TMI Blog2023 (1) TMI 219X X X X Extracts X X X X X X X X Extracts X X X X ..... ceipt of the trust before deducting any sum towards application of income. In other words, the application of income has to be taken into account from the said gross receipts for the purpose of accumulation u/s 11(1)(a) of the Act. The case of the assessee is squarely covered by the decision of Kanehialall Lohia Trust [ 2020 (1) TMI 501 - ITAT KOLKATA] . Accordingly we set aside the order of Ld. CIT(A) on this issue and direct the AO to compute the income to be accumulated u/s 11(1)(a) of the Act on the gross receipts. Accordingly ground no. 2 is allowed. Disallowing the provisions created for accrued and determined liability - CIT-A observing that the actual payment made by the assessee towards gratuity and leave encashment was rightly treated as application of income and dismissed the appeal of the assessee on this issue - HELD THAT:- In the present case, we note that the expenses charged to the income and expenditure account by the assessee trust has already crystallized and quantified but not paid and therefore we find merit in the arguments of assessee that once the expenses are charged to the income expenditure after being foreseen with certainly are not in the nature of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entire sale consideration as capital gain - HELD THAT:- Once the trust or institution is registered u/s 12AA of the Act there is no dispute or controversy that whatever is purchased by the assesse even on capital account is treated as application of income. CIT(A) has observed that the assessee has been benefitted twice. Once by way of allowing cost of acquisition of application of income in the year of acquisition and secondly be allowing depreciation on the same. As perused the amendment brought in by Section 11 by inserting sub-section 6 by Finance (No. 2) Act, 2014 w.e.f. 1.4.2015 providing that the income of the trust is required to be applied or accumulated or set apart for application, then, for such purposes, the income shall be determined without any deduction or allowance by way of depreciation or otherwise in respect of any asset, acquisition of which has been claimed as an application of income under this section in the same or any other previous year. Keeping in view the various judicial decisions passed by various judicial forums on the issue that the assessee is entitled to claim the application of income as well as depreciation on the cost of acquisition of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y erred in confirming the action of the AO in computing the Capital Gain on sale of assets at Rs.l0,08,645/- as against Rs.4,14,577/- claimed. 5. That in view of the facts and in the circumstances of the case, the Learned CIT(A) grossly erred in not understanding the fact that even otherwise the entire income of the Appellant is exempt under 10(21) of the Act. 6. For that in view of the facts and circumstances the appellant craves the right to put additional grounds/ and/or to alter/amend/modify the present grounds at the time of hearing. 3. The issue raised on ground no. 1 is general in nature and does not require any specific adjudication. 4. Issue raised in ground no. 2 is against the order of Ld. CIT(A) wherein the Ld. CIT(A) has not given specific instruction to AO to compute the accumulation of income in accordance with provision of Section 11(1)(a) of the Act on gross receipts of the trust. 5. Facts in brief are that the AO, during the assessment proceedings, observed that the administrative establishment expenses were not directly incurred in relation to charitable purposes of trust nor were these expenditures incurred for achieving the objectives of c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the order of Ld. CIT(A) confirming the action of AO in disallowing the provisions created for accrued and determined liability of Rs. 11,02,552/-. 9. Facts in brief are that the AO during the assessment proceedings observed that the assessee has booked in the income and expenditure account a sum of Rs. 43,14,446/- representing the provisions created for payment of gratuity and leave encashment. According to the AO, the said provisions cannot be allowed as expense and accordingly Rs. 43,14,446/- was disallowed by the AO in the assessment framed. However the actual payment made by the assessee during the year of Rs. 5,29,401/- was treated as application of income. 10. The Ld. CIT(A) affirmed the order of AO on this issue by observing that the actual payment made by the assessee towards gratuity and leave encashment was rightly treated as application of income and dismissed the appeal of the assessee on this issue. 11. After hearing the rival submissions and perusing the material on record, we are of the view that the computation of income in case of charitable trust are specifically dealt with under the provisions of section 11 of Act. In the case of trust , the concept gros ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly paid by it irrespective in which the liability to pay such sum was incurred by the trust/institution according to the method of accounting regularly employed by it. So we draw strength from the said explanation to section 11(7) that prior to AY 2023-24 the expenses were allowable to the trust as application of income even on accrual basis and thereafter specifically provided to be treated as application of income on the payment basis w.e.f. AY 2023-24. We have perused the provisions of section 11(1) of the Act which specifies only application of income and not the actual spending which has been amended to by Finance Act, 2022 w.e.f. 01.04.2023 as stated above. The case of the assessee finds support from the decision of Coordinate Bench of Kolkata in the case of Apeejay Education Trust vs. DCIT in [2021] 130 taxmann.com 436 (Kolkata-Trib.). The operative part is reproduced as under: 4.6. We have heard rival submissions and gone through the facts and circumstances of the case. We note that the assessee claimed an amount of Rs.33,16,214/- in its income and expenditure account as provisions for gratuity liability. According to AO, an assessee claiming expenditure u/s. 10(23C) o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on (supra) is distinguishable on facts. Therefore, according to the Ld. AR, the provision for gratuity is required to be made since it is a statutory obligation and, therefore, he prayed that the provision for gratuity need to be considered as application of income. We agree that the gratuity to the employees is a statutory obligation, and therefore is obliged by law to disburse the same when the employees demit office or superannuate. In this case, the assessee has booked provision for gratuity as per the actuarial valuation and the manner and determination of the same is a scientific process adopted by expert professionally trained in the valuation and as such it cannot be compared with mere estimate of expenses to be incurred in future. Therefore, relying on the ratio of the decision rendered by the Hon ble Supreme Court in the case of Bharat Earthmovers Vs. CIT 112 taxmann 61 though it refers to the case of a company in respect of deduction of provision for gratuity under the head business and profession , however, the principle can be seen extracted in that order in the case of Metal Box Co. of India Ltd. Vs. Their workmen 73 ITR 53 (SC) wherein the Hon ble Supreme Court has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erely because the liability was to be discharged at a future date. There may be some difficulty in the estimation thereof but that would not convert the accrued liability into a conditional one; it was always open to the tax authorities concerned to arrive at a proper estimate of the liability having regard to all the circumstances of the case. 4.7. Therefore, in the light of the aforesaid discussion and the ratio of the case law supra, we are of the opinion that the assessee s claim in respect of provision for gratuity as per the actuarial valuation should have been allowed in the facts and circumstances of the case; and, consequently, the impugned order of the Ld. CIT(A) is set aside and the AO is directed to allow the provision for gratuity as application of income. Therefore, ground no. 2 of the assessee s appeal stands allowed. Considering these facts and also the decisions of the coordinate bench , we are not in agreement with the Ld. CIT(A) on this issue and direct the AO to delete this disallowance. 12. Issue raised in ground no. 4 is against the Ld. CIT(A) wrongly confirming the order of AO in computing the capital gain on sale of assets at Rs. 10,08,645/- as ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
