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Issues Involved:
1. Whether the contribution to the education fund under the Maharashtra Co-operative Societies Act, 1960, is allowable as business expenditure. Summary: Issue 1: Allowability of Contribution to Education Fund as Business Expenditure The primary issue in this case is whether the contribution made by the assessee, a co-operative society engaged in the manufacture and sale of sugar, to the education fund under section 68 of the Maharashtra Co-operative Societies Act, 1960, is allowable as business expenditure u/s 37 of the Income-tax Act, 1961. The assessee claimed a deduction for the contributions made to the education fund for the assessment years 1978-79 and 1979-80. Initially, the Income-tax Officer allowed the deduction, but the Commissioner of Income-tax, in suo motu revision proceedings u/s 263, reversed this decision, deeming it erroneous and prejudicial to the interests of the Revenue. The Tribunal upheld the Commissioner's order, leading to the present reference. The assessee argued that the contribution was a statutory obligation directly connected to its business, thus qualifying as an allowable expenditure u/s 37(1) of the Act. The assessee relied on the Supreme Court decision in Sri Venkata Satyanarayana Rice Mill Contractors Co. v. CIT [1997] 223 ITR 101 and the Gujarat High Court decision in Mehsana District Co-operative Milk Producers' Union Ltd. v. CIT [1993] 203 ITR 601, which supported the deduction of statutory contributions as business expenses. The Revenue contended that the contribution did not benefit the assessee directly and was not incurred wholly and exclusively for its business purposes. Upon review, the court noted that section 37 of the Act allows for the deduction of any expenditure laid out wholly and exclusively for the purposes of the business, excluding capital expenditure and personal expenses. The court emphasized that the expression "for the purposes of the business" is broad, encompassing not only day-to-day operations but also statutory obligations necessary for carrying on the business. Section 68 of the Maharashtra Co-operative Societies Act mandates annual contributions to the education fund at prescribed rates, which, for co-operative sugar factories, was 25 paise per ton of sugarcane crushed, up to a maximum of Rs. 50,000 per year. The court found that the assessee's contributions were a statutory obligation directly related to its business activities. Citing the Supreme Court's ruling in Sri Venkata Satyanarayana Rice Mill Contractors Co., the court reiterated that contributions directly connected to the business or resulting in business benefits are allowable deductions u/s 37(1). The court also referenced the Gujarat High Court's decision in Mehsana District Co-operative Milk Producers' Union Ltd., which allowed similar deductions under the Gujarat Co-operative Societies Act. The court concluded that the assessee's contributions to the education fund were statutory obligations directly connected to its business, thus qualifying as allowable deductions u/s 37(1). Consequently, the Tribunal's decision was overturned. Conclusion: The question referred was answered in the negative and in favor of the assessee, affirming that the contribution to the education fund under section 68 of the Maharashtra Co-operative Societies Act is allowable as business expenditure. The reference was disposed of with no order as to costs.
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