TMI Blog1993 (12) TMI 113X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Company subject to a minimum of Rs. 500 which minimum shall be a charge on the gross profit of the Company and the amount so credited be spent in granting scholarships, donations or aids for technical, industrial and general education either for all or any of the above mentioned purposes as may be decided by the Directors from time to time." Pursuant to the provisions of the said Article, the assessee, it is common ground, set apart certain sums to the said fund. It is also common ground that such setting apart of sums was approved by the A.G.M. In relation to the sur-tax assessments now before us the sums set apart are as follows : ------------------------------------------------------------------------------------------------- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and 13-8-1985 in STA Nos. 14 15 (Mds.)/1984 (Assessment years 1975-76 and 1980-81), the ITAT remitted the matter for fresh consideration observing: "If the funds are the funds of the assessee, then we hold that on the basis of the decisions relied on by the learned counsel for the assessee they should be taken as part of the reserves. If on the other hand the materials show that the assessee has parted with its funds to a charity, then it would be only a liability and cannot form part of the reserves. With these observations we remit this issue back to the Appellate Assistant Commissioner." 4. Meanwhile in the sur-tax assessment for the assessment year 1981-82 the Assessing Officer negatived the assessee's claim on this issue. On his ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so long it has not been spent, belongs only to the assessee. Therefore, it would form part of its capital or assets. Hence the amount has to be included in the capital of the assessee. I am satisfied on the basis of evidence tendered that the assessee has domain over the funds set apart for charity and is being used for charitable purposes. In view of this matter, the appeal on this point is allowed following the decision in 132 ITR 559, 107 ITR 241." 5. While considering afresh the matter in relation to the assessment for the assessment years 1973-74, 1974-75 and 1980-81, in accordance with the directions of the I.T.A.T. referred to supra, the first appellate authority allowed the assessee's claim. In this regard he agreed with the line ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... liability. Therefore, the sums set apart are very much a reserve. Secondly, no revenue deduction was either claimed or allowed in the income-tax proceedings. Thirdly, the said article of the Articles of Association could be amended any time. At this stage, to a specific query in this regard from the Bench, Shri Vijayaraghavan fairly conceded not only that no retrospective amendment was possible but also that as on date the article is very much there in the Articles of Association. 9. We have looked into the facts of the case. We have considered the rival submissions. 10. As we see it, the Department is entitled to succeed on this issue. As already pointed out, the amounts standing to the credit of Ramaraju Memorial Fund are displa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Articles of Association the company sets apart certain sums towards the fund, the sums set apart, conceptually speaking, ceased to belong to the company, and becomes property of another entity, namely Ramaraju Memorial Fund. May be, actually there is no cash flow from out of the coffers of the company in the sums thus set apart. But that does not mean that the sums belong to the assessee-company. It belongs to the Fund. Vis-a-vis the Fund, therefore, the assessee-company is holding the funds on trust or other legal obligations to apply the sums in question to charitable purposes as stipulated in Article 17 of the Articles of Association. It would, therefore, follow that the sums in question cannot be regarded as forming part of the shar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cer. 14. That leaves for consideration on an issue that relates to the assessment year 1981-82 only. In the relevant Income-tax assessment the assessee had been allowed the benefit of deduction under section 80-G of the Act. The Assessing Officer took the line that the provisions of Rule 4 of the Second Schedule to the Companies (Profits) Sur-tax Act warranted a proportionate deduction in the capital base for purposes of sur-tax. He accordingly reduced the capital base by Rs. 36,636. This issue was one of the subject matters of appeals filed by the assessee before the first appellate authority. Relying on the decision of the jurisdictional High Court in the case of Addl. CIT v. Bimetal Bearings Ltd. [1977] 110 ITR 131 (Mad.), the first ap ..... X X X X Extracts X X X X X X X X Extracts X X X X
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