposes, subject to certain conditions.

Section 12A lays down procedural requirements for claiming exemption, including registration and filing of return of income within the prescribed time.

Section 139 provides timelines for filing income tax returns.

The following table summarises the key provisions involved:

Provision Purpose

Section 11 Exemption of income applied for charitable or religious purposes

Section 12A Conditions for claiming exemption including filing of return

Section 139(1) Filing of original return within due date

Section 139(4) Filing of belated return

Section 139(8A) Filing of updated return within two years

Issue Before the Tribunal

The core issue was whether a charitable trust can claim exemption under Section 11 when the claim is made through an updated return filed under Section 139(8A).

The tax authorities argued that exemption under Section 11 should not be allowed because the trust had not filed its return within the due date under Section 139(1). According to the department, filing an updated return could not override this requirement.

The assessee, however, contended that the restriction on claiming exemption through updated returns was introduced only through the Finance Act, 2023 and applied prospectively from Assessment Year 2023-24.

Tribunal’s Analysis and Reasoning

The ITAT examined the legislative history of Section 12A and the amendments introduced by the Finance Act, 2023.

The Tribunal noted that the Finance Act, 2023 amended the law to specifically restrict the availability of exemption under Sections 11 and 12 only when returns are filed within the timelines under Section 139(1) or Section 139(4).

This amendment was introduced to prevent trusts from claiming exemption through updated returns filed under Section 139(8A).

However, the Tribunal emphasized that the amendment clearly states that it applies from Assessment Year 2023-24 onwards.

Therefore, for earlier years, the broader phrase “within the time allowed under Section 139” continued to apply. This meant that returns filed under various provisions of Section 139including updated returnscould still be considered valid for exemption claims.

Key Precedent Relied Upon

The Tribunal relied on an earlier decision of the Kolkata Bench in Dy. CIT v. Bishnupur Public Education Institute.

In that case, the Tribunal had similarly held that exemption under Section 11 cannot be denied when the return is filed within the permissible time under Section 139.

The Pune Bench observed that the Finance Bill, 2023 itself clarified that the amendment was intended to exclude updated returns only from Assessment Year 2023-24 onwards.

Since the trust in the present case had filed the updated return within the timeline permissible under Section 139(4), the exemption could not be denied.

Accordingly, the Tribunal set aside the order of the appellate authority and allowed the claim of exemption.

Practical Implications for Charitable Trusts

The ruling has important implications for charitable trusts that filed updated returns before Assessment Year 2023-24.

First, it confirms that the restriction on claiming exemption through updated returns is prospective and not retrospective.

Second, it clarifies that for earlier assessment years, returns filed within the broader timeline under Section 139 remain valid for exemption claims.

Third, the decision reinforces the principle that procedural delayssuch as filing of audit reports or returnsshould not defeat legitimate claims for exemption when the substantive conditions are satisfied.

However, for Assessment Year 2023-24 and subsequent years, the law is now stricter. Trusts must ensure that returns are filed within the time limits prescribed under Section 139(1) or Section 139(4) to claim exemption.

Conclusion

The ITAT Pune decision provides clarity on the availability of Section 11 exemption in cases where trusts filed updated returns before the amendment introduced by the Finance Act, 2023.

By holding that the amendment applies prospectively, the Tribunal protected legitimate exemption claims made under the earlier legal framework.

The ruling highlights an important principle in tax law: statutory amendments restricting benefits cannot be applied retrospectively unless the legislature clearly provides so. For charitable institutions, the decision offers relief in cases where exemption claims were made through updated returns for assessment years preceding 2023-24.

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Official External Resources

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