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Interpretation of Section 11 of the Income-tax Act, 1961 regarding the tax liability on income arising from donations to a charitable trust specifically earmarked for charitable purposes and those not earmarked. Analysis: The High Court of Allahabad considered a case where the Income-tax Appellate Tribunal referred a question regarding the tax liability on income from donations made to a trust specifically earmarked for charitable purposes. The donations in question were given by four donor-companies to a charitable trust, with a portion of the donations specifically earmarked for wholly charitable purposes. The Tribunal had to determine whether the income arising from these donations, along with additional donations not earmarked for specific purposes but spent on charitable activities, was liable to be taxed as assessable income of the trust. During the assessment years in question, the donor-companies made donations to the trust with specific conditions on how the income should be utilized. The Income-tax Officer initially held that one-third of the income derived from these donations was not exempt from income tax, as a portion of the income was to be spent on purposes not deemed charitable. This decision was upheld by the Appellate Assistant Commissioner. However, the Tribunal interpreted the trust document differently, stating that the income from subsequent donations need not be apportioned to each object mentioned in the trust deed, except for income from specific properties mentioned in the deed. The Tribunal referred the case to the High Court, which analyzed Section 11 of the Income-tax Act, 1961. The Court noted that income derived from property held under trust wholly for charitable purposes is exempt from tax if applied for such purposes in India. In the case of a trust where the original corpus was held partly for charitable purposes, income derived from such property would be governed by the relevant clause of Section 11. The Court emphasized that income actually applied for wholly charitable purposes, regardless of the trust's partial charitable nature, is exempt from income tax. The Court further clarified that the specific earmarking of donations for charitable purposes by the donor is not decisive in determining tax liability. The crucial factor is the actual application of income for charitable purposes. In this case, as all income from the donations in question was spent on charitable activities, the Court ruled in favor of the assessee, holding that the income was exempt from tax. The Court answered the question in the affirmative, in favor of the assessee, and awarded costs to the assessee.
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