INCOME TAX ACT, 1961

Section 11

Charitable trust - Exemption under section 11 - Provision for leave encashment and gratuity -

Assessee-society made provision for leave encashment and gratuity in its statement of accounts and claimed to have applied it for objective of trust. AO disallowed the said claim holding that it was in the nature of provision and, therefore, could not be considered as an expenditure or utilization. On appeal, CIT(A) confirmed the disallowance. Assessee submitted that the said provision was based on employment terms and statutory provisions and in compliance of Accounting Standard 15- Employees Benefits issued by ICAI. Held: The provision for gratuity and leave encashment had been made by assessee based on actuarial valuation report and although those were purely provisional in nature and not actual expenditure but such provisions were required to be made as per mandate of law. Further, books of account would not reveal true and fair picture without making provision for those expenses. The expenditure need not necessarily involve actual delivery of or parting with the money. Rather, it should be understood as necessary outgoings. In case of trust, the meaning 'applied' need not be construed as 'spent'. It includes the necessary provisions required to be made as per statutory requirement. Accordingly, the AO was directed to allow provision for leave and encashment and gratuity as applied for the object of trust.

REFERRED : CIT Vs. Indian Jute Mills Association (1982) 134 ITR 68 (Cal):1982 TaxPub(DT) 0398 (Cal-HC)

FAVOUR : In favour of the assessee

A.Y. : 2014-15

INCOME TAX ACT, 1961

Section 11

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