TaxTMI 
TaxTMI 
2023 (8) TMI 1725
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....al research wings. According to AO, provisions could not be allowed as application of income u/s 11 of the Act and only actual payments during the year can be treated as application of income and consequently the said amount was disallowed and not treated as application of income in the assessment framed u/s 143(3) of the Act vide order dated 22.11.2017. 4. In the appellate proceedings, the Ld. CIT(A) after taking into account the contentions of the assessee that the amount has been debited to income and expenditure account on the basis of actuarial valuation, dismissed the appeal by holding the assessee is a charitable institute and not a business entity and therefore the concept of allowing expenses on accrual basis cannot be allowed.. The Ld. CIT(A) observed that in case of business entities, the income is to be computed under the head income from business and profession and in case of computation of income under the same head business or profession, provision on actuarial basis and not a provision on the basis of actuarial basis where the income was computed on the basis of receipt and expenditure account. 5. After hearing the rival contentions and perusing the material o....
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....he 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 gross receipt and application of funds are adopted and whatever surplus is left is treated in accordance with provision of section 11(1)(a) of the Act based on the gross receipt and if still any income is left or is not applied for charity purpose for the same is accumulated to be carried forwards in the subsequent years to be applied for the said charitable purpose in accordance with the provisions of section 11(2) of the Act. 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 the Ld. Counsel for the assessee that once the expenses are charged to the income expenditure after being foreseen with certainly are not in the nature of contingent but certainly to be considered as application of income to be discharged in the subsequent year. We also note that these were, in fact, paid in the subsequent years. We also look at this issue from another angle where the assess....
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....see 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) 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 ....
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....sion', 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 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 ....