Charitable trust exemption survives where non-conforming investments remain within the statutory grace period for compliance.

A public charitable trust was not disentitled to exemption because the investment disqualification depended on non-conforming investments continuing beyond the statutory conversion period. As the previous year ended before that period expired, no contravention arose during the relevant assessment year and the grace period for regularising investments was still available. Exemption under the charitable trust provisions therefore remained available, and the assessment had to be recomputed on that basis.

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Issues: Whether the assessee-trust was disentitled to exemption under section 11 of the Income-tax Act, 1961 on the ground that its investments did not conform to section 11(5) and therefore attracted section 13(1)(d)(ii) of the Income-tax Act, 1961.

Analysis: The assessee was a public charitable trust and its previous year ended on 31 March 1983. The disqualification under section 13(1)(d)(ii) read with section 11(5) arose only where the investment continued beyond the statutory conversion period, which expired on 30 November 1983. Since the relevant previous year had already ended before that date, no contravention could be said to have occurred during the assessment year under consideration. The statutory grace period for bringing investments into conformity was still available.

Conclusion: The assessee was entitled to exemption under section 11 and the denial of exemption was unsustainable; the assessment had to be recomputed accordingly.

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