Charitable trust's deposits with misrepresented entities under s. 11(5) investment rules; tax exemption under ss. 11-12 upheld

Denial of exemption under ss. 11 and 12 was challenged on the ground that the assessee-trust had made deposits with entities later found to be non-public undertakings, allegedly violating s. 11(5). The HC held that the Tribunal rightly treated the deposits as made on the basis of misrepresentation by the recipient entities, with no mala fides or linkage attributable to the assessee, and noted that the assessee promptly withdrew the funds upon learning the true status. Treating s. 11(5) as aimed at preventing improper investment by the trust, the HC found no legal infirmity in the Tribunal's appreciation of facts and declined to interfere; the Revenue's appeal was dismissed.

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Issues involved: Appeal u/s 260A of the Income-tax Act, 1961 regarding denial of exemption u/s 11 and 12 for assessment year 1995-96 to a charitable trust due to deposits made with non-public undertakings.

Judgment Summary:

The High Court of Delhi heard an appeal u/s 260A of the Income-tax Act, 1961 concerning the denial of exemption u/s 11 and 12 for the assessment year 1995-96 to a charitable trust due to deposits made with non-public undertakings. The Assessing Officer disallowed the exemption claiming violation of section 11(5) of the Act. The CIT(A) dismissed the appeal ex parte, which was then taken to the Income-tax Appellate Tribunal, Delhi Bench "B". The Tribunal considered the trust's charitable activities, the nature of deposits made, and the immediate withdrawal upon realizing the non-compliance of the concerns. The Tribunal allowed the appeal, emphasizing the lack of mala fides on the trust's part and the factual circumstances.

The Revenue's counsel argued that statutory breaches should not be overlooked based on the trust's good faith. However, the Court upheld the Tribunal's decision, noting the factual considerations and the trust's prompt corrective action upon being informed of the concerns' lack of approval. The Court found no reason to interfere with the Tribunal's order and disposed of the appeal accordingly.

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