The Income Tax Appellate Tribunal clarified that deposits in scheduled banks - whether fixed deposits or current-account balances - satisfy the statutory requirement of "another capital asset" under Section 11(1A) of the Income-Tax Act, thereby permitting full exemption of capital gains arising from the sale of a charitable trust’s immovable property. The decision also rejects the notion that a six-month holding period is a condition for such exemption.
Background & Facts
The Dispute
The appellant, Jogdhian Hari Bhagwan Rastogi Charitable Trust, contended that the sale proceeds of an immovable property sold on 26-09-2012 for Rs 11.90 crore were fully utilised for acquiring new capital assets, namely mutual funds, fixed deposits and a savings-bank balance, and therefore the entire capital gain should be exempt under Section 11(1A) of the Income-Tax Act, 1961.
Key Facts
- Trust formed on 27-08-1966 with charitable objects; registered under Section 12A on 22-11-1983.
- Sale of immovable property at Kothi Barwali, Nai Sarak, Chandni Chowk, Delhi on 26-09-2012 for Rs 11.90 crore; proceeds received on 10-11-2012.
- Investment of proceeds:
- Mutual funds: Rs 9.95 crore (invested on 24-05-2013 and 28-05-2013).
- Fixed deposit with ICICI Bank: Rs 1 crore.
- Savings-bank balance with Kotak Mahindra Bank: Rs 95 lakhs (balance as on 31-03-2013).
- Current-account deposit with Bank of India: Rs 4,86,304.
- The Assessing Officer (AO) disallowed deduction for the fixed-deposit and savings-bank amounts, holding they were not "investments" under Section 11(5).
- AO issued notice under Section 142(1) on 02-02-2022; assessee replied on 24-02-2022 and 07-06-2022.
- AO completed assessment on 29-06-2022, computing total income of Rs 2,28,17,624.
- Commissioner of Income-Tax (Appeals) upheld AO’s order on 07-10-2025 (Appeal No. 8317/Del/2025).
- The matter was remanded by the Tribunal on 24-03-2021 to the AO to verify investments.
Procedural History
- 27-08-1966: Trust formation.
- 22-11-1983: Registration under Section 12A.
- 26-09-2012: Sale of immovable property.
- 10-11-2012: Receipt of sale proceeds.
- 24-05-2013 & 28-05-2013: Investment in mutual funds.
- 02-02-2022: AO notice under Section 142(1).
- 24-02-2022: Assessee’s first reply.
- 07-06-2022: Assessee’s second reply.
- 29-06-2022: AO assessment order.
- 24-03-2021: Tribunal order remanding to AO.
- 07-10-2025: CIT(A) order rejecting deduction.
- 30-06-2026: Hearing before ITAT, New Delhi Bench.
- 19-08-2026: Judgment pronounced.
The Parties' Positions
- Assessee (Trust): Argues that deposits in scheduled banks, including current-account balances, are permissible modes of investment under Section 11(5) and therefore qualify as "another capital asset" for exemption. Contends that the CBDT circular requiring a six-month holding period is not binding law.
- Revenue: Maintains that only investments specified in Section 11(5) qualify, and that a deposit in a current account does not constitute acquisition of a new capital asset. Relies on the six-month period stipulated in the CBDT circular and on earlier case law.
Relief Sought
The appellant sought deduction under Section 11(1A) for the entire sale consideration, specifically for the fixed-deposit of Rs 1 crore, the savings-bank balance of Rs 95 lakhs, and the current-account amount of Rs 4,86,304, in addition to the mutual-fund investment already allowed.
The Legal Issue
The central question was whether deposits in scheduled banks - including fixed deposits, savings-bank balances and current-account balances - satisfy the definition of "another capital asset" under Section 11(1A) of the Income-Tax Act, 1961, and whether a minimum six-month holding period is a statutory condition for such exemption.
Arguments Presented
For the Appellant/Petitioner
- The trust relied on the plain language of Section 11(5)(iii) which lists “deposit in any account with a scheduled bank” as a permissible mode of investment.
- Cited Goetz India Ltd. v. CIT and several High Court decisions (e.g., ADIT (Exemption) v. Murugappa Chettiar Trust, CIT v. Hindusthan Welfare Trusts) that treated bank deposits as valid investments.
- Asserted that the CBDT circular of 24-09-1975 is merely a concession and cannot override statutory provisions.
- Emphasised that the nature of a bank deposit is a debt-creditor relationship, not bailment, and therefore constitutes a distinct asset.
For the Respondent/State
- Argued that the six-month period prescribed in the CBDT circular reflects the legislative intent to prevent trivial cash holdings from qualifying.
- Submitted that a current-account balance is a cash fund, not an “acquisition of a new asset” within the meaning of Section 11(1A).
- Relied on CIT v. Ambalal Sarabhai Trust and CIT v. Trustees of H.E.H. Nizam’s Charitable Trust to contend that only investments that change the character of the proceeds qualify.
The Court's Analysis
The Tribunal began by interpreting the statutory scheme of Section 11(1A), which provides exemption when the whole or any part of the net consideration from the sale of a charitable capital asset is “utilised for acquiring another capital asset”. The phrase “another capital asset” is defined by reference to the modes of investment listed in Section 11(5). Sub-clause (iii) expressly includes “deposit in any account with a scheduled bank”.
"In the present case, the deposit was made in the current account with the Bank of India and hence the same will come within the meaning of the words ‘deposit in any account with a scheduled bank’. ‘Any account’ includes current account also."
The Tribunal rejected the revenue’s reliance on the six-month requirement, observing that the CBDT circular is a policy measure and not a statutory condition. It noted that the Supreme Court in Goetz India Ltd. had affirmed that the statutory language prevails over administrative guidance.
The Tribunal examined the nature of a bank deposit, citing Foley v. Hill and Shanti Prasad Jain v. Director of Enforcement to establish that a deposit creates a debtor-creditor relationship, making the deposited sum a separate asset of the depositor. Consequently, the deposit satisfies the requirement of “acquisition of another capital asset”.
The Tribunal also considered earlier judgments that treated fixed deposits and savings-bank balances as permissible investments (CIT v. Hindusthan Welfare Trusts, CIT v. Ambalal Sarabhai Trust). It distinguished the revenue’s argument that a current-account balance is merely cash, emphasizing that the statute does not differentiate between types of bank accounts.
Having reconciled the statutory language with the case law, the Tribunal concluded that:
- The amounts deposited in the current account (Rs 4,86,304), the fixed deposit (Rs 1 crore), and the savings-bank balance (Rs 95 lakhs) are “classified and proper investments” under Section 11(5)(iii).
- No minimum six-month holding period is required for the deposit to qualify as a capital asset.
- Accordingly, the assessee is entitled to the full exemption under Section 11(1A) for the entire sale consideration.
The Verdict
The appeal of the assessee is allowed. The Tribunal held that deposits in scheduled banks - including the current-account amount of Rs 4,86,304, the fixed-deposit of Rs 1 crore, and the savings-bank balance of Rs 95 lakhs - constitute “another capital asset” under Section 11(1A) and are eligible for exemption. No costs were awarded.
What This Means For Similar Cases
Bank Deposits Qualify as Capital Assets
- Practitioners can rely on Section 11(5)(iii) to treat any deposit with a scheduled bank, whether fixed-deposit, savings-bank or current-account, as a valid investment for Section 11(1A) exemption.
- The decision removes uncertainty about the character of bank deposits, aligning them with other recognised assets such as securities and unit trusts.
No Minimum Holding Period Required
- The six-month condition in the CBDT circular is not binding; tribunals will focus on statutory language.
- Lawyers need not advise clients to maintain deposits for a specific duration to claim exemption.
Current-Account Balances Are Acceptable
- Even a modest balance in a current account, like the Rs 4,86,304 in this case, satisfies the investment requirement.
- Documentation of the deposit (bank statement) suffices to prove compliance.
Practical takeaways
- Preserve bank statements showing the date and amount of each deposit.
- Cite Section 11(5)(iii) and relevant High Court precedents when drafting appeals.
- Do not rely on the CBDT circular for mandatory holding periods; focus on statutory provisions.
