TMI Blog2009 (2) TMI 260X X X X Extracts X X X X X X X X Extracts X X X X ..... less than 20 per cent of its net profit every year as disclosed in the P L a/c before any dividend is declared. Appropriations of any sum from such reserve fund were to be made by the non-banking financial company for the purposes as may be specified by the RBI from time to time and that every such appropriation should be reported to the RBI. From its total income as per the P L a/c, the assessee, in the return of income filed for the period under consideration, deducted the amount transferred to the statutory reserve on the ground that the amount set apart as per the RBI direction cannot form part of the real income of the company, as the company had no control over that part of its income. The AO, however, held that the assessee has received the income which has been kept in reserve fund. Hence, it is only an application of income and the deduction claimed by the assessee in its return was disallowed. 2.3 Upon assessee's appeal, the learned CIT(A) elaborately considered the issue. Before the learned CIT(A), assessee relied upon the provisions of Reserve Bank of India Act, especially the provisions of s. 45Q of the Reserve Bank of India Act. decision of Hon'ble Madras High Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt in which it was held that, amount set apart towards the Molasses Reserve Fund as required by the Molasses Control Order for the purpose of construction of molasses storage tank should be excluded from its total income. 2.8 Hon'ble jurisdictional High Court in the case of Seshasayee Paper Boards Ltd. case above has held as under: "The money set apart as set on for bonus as per the provisions of sub-s. (1) of s. 15 of the Payment of Bonus Act, 1965, is not paid to the employees and the employees have no right over the money and the money can be used in the subsequent years for the business purposes of the assessee when there is shortfall in the amount of allocable surplus. Therefore, it cannot be said that there is a diversion of income by overriding title as the amount is set apart after the profit is earned, nor can it be regarded as an expenditure incurred by the assessee as there is no subsisting legal obligation to pay bonus during the relevant accounting year. Further, the liability of the assessee during the accounting year is only a contingent liability and only to make up a shortfall that may arise in the subsequent accounting year. The amount is set apart and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent is merely an obligation to pay another a portion of one's own income, which has been received and is since applied." 2.11 Now, we examine the present case on the anvil of above. By no stretch of imagination, it can be said that the amount sought to be deducted has in fact not reached the assessee. The amount involved is only an appropriation out of company's own profits before declaration of dividend. The amount has very much reached and is in the business of the assessee. RBI has not attached any obligation that the fund be kept in any earmarked security nor the purpose of utilization of the fund has been specified. Even if some obligation is subsequently attached for specific appropriation of the fund, it will only be an application of income, which will need to be dealt with as per relevant tax law. The transfer to reserve fund in this case can certainly not be called a diversion of income by overriding charge. 2.12 From the above, it is clear that the decisions referred to by the assessee's counsel are in a different context and are not applicable. On the other hand, the ratio from the Hon'ble apex Court in the case of CIT vs. Sitaldas Tirathdas and Hon'ble jurisdiction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2007) 293 ITR 357 (Mad). Upon careful consideration, we find that the issue in that case was recognition of income from doubtful debts (non-performing assets). The Hon'ble High Court had dismissed the appeal by holding that the Tribunal had given a factual finding and its order was in conformity with law not warranting any interference. Upon careful consideration, we do not see any reason to hold that this decision is helpful to the case of the assessee. The ratio from the Hon'ble Madras High Court decision in the case of T.N. Power Finance Infrastructure Development Corporation Ltd. vs. Jt. CIT clearly applies to the facts of the case. Moreover, as discussed earlier, this is only an appropriation of profits for purposes which have not yet been specified. Moreover, amount involved is very much under the control of the assessee and is lying in its business. Hence, in the background of aforesaid discussion and precedents, we uphold the well reasoned order of the learned CIT(A) in this regard and decide the issue against the assessees. 2.18 In the result, appeals filed by the asses sees are dismissed. 3. Revenue's appeals: ITA Nos. 806 807/Mad/2008; asst. yr. 2003-04: 3.1 Th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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