TMI Blog2021 (7) TMI 906X X X X Extracts X X X X X X X X Extracts X X X X ..... peration and, therefore, the corpus fund donated to the assessee cannot be included in the income and expenditure account but has been rightly shown by the assessee in its liability side of the Balance Sheet since the nature of the receipt is capital in nature. Therefore, the assessee succeeds and we allow the claim of the assessee and overturn the decision of the authorities below. Thus, this ground of appeal of the assessee is allowed. Provision for gratuity payable (determined by way of actuarial valuation) -Whether it would not constitute application of income in terms of the provisions of sec. 10(23C)(vi)? - HELD THAT:- 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. We are of the opinion that the assessee s claim in respect of provision fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duced See 11(1)(d) of the Act, which deals with Corpus Donation, in case of exemption u/s. 11 of the Act which reads as follows: Subject to the provisions of Sections 60 to 63, the following income shall not be included in the total income of the previous year of the person in receipt of the income- (d) income in the form of voluntary contributions made with a specific direction that they shall form part of the corpus of the trust or institution. So according to AO, it is clear from the aforesaid provision that Corpus donation is an income in the hands of the assessee which is exempted by virtue of express provision of Section 11(1)(d) of the Act only in case if the exemption is claimed u/s 11 of the Act. And the AO noted that since such specific exemption for Corpus Donation is not available u/s. 10(23C)(vi) of the Act, he was of the opinion that it needs to be treated as an income of the assessee. Thereafter Corpus Donation of ₹ 2,40,00,000/- was added with the income of the assessee. 3.3. Aggrieved by the aforesaid action of AO, the assessee preferred an appeal before the Ld. CIT(A) who confirmed the action of the AO by holding as under: 5.1.4. I hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not reflected this amount in its income expenditure A/c, whereas it has been reflected in the liability side of Balance Sheet. On enquiry by the AO, assessee contended that corpus donation are capital receipts and so it was not treated as income, therefore, it was not routed through Income Expenditure A/c because it is a Balance Sheet item. However according to AO, there is no exemption of corpus donation provided u/s 10(23C) of the Act, whereas in the case of an assessee who claims exemption u/s. 11 of the Act, there is specific provision i.e. section 11(1)(d) of the Act in terms of which corpus donations are not considered as income to be applied . However, since there is no corresponding or similar provision in respect of assessee s claiming exemption u/s. 10(23)(c)(vi) of the Act, the claim of the assessee cannot be allowed; and, therefore, he treated the corpus donation as income of the assessee and made the addition. The Ld. CIT(A) has confirmed the AO s action on the ground that as per section 10(23C) of the Act the phrase used is any income which is received by an assessee institution and if it does not exceed the amount of annual receipt which means that all r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n in respect of assessee s claiming exemption u/s. 10(23C)(vi) of the Act, he disallowed the claim and made the addition of ₹ 2.40 cr. In this context, we note that the assessee s stand from the inception was that since the donations given by the donors were for the specific purpose with a specific direction towards corpus, the same was not reflected in the income and expenditure account whereas it was shown in the liability side and the Balance Sheet. According to the Ld. AR Shri Ashish Brahma, CA even though there is no corresponding/similar provision excluding the corpus donation u/s. 10(23C)(vi) of the Act still the character of the donation (corpus donation) cannot be in the nature of income . For that he has cited plethora of judgments which all we need not refer to. However, he drew our attention to the decision of this Tribunal, Kolkata Bench in the case of Sree Sree Ramkrishna Samity Vs. DCIT reported in (2015) 64 taxmann.com 330 (Kol) and drew our attention to para 6.9, 6.10 and 6.12 of this order to assert that donation receipts are only capital in nature and cannot be treated as income of the assessee. In this case, the Tribunal observed that since in any case a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y payable (determined by way of actuarial valuation) would not constitute application of income in terms of the provisions of sec. 10(23C)(vi) of the Income-tax Act, 1961. 4.1. Brief facts as noted by the AO are that the AO found from the Income Expenditure account that Rs, 33,16,214/- has been booked as provision for Gratuity. According to AO, since assessee is claiming exemption u/s. 10(23C), the provision for gratuity cannot be allowed as application and this view of AO was brought to the notice of the Ld. AR vide order sheet noting dated 20-02-2015. 4.1. The AO acknowledges that in its reply the Ld. AR of the assessee supporting the claim relied on the judgment of Hon ble Supreme Court in Bharat Earth Movers vs. CIT [2000] 112 Taxmann 61, which according to AO, was related to a company, i.e. for assessment procedure related to business and profession, and not with any trust or charitable activity i.e. exempted entities u/s.12A/12AA or 10(23C) of the Act. However, the AO noted that the Hon'ble Supreme Court in the case of Nachimuthu Industrial Association vs CIT reported in 235 ITR 190 [1999] obseved that the provision cannot be allowed as application. An ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... valuer as in the year end date. According to him, the actuarial value of gratuity liability is akin to ascertained liability. It was pointed out by the Ld. AR that the liability to pay gratuity is a statutory liability. According to him, actuarial valuation is a process thereby liability as on a certain date is crystallized and such a valuation cannot be compared for mere estimate of expenses to be incurred. According to him, the provision of such liability is mandated by the accounting standard applicable for preparation of financial statements and refer to the accounting standard 15 (revised) and he distinguished the case relied on by the AO in the case of Nachimuthu Industrial Association (supra). According to the Ld AR, in that case the assessee had only appropriated out of the profit of the year a sum of ₹ 3 lakhs and credited it to the reserve for donation account . According to the Ld. AR, the action of the assessee in that case by appropriating out of the profit of the year a sum of ₹ 3 lakh in the Reserve for donation account does not tantamount to application of the income. Therefore, the said sum (₹ 3 lacs) was held to be not a case of application. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of an employee's service either due to retirement, death or termination of service - the exact time of occurrence of the latter two events being not determinable with exactitude before hand. A few principles were laid down by this Court, the relevant of which for our purpose are extracted and reproduced as under : (i) For an assessee maintaining his accounts on mercantile system, a liability already accrued, though to be discharged at a future date, would be a proper deduction while working out the profits and gains of his business, regard being had to the accepted principles of commercial practice and accountancy. It is not as if such deduction is permissible only in case of amounts actually expended or paid; (ii) Just as receipts, though not actual receipts but accrued due are brought in for the income-tax assessment, so also liabilities accrued due would be taken into account while working out the profits and gains of the business; (iii) A condition subsequent, the fulfilment of which may result in the reduction or even extinction of the liability, would not have the effect of converting that liability into a contingent liability; (iv) A trader computing ..... X X X X Extracts X X X X X X X X Extracts X X X X
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