The Assessing Officer has reopened an old year saying my trust could not claim provisioned expenditure as application because s.11 requires the sum to be actually paid. Does that rule apply to years before AY 2022-23?
The Delhi High Court, at the notice stage, said it was prima facie unable to sustain the assumption of jurisdiction under s.148 on that reasoning, because the Explanation requiring a sum to be treated as applied in the previous year in which it is actually paid was inserted only by the Finance Act 2022 and would not govern AY 2017-18. This is an interim order in a writ petition that is still pending; there is no final adjudication.
Decided by the High Court (Yashwant Varma J and Purushaindra Kumar Kaurav J) on 2024-05-31, reported as W.P.(C) 8562/2024 with CM APPL. 35048/2024 and CM APPL. 35049/2024 (High Court of Delhi). It bears on section 11, section 11(7), section 147, section 148 of the Income Tax Act 1961, in Charitable Trusts & Exemption, Capital Gains Exemptions and Reassessment & Reopening matters.
The payment-basis rule is the single most disruptive of the 2022 changes to trust taxation, and Assessing Officers have been applying it backwards into years governed by the accrual basis on which the trust's accounts were kept. This order is the only High Court material located on the point, and its value is that it names the amendment: the Explanation printed after s.11(7) provides that any sum payable by a trust or institution shall be considered as application of income in the previous year in which such sum is actually paid, irrespective of the previous year in which the liability was incurred according to the method of accounting regularly employed, with a proviso that a sum once claimed as applied shall not be allowed as application in any subsequent year. Because the Explanation is new, a reopening for a pre-2022 year that rests on it is a reopening on a rule that did not exist in that year. Two cautions. This is an order on notice, so it decides nothing finally, and the Court expressly permitted the reassessment to proceed while protecting the petitioner from adverse orders being given effect. And for AY 2022-23 onwards the Explanation does apply, so the argument is purely about the earlier years.
Binding within that High Court's jurisdiction. Persuasive elsewhere.
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The petitioner trust had accrued certain expenditure and made provision for it in its books, and claimed it as application of income under s.11 for AY 2017-18. The Assessing Officer initiated reassessment, recording in para 5.4 of his reasons that although the expenses were ascertained and incurred during the year they were not spent and paid during the year, and that for claiming application under s.11 it is necessary both to incur and to pay the expenses in the same assessment year. The trust filed a writ petition challenging the assumption of jurisdiction under s.148. Senior counsel for the petitioner pointed out that the officer's view rested on the Explanation appearing alongside s.11(7), which provides that any sum payable by a trust or institution shall be considered as application of income in the previous year in which such sum is actually paid, irrespective of the previous year in which the liability to pay was incurred according to the method of accounting regularly employed, with a proviso that a sum claimed to have been applied in a previous year shall not be allowed as application in any subsequent previous year; and that this Explanation was inserted only by the Finance Act 2022 and so could not govern AY 2017-18.
No final holding. The Division Bench issued notice, directed a reply within four weeks and a rejoinder within two weeks thereafter, and listed the matter for 10 September 2024. It recorded in para 5 that it found itself prima facie unable to sustain the assumption of jurisdiction under s.148 bearing in mind the submissions made for the petitioner, and in para 8 that the Explanation came to be inserted only by the Finance Act 2022 and would consequently not govern proceedings pertaining to AY 2017-18, adding that the matter required consideration. By para 9 it permitted the respondents to proceed with the reassessment but directed that any orders adverse to the petitioner, if passed, should not be given effect to till the next date of listing.
The Court reproduced the reason recorded by the Assessing Officer, which asserted that for claiming application under s.11 it is necessary both to incur and to pay the expenses in the same assessment year, and then reproduced the Explanation on which that view rests. Accepting the submission that the Explanation was introduced by the Finance Act 2022, it observed that the Explanation would consequently not govern the proceedings in question, which pertained to AY 2017-18, and that the matter required consideration. On that footing it declined at that stage to sustain the assumption of jurisdiction under s.148 and granted limited protection pending final hearing.
It is pointed out that the aforesaid Explanation came to be inserted only by virtue of Finance Act, 2022 and consequently would not govern the proceedings in question and which pertain to Assessment Year ["AY"] 2017-18. The matter requires consideration.
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Handle my notice → Ask a CA on WhatsAppThe Delhi High Court, at the notice stage, said it was prima facie unable to sustain the assumption of jurisdiction under s.148 on that reasoning, because the Explanation requiring a sum to be treated as applied in the previous year in which it is actually paid was inserted only by the Finance Act 2022 and would not govern AY 2017-18. This is an interim order in a writ petition that is still pending; there is no final adjudication. This was decided by the High Court (Yashwant Varma J and Purushaindra Kumar Kaurav J) and bears on section 11, section 11(7), section 147, section 148 of the Income Tax Act 1961. It is reported as W.P.(C) 8562/2024 with CM APPL. 35048/2024 and CM APPL. 35049/2024 (High Court of Delhi). The payment-basis rule is the single most disruptive of the 2022 changes to trust taxation, and Assessing Officers have been applying it backwards into years governed by the accrual basis on which the trust's accounts were kept. This order is the only High Court material located on the point, and its value is that it names the amendment: the Explanation printed after s.11(7) provides that any sum payable by a trust or institution shall be considered as application of income in the previous year in which such sum is actually paid, irrespective of the previous year in which the liability was incurred according to the method of accounting regularly employed, with a proviso that a sum once claimed as applied shall not be allowed as application in any subsequent year. Because the Explanation is new, a reopening for a pre-2022 year that rests on it is a reopening on a rule that did not exist in that year. Two cautions. This is an order on notice, so it decides nothing finally, and the Court expressly permitted the reassessment to proceed while protecting the petitioner from adverse orders being given effect. And for AY 2022-23 onwards the Explanation does apply, so the argument is purely about the earlier years. If it applies to you, the first step is this: Read the reasons recorded and see whether the officer's objection is that the expenditure was provisioned but not paid. If it is, identify the assessment year and check it against 1 April 2022.
The petitioner trust had accrued certain expenditure and made provision for it in its books, and claimed it as application of income under s.11 for AY 2017-18. The Assessing Officer initiated reassessment, recording in para 5.4 of his reasons that although the expenses were ascertained and incurred during the year they were not spent and paid during the year, and that for claiming application under s.11 it is necessary both to incur and to pay the expenses in the same assessment year. The trust filed a writ petition challenging the assumption of jurisdiction under s.148. Senior counsel for the petitioner pointed out that the officer's view rested on the Explanation appearing alongside s.11(7), which provides that any sum payable by a trust or institution shall be considered as application of income in the previous year in which such sum is actually paid, irrespective of the previous year in which the liability to pay was incurred according to the method of accounting regularly employed, with a proviso that a sum claimed to have been applied in a previous year shall not be allowed as application in any subsequent previous year; and that this Explanation was inserted only by the Finance Act 2022 and so could not govern AY 2017-18. The matter was decided on 2024-05-31 by the High Court (Yashwant Varma J and Purushaindra Kumar Kaurav J). On those facts the High Court held as follows. No final holding. The Division Bench issued notice, directed a reply within four weeks and a rejoinder within two weeks thereafter, and listed the matter for 10 September 2024. It recorded in para 5 that it found itself prima facie unable to sustain the assumption of jurisdiction under s.148 bearing in mind the submissions made for the petitioner, and in para 8 that the Explanation came to be inserted only by the Finance Act 2022 and would consequently not govern proceedings pertaining to AY 2017-18, adding that the matter required consideration. By para 9 it permitted the respondents to proceed with the reassessment but directed that any orders adverse to the petitioner, if passed, should not be given effect to till the next date of listing.
The Court reproduced the reason recorded by the Assessing Officer, which asserted that for claiming application under s.11 it is necessary both to incur and to pay the expenses in the same assessment year, and then reproduced the Explanation on which that view rests. Accepting the submission that the Explanation was introduced by the Finance Act 2022, it observed that the Explanation would consequently not govern the proceedings in question, which pertained to AY 2017-18, and that the matter required consideration. On that footing it declined at that stage to sustain the assumption of jurisdiction under s.148 and granted limited protection pending final hearing. In the words reproduced by the source cited on this page: "It is pointed out that the aforesaid Explanation came to be inserted only by virtue of Finance Act, 2022 and consequently would not govern the proceedings in question and which pertain to Assessment Year ["AY"] 2017-18. The matter requires consideration."
It was decided by the High Court on 2024-05-31 and is reported as W.P.(C) 8562/2024 with CM APPL. 35048/2024 and CM APPL. 35049/2024 (High Court of Delhi). Binding within that High Court's jurisdiction. Persuasive elsewhere. A High Court decision binds the assessing officer, the Commissioner (Appeals) and the Income Tax Appellate Tribunal within that state, and is persuasive elsewhere. If your assessment is in a different jurisdiction, check whether your own High Court has taken the same view before relying on it. On section 11, section 11(7), section 147, section 148, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. No final holding. The Division Bench issued notice, directed a reply within four weeks and a rejoinder within two weeks thereafter, and listed the matter for 10 September 2024. It recorded in para 5 that it found itself prima facie unable to sustain the assumption of jurisdiction under s.148 bearing in mind the submissions made for the petitioner, and in para 8 that the Explanation came to be inserted only by the Finance Act 2022 and would consequently not govern proceedings pertaining to AY 2017-18, adding that the matter required consideration. By para 9 it permitted the respondents to proceed with the reassessment but directed that any orders adverse to the petitioner, if passed, should not be given effect to till the next date of listing. It arises in Charitable Trusts & Exemption, Capital Gains Exemptions and Reassessment & Reopening matters, on section 11, section 11(7), section 147, section 148 of the Income Tax Act 1961, and was decided by Yashwant Varma J and Purushaindra Kumar Kaurav J. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. For a year before AY 2022-23, take the point that the Explanation after s.11(7) was inserted by the Finance Act 2022 and cannot supply the foundation for a belief that income escaped assessment in an earlier year. Put on record the method of accounting regularly employed by the trust, since the Explanation itself is framed as an override of that method — which is an acknowledgement that without it the method governs. Do not treat this as settled. It is an interim order; if you rely on it, say so to the authority and be ready to argue the point from the amendment itself rather than from the order. For AY 2022-23 onwards, plan around the rule rather than against it: track application on a payment basis, and watch the proviso, which bars claiming a sum again in a later year once it has been claimed as applied.
Validity check could not be completed. Validity check could not be completed, and the label understates the position: the writ petition has not been decided. A title search returns four later orders in the same petition. The order of 17 August 2026, before Dinesh Mehta and Rajneesh Kumar Gupta JJ, was read in summary form only and records that the interim orders continue till the next date and that the matter is listed on 26 November 2026. The orders of 10 September 2024, 20 January 2026 and 14 July 2026 were not read. No final adjudication on the temporal reach of the Explanation after s.11(7) has been traced. Treat the point as open and protected only by an interim direction in the petitioner's own case. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
This is not a judgment. It is an order dated 31 May 2024 issuing notice in W.P.(C) 8562/2024, disposing of an exemption application, granting time for a reply and rejoinder, listing the matter for 10 September 2024, recording a prima facie view in para 5 and giving limited protection in para 9. It contains no final finding and no operative declaration on the Explanation. It is included because it is the only High Court material located on the temporal reach of the payment-basis rule and because it reproduces the Explanation verbatim, which is a reliable route to the statutory text. The 'held' field states what the order actually does and should not be shortened into a holding. The full text of the 31 May 2024 order was read; a title search shows four further orders in the same petition, dated 10 September 2024, 20 January 2026, 14 July 2026 and 17 August 2026, of which only the 17 August 2026 order was retrieved and that only in summary form. The Explanation as reproduced in the order is printed as appearing 'alongside Section 11(7)'; in the Act it appears at the end of s.11, after sub-section (7). This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
No final holding. The Division Bench issued notice, directed a reply within four weeks and a rejoinder within two weeks thereafter, and listed the matter for 10 September 2024. It recorded in para 5 that it found itself prima facie unable to sustain the assumption of jurisdiction under s.148 bearing in mind the submissions made for the petitioner, and in para 8 that the Explanation came to be inserted only by the Finance Act 2022 and would consequently not govern proceedings pertaining to AY 2017-18, adding that the matter required consideration. By para 9 it permitted the respondents to proceed with the reassessment but directed that any orders adverse to the petitioner, if passed, should not be given effect to till the next date of listing.
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