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Issues involved: Interpretation of provisions of section 11(2) of the Income-tax Act, 1961 and rule 17 of the Income-tax Rules, 1962 regarding accumulation for charitable purposes.
Summary: The High Court of Rajasthan addressed a case involving the interpretation of section 11(2) of the Income-tax Act, 1961 and rule 17 of the Income-tax Rules, 1962. The case concerned an assessee registered as a charitable institution seeking exemption for accumulated funds for charitable purposes. The Income-tax Officer initially disallowed the claim based on rule 17, stating that accumulation for capital expenditure was impermissible. The Appellate Assistant Commissioner allowed the assessee's appeal, contending that the time-limit imposed by rule 17 was ultra vires. The Income-tax Appellate Tribunal upheld the Appellate Assistant Commissioner's decision. The court noted that section 11(2) requires trustees to notify the Income-tax Officer in writing regarding accumulation purposes and periods, not exceeding 10 years. Rule 17, prior to April 1, 1971, did not specify a time-limit for filing Form No. 10, allowing submission until assessment finalization. However, post-April 1, 1971, a time-limit was introduced. The court cited relevant case law, including M. Ct. Muthiah Chettiar Family Trust and CIT v. Trustees of Shri Teckchand Chandiram Trust, emphasizing that a form prescribed by rules cannot impose time-limits beyond statutory provisions. Considering the circular delegating power to condone delays and legal precedents, the court concluded that the time-limit requirement was directory, not mandatory. The Appellate Assistant Commissioner's direction to verify and allow the exemption was upheld, emphasizing that pre-1971 rule 17 did not impose a time-limit for Form No. 10 submission. Consequently, the Tribunal's decision to grant exemption under section 11(2) and rule 17 was deemed justified. In conclusion, the court ruled in favor of the assessee, answering the reference question against the Revenue. No costs were awarded in the matter.
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