03 March 2021
As per section 40A (7) (a) subject to the provisions of clause (b) no deduction shall be allowed in respect of any provision made by the assesse for the payment of gratuity to has employees on their retirement or on termination of their employment for any reason. (b) nothing in clause (a)shall apply in relation to any provision made by the assesse for the purpose of payment of a sum by way of any contribution towards an approved gratuity fund, or for the purpose of payment of any gratuity that has become payable during the previous year. Section 36 deals with deduction allowable in computing the income under section 28 (Profit and gains of Business or profession). Clause (1)(v) of the section say any sum paid by the assessee as an employer by way of contribution towards an approved Gratuity fund created by him for exclusive benefit of his employees under an irrevocable trust. A Society maintain its Books of account on accrual basis and makes provision of Gratuity on actuarial basis. My quarry is – (i) whether society can claim deduction of Gratuity provision while computing its income and its application as its income is chargeable u/s 11 and 12, while provisions of Section 36, 40A applicable for computing income under the head Profit and gains from Business or profession and not applicable to the Trust / Society. (ii) if by any interpretation, provisions of section 40A apply to Society, whether it may take Gratuity policy from LIC directly without forming any Gratuity Trust?
04 March 2021
But sir clause (1) of 40A says provisions of this section ( i.e. 40A ) shall have effect ........ computation of income under the head "profits and gains of business or profession. and there is no income under head business or profession of the Society.
04 March 2021
In case of charitable society sections 11 and 12 applicable. Where 85% application of funds required. LIC funding of gratuity will fall under application of funds.
05 March 2021
Sir, my humble opinion is that as provisions of section 36 and 40A not applicable hence provision made by Society on the basis of acturial valuation (on accrual basis of accounting) is allowable expenditure u/s 11 and 12 and it is immaterial whether Society takes policy from LIC or not.
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