VATSALYA TRUST, MUMBAI V. INCOME TAX, EXEM. WARD 2(4), MUMBAI

ITA 943/MUM/2022

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The case involves Vatsalya Trust, a charitable trust, appealing against the order of the Commissioner of Income Tax (Appeals) which disallowed a provision for gratuity of Rs.8,23,549 for the assessment year 2016-17. The trust argued that it has been consistently following the accounting practice of recognizing gratuity provisions only when the provision is made, not when the actual payment is made, a practice it has followed for over twenty years without objection from the tax department until the assessment year 2015-16. The trust also contended that a recent amendment to the Income Tax Act mandating cash basis accounting for trusts does not apply retrospectively to the assessment year in question. The Department supported the disallowance, emphasizing that no actual payment was made during the year towards staff gratuity. The Tribunal, after considering the submissions, allowed the appeal in principle but remanded the matter back to the Assessing Officer for verification of the specific accounting practice followed by the trust.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 136084 (ITAT-MUMBAI)
• Duration Of Justice: 9 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-03-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 08-12-2022
• Assessment Year: 2016-2017
• Appeal Filed On: 08-05-2022
• Other Referred Cases: CIT vs. Rao Bahadur Calavala Cunnan Chetty Charities, 135 ITR 485 (Mad)
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Charitable institution
• Section: 11; 12A

Judgement Text

म ु ंबई ठ “एस एम स ” , म ु ंबई स , स सम! IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “SMC”, MUMBAI BEFORE SHRI VIKAS AWASTHY, JUDICIAL MEMBER सं. 943/म ु ं/2022 ( %. 2016-17) ITA NO.943/MUM/2022(A.Y 2016-17) Vatsalya Trust, Plot No.1285, Vatsalya Trust Mumbai, Near Police Station, Kanjurmarg East, Mumbai – 400 042. PAN: AAATV-0345-H ...... ' /Appellant ब% म Vs. Income Tax Officer-Exem, Ward 2(4), Piramal Chamber, Lalbaug, Mumbai – 400 012. ..... ( ) /Respondent ' * / Appellant by : Shri Dharan V. Gandhi ( ) * /Respondent by : Shri Chetan M. Kacha स ु % ई + ) / Date of hearing : 09/12/2022 ,-. + ) / Date of pronouncement : 03/03/2023 श/ ORDER This appeal by the assessee is directed against the order of Commissioner of Income Tax(Appeals), National Faceless Appeal Centre, Delhi [in short 'the CIT(A)’] dated 30/03/2022 for the assessment year 2016-17. 2. The solitary ground assailing the findings of CIT(A) in the present appeal is with respect t to disallowance of provision for gratuity Rs.8,23,549/-. 3. Shri Dharan V. Gandhi appearing on behalf of the assessee submits that the assessee is a charitable trust registered u/s. 12A of the Income Tax Act, 2 ITA NO.943/MUM/2022(A.Y 2016-17) 1961 [ in short ‘the Act’]. The ld. Authorized Representative for the assessee submits that the assessee has created provision of staff gratuity. The claim is made only once i.e. when the provision is made. No claim is made when actual payment is made to the staff. Assessee is regularly following this method of accounting since inception i.e. for more than twenty years back. The method of accounting followed by the assessee was never quested by the Department. It is for the first time in Assessment Year 2015-16 that the claim of assessee was disturbed. Even in the subsequent Assessment Year no scrutiny assessment was made in the case of the assessee. The ld. Authorized Representative for the assessee submits that since the assessee has been regularly following this accounting practice, the claim of the assessee should allowed. 3.1 Without prejudice to the primary submission, the ld. Authorized Representative for the assessee submits that Explanation to section 11(7) was inserted by the Finance Act, 2022 making it mandatory for the Trust to maintain books on cash basis. The said amendment does not apply retrospectively, hence, the Assessment Year under appeal would not fall within the purview of said amendment. The ld. Authorized Representative for the assessee in support of his submission placed reliance on the decision in the case of CIT vs. Rao Bahadur Calavala Cunnan Chetty Charities, 135 ITR 485 (Mad). 4. Per contra, Shri Chetan M. Kacha representing the Department vehemently supporting the impugned order submits that no actual payment was made by the assessee during the year towards staff gratuity. The expenditure actually incurred during the relevant period is only considered as 3 ITA NO.943/MUM/2022(A.Y 2016-17) application of the fund for the purpose of section 11 in the case of charitable institutions. He further submitted that the case law on which the assessee has placed reliance was considered by the CIT(A) and were distinguished. 5. We have heard the submissions made by rival sides and have examined orders of authorities below. The ld. Authorized Representative for the assessee has stated at Bar that the claim is made with respect to staff gratuity only once that is when the provision is made, no claim is made when actual payment is made by the assessee to the staff. It is unrebutted that this method of accounting is followed by the assessee since long and was never objected by the Department in past. In the impugned assessment year we find that the assessee’s claim was rejected by the Assessing Officer at the threshold. The Assessing Officer failed to examine as to whether the actual payment of staff gratuity was made by the assessee and that the claim is made only once. 6. The claim of the assessee is allowed in principle, however the issue is restored to the Assessing Officer for the limited purpose to verify that the claim of staff gratuity is made by the assessee only once. The appeal of the assessee is allowed, in the aforesaid terms. Order pronounced in the open Court on Friday the 03 rd day of March, 2023. Sd/- (VIKAS AWASTHY) स /JUDICIAL MEMBER म ु ंबई/ Mumbai, 0 % ं /Dated 03/03/2023. Vm, Sr. PS (O/S) 4 ITA NO.943/MUM/2022(A.Y 2016-17) त ल प अ े षतCopy of the Order forwarded to : 1. '/The Appellant , 2. ( ) / The Respondent. 3. ु 1)( )/ The CIT(A)- 4. ु 1) CIT 5. 2 3 ( ) % , . . ., म ु बंई/DR, ITAT, Mumbai 6. 3 45 6 7 /Guard file. BY ORDER, //True Copy// (Dy./Asstt. Registrar)/ Sr.Private Secretary ITAT, Mumbai