Court grants writ petition, setting aside exemption denial under Income-tax Act. Trust deed defect deemed curable.

The Court allowed the writ petition, setting aside the order declining exemption under section 10(23C)(vi) of the Income-tax Act, 1961. The matter was remanded to the respondent for a fresh decision on the petitioner's application for approval/exemption. The Court found the defect in the trust deed to be curable as the event of dissolution had not yet occurred, and the petitioner had rectified the deficiency in advance. The denial of approval/exemption was deemed unjustified due to the absence of fund misuse and proactive rectification by the petitioner.

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Issues: Challenge to order declining exemption under section 10(23C)(vi) of the Income-tax Act, 1961.

Analysis:
1. The petitioner, a society registered in Punjab, sought exemption under section 10(23C)(vi) of the Income-tax Act, 1961. The Director General of Income-tax (Inv.) declined the exemption citing a lack of provision in the trust deed regarding the utilization of funds in the event of dissolution or winding up of the society.

2. The petitioner argued that the defect was curable and had subsequently included a provision in the trust deed stating that in case of dissolution, assets would be transferred to another society with similar objectives. The petitioner had not diverted any funds contrary to the trust deed and had rectified the deficiency pointed out by the Director General before the actual event of dissolution occurred.

3. The respondents contended that the reliance on section 14 of the Act was unfounded, and the provisions of section 10(23C) would override any conflicting provisions. They argued that the petitioner could only claim benefits for subsequent years after amending the trust deed.

4. The Court found merit in the petitioner's argument, emphasizing that the defect in the trust deed was curable, as the event of dissolution had not yet occurred. The petitioner had rectified the deficiency by amending the trust deed, ensuring assets' transfer to a similar society in case of dissolution. As there was no evidence of fund misuse and the rectification was done in advance, the denial of approval/exemption was deemed unjustified.

5. Consequently, the Court allowed the writ petition, setting aside the order declining exemption. The matter was remanded to the respondent for a fresh decision on the petitioner's application for approval/exemption under section 10(23C)(vi) of the Income-tax Act, 1961.

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