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Issues involved: Interpretation of provisions of section 12 of the Income Tax Act, 1961 regarding treatment of donations made to a charitable trust as income.
Summary: The High Court of Gujarat considered a case where a charitable trust received donations in the form of shares and cash, leading to a dispute with the Income Tax Officer (ITO) regarding the treatment of these donations as income. The ITO included the value of the shares in the trust's total income, citing section 12(2) of the Income Tax Act, 1961. However, the Appellate Authority Commissioner (AAC) ruled in favor of the trust, stating that section 12(2) did not apply. The revenue appealed to the Tribunal, which relied on a decision of the Allahabad High Court and held that the donations were towards the corpus of the trust and not income. The matter was then referred to the High Court for opinion. The Court analyzed the provisions of section 12 prior to its amendment and emphasized the distinction between voluntary contributions treated as income and those meant for the corpus of the trust. It noted that the amendment clarified the treatment of such contributions received by charitable trusts. Referring to the decision of the Allahabad High Court, the High Court of Gujarat concurred that donations specifically meant for the corpus of the trust do not constitute income under section 12(1) and are not subject to section 12(2) provisions. The Court highlighted that the Allahabad High Court's decision on similar grounds had been finalized after rejection of an appeal to the Supreme Court. It affirmed the view that donations forming part of the corpus of the trust should not be considered income. Consequently, the High Court ruled in favor of the assessee trust, directing the Commissioner to bear the costs of the reference.
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