Registered public charitable trust's accumulated funds in bank current account held permissible "investment" under section 11(2); exemption restored

ITAT (Delhi - AT) allowed the appeal, holding that a registered public charitable trust's accumulated funds retained in a current account with a public sector bank constituted a permissible mode of "investment" for purposes of section 11(2) and should qualify for exemption under section 11. The tribunal reversed the assessing officer and appellate order that denied exemption because the amount was not placed in modes specified under section 11(5), restoring exemption for the accumulated sum set aside for building construction.

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ISSUES PRESENTED AND CONSIDERED

1. Whether sums accumulated and set apart for a specified charitable purpose but retained in a current account with a scheduled bank qualify as "accumulated income" eligible for exemption under section 11(2) of the Income-tax Act?

2. Whether a deposit retained in a current account with a scheduled bank falls within the forms and modes of investing or depositing money specified in section 11(5)(iii) of the Income-tax Act.

ISSUE-WISE DETAILED ANALYSIS

Issue 1 - Eligibility of amounts retained in a current account as accumulated income under section 11(2)

Legal framework: Section 11(2) allows exemption for income accumulated or set apart for application to a specified object provided conditions are met. Section 11(5) prescribes forms and modes of investing or depositing such accumulated sums, including clause (iii) referring to "deposit in any account with a scheduled bank."

Precedent Treatment: The Court relied on a binding High Court decision addressing the same question (approving that amounts in a current account with a scheduled bank constituted permissible deposit for the purposes of section 11(5)(iii)). The precedent was followed.

Interpretation and reasoning: The Tribunal examined the statutory language "deposit in any account with a scheduled bank" and construed "any account" to include current accounts. The fact that the accumulated sum was retained in the assessee's current account of a public sector bank and was specifically accumulated for building construction satisfied the statutory requirement that the amount be set apart for a specified purpose. The Assessing Officer's technical objection that the amount was not placed in any other prescribed investment mode was rejected because the current account deposit fell within the express wording of section 11(5)(iii).

Ratio vs. Obiter: Ratio - the holding that sums retained in a current account with a scheduled bank constitute permissible deposits under section 11(5)(iii) for the purpose of claiming exemption under section 11(2), where the sum is duly accumulated/set apart for a specified purpose and relevant formalities (e.g., filing Form 10) are complied with. Obiter - ancillary remarks about unavailable particulars (e.g., cheques on hand in the precedent) that do not affect the holding on current account deposits.

Conclusion: The amount retained in the current account, having been properly accumulated and earmarked for building construction, qualifies as accumulated income eligible for exemption under section 11(2), because a current account with a scheduled bank is covered by section 11(5)(iii).

Issue 2 - Scope of section 11(5)(iii): whether "deposit in any account with a scheduled bank" includes current accounts

Legal framework: Section 11(5)(iii) lists acceptable modes of investing or depositing accumulated income; statutory text uses the phrase "deposit in any account with a scheduled bank."

Precedent Treatment: The Tribunal expressly followed the High Court's construction that "any account" encompasses current accounts maintained with scheduled banks. That decision was treated as authoritative and applied to the facts.

Interpretation and reasoning: The literal and purposive reading of "any account" supports inclusion of current accounts. The Court observed that there was no statutory limitation to restrict "any account" to fixed deposits or deposit accounts of a particular nature; excluding current accounts would run contrary to the plain language. The Tribunal also considered practical aspects: where an assessee maintains funds earmarked for a specified purpose in a current account with a scheduled bank, the statutory objective of ensuring that the sum is preserved for that purpose is satisfied.

Ratio vs. Obiter: Ratio - construction of "any account" in section 11(5)(iii) to include current accounts with scheduled banks is a determinative legal proposition. Obiter - procedural nuances about further inquiry into cheque particulars (from the cited High Court decision) are not necessary where the record affirmatively shows deposit in a current account.

Conclusion: Section 11(5)(iii)'s phrase "any account with a scheduled bank" includes current accounts; therefore deposits retained in such current accounts meet the statutory requirement for modes of investment/deposit for accumulated charitable income.

Cross-reference and application to the instant facts

The assessee, a registered public charitable trust, had filed Form 10 specifying accumulation for building construction and retained Rs.31,34,000 in a current account with a public sector scheduled bank. The Assessing Officer denied exemption on the ground that the current account was not a prescribed mode under section 11(5). Applying the settled construction (supra), the Tribunal found the denial unsustainable and allowed the claim. The Tribunal followed the High Court precedent directly on point and applied its ratio to admit the accumulated sum as eligible for exemption under section 11(2).

Final conclusion

The Court allowed the assessee's grounds: sums accumulated and maintained in a current account with a scheduled bank, properly set apart for a specified charitable purpose and recorded accordingly, qualify as deposits under section 11(5)(iii) and are therefore entitled to exemption under section 11(2).

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