TaxTMI 
TaxTMI 
2021 (7) TMI 906
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....the assessee did not recognize such donation as 'income' either in Income & Expenditure A/c or in the computation of income. Instead the assessee had reflected such donation in the liability side of the Balance Sheet. According to AO, he asked the assessee for explanation vide order-sheet noting dated 30.01.2015, which reads "why Corpus Donation need not been considered as income in I/E A/c as per provisions of Sect 10(23C)(vi) of the Income Tax Act, 1961 ( hereinafter referred to as the Act)." 3.1. Pursuant to the query, according to AO, the Ld. AR submitted that 'Corpus Donation' is a Capital receipt and it is generally not intended to be applied and even though Corpus Donations may form part of gross receipts it would not constitute Income . Further according to AO, the Ld. AR contended that Corpus donation is actually a Capital receipt and Capital receipt should not form part of the income because it is exempted u/s 11 of the Act, and, therefore, such exemption should be given u/s 10(23C)(vi) too. 3.2 Thereafter the AO reproduced 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 provisi....
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.... excluded any kind of receipt. Donation as part of fee is also a receipt therefore for the purpose of 10(23C) it would have been made part of income expenditure account therefore I agree with the view of the AO that the corpus donation is income in the hands of the appellant which is exempt by u/s. 11(1)(d) if it is claimed u/s. 11 but such specific exemption for corpus donation is not available u/s. 10(23C)(vi), the ground on this issue is hereby dismissed and the action of the AO is upheld." 3.4. Aggrieved by the aforesaid action of the Ld. CIT(A) the assessee is before us. 3.5. We have heard rival submissions and gone through the facts and circumstances of the case. We note that the assessee is an educational institution which claimed exemption u/s. 10(23C)(vi) of the Act for the receipts it received during the relevant assessment year. The AO noted that the assessee has accepted corpus donation aggregating to Rs. 2.40 cr. during the year under consideration. However, the AO noted that assessee has 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....
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.... details of which are given in the aforesaid documents/receipts. So, from this fact it is evident that the corpus donation were not given by the students by way of fees which has been segregated by the assessee in the form of building fund or capitation fee etc. Therefore, we note that the Ld. CIT(A) misdirected himself by wrongly assuming the facts which is contrary to the material placed on record and, therefore, his findings are perverse. 3.7. Coming to the AO's reason for denying the claim of the assessee that since there is express provision u/s. 11(1)(d) of the Act in the case of an assessee who claims exemption u/s. 11 of the Act which provides the corpus donations are not to be considered as income to be 'applied' and since there is no corresponding or similar provision in respect of assessee's claiming exemption u/s. 10(23C)(vi) of the Act, he disallowed the claim and made the addition of Rs. 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 show....
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...., as we have noted the donors have specifically given direction to use the fund towards corpus and since the explanation is for removal of doubts and it is being clarified it is retrospective in operation 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. 4. Ground No. 2 reads as under: "2. That the CIT(A) erred in upholding the decision of the AO to the effect that provision for gratuity 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 ....
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....AO, an assessee claiming expenditure u/s. 10(23C) of the Act cannot be allowed this claim since the provision booked by the assessee has not been applied by the assessee. For that he relied on the decision of Hon'ble Supreme Court in the case of Nachimuthu Industrial Association Vs. CIT 235 ITR 190. According to him, only the actual expenditure made during the year can be treated as application and, therefore, he disallowed the claim of the assessee and made addition. The Ld. CIT(A) has simply confirmed the same. We note that assessee's case is that the provision for gratuity has been done as per the actuarial valuation and as such it is not an unascertained liability. According to the Ld. AR, the same has been determined by actuarial 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 lia....
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....3 ITR 53 (SC) wherein the Hon'ble Supreme Court has held as under: "5. In Metal Box Co. of India Ltd. v. Their Workmen [1969] 73 ITR 53 (SC), the appellant-company estimated its liability under two gratuity schemes framed by the company and the amount of liability was deducted from the gross receipts in the profit and loss account. The company had worked out on an actuarial valuation its estimated liability and made provision for such liability not all at once but spread over a number of years. The practice followed by the company was that every year the company worked out the additional liability incurred by it on the employees putting in every additional year of service. The gratuity was payable on the termination 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 p....