TMI Blog2017 (11) TMI 453X X X X Extracts X X X X X X X X Extracts X X X X ..... the opinion neither the Tribunal nor the CIT(A) has committed any error. Hence, the first issue is required to be answered in favour of the assessee against the department. - D.B. Income Tax Appeal No. 18 / 2012 , D.B. Income Tax Appeal No. 233 / 2012, D.B. Income Tax Appeal No. 290 / 2016, D.B. Income Tax Appeal No. 294 / 2016 - - - Dated:- 5-9-2017 - HON'BLE MR. JUSTICE K.S. JHAVERI AND HON'BLE MR. JUSTICE INDERJEET SINGH For the Appellant : Mr. R.B. Mathur with Mr. K.D. Mathur Mr. Prateek Kedawat For the Respondent: Mr. Gunjan Pathak with Mr. Dinesh Kumar Ms. Ishita Rawat JUDGMENT In all these appeals common questions of law and facts are involved, hence, they are decided by this common judgment. 1. By way of these appeals, the appellant has assailed the judgment and order of the Tribunal whereby the Tribunal has partly allowed the appeal and modifying the order of CIT(A). 2. This Court while admitting the matter framed the following substantial question of law:- In DB ITA No. 18/2012 Whether in the facts and circumstances of the case the ITAT was justified in deleting the addition of ₹ 10021000/- holding that the PACs Man ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Co-operative Society alongwith interest on it. Thus, it is not contingent liability but a statutory liability which is crystallized at the end of every year and hence the liability is allowable. The AO is, therefore, directed to delete the addition of ₹ 10021000/-. The 2nd ground of appeal is decided in favour of the appellant. 5. He contended that the Tribunal while considering the issue has observed as under:- 3.1. The second ground of appeal of revenue is that the ld. CIT(A) has erred in deleting the addition of ₹ 1,00m21,000/- holding that PACs Manager salary is not contingent liability but a statutory liability. Whereas as per the provisions it is in the nature of contingent/disputed liability as no disbursement out of the said liabilities was made. 3.6. We have heard the parties. The Hon ble Apex Court in the case of Sri Venkata Satyanarayana Rice Mill Contractors Co. vs. CIT, 223 ITR 101 has stated that it is to be seen as to whether the payment is compulsory for the assessee to make or not but whether it was expended out of consideration of commercial expediency. Any contribution made by the assessee to a fund which directly connected or related to c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he case of a processing society, the funds can be used for acquisition or purchase or construction of land, building and machinery. Sub-rule (4) of Rule 55 unfolds the areas to which reserve fund can be put to use. It reads: (i) to meet unforeseen losses incurred by the society; (ii) to meet such claims of the society as cannot otherwise be met; and (iii) to provide for other financial need in times of special scarcity. The aforesaid provisions convey in no uncertain terms that the reserve fund remains part of the capital and assets of the society and is to be used only for the purposes of the society in future according to the needs of the society either to be adjusted against its future losses or to pay off its dues which cannot otherwise be paid or to provide for funding needs in case of financial crisis. No part of reserve fund during the continuance of the society can be utilised for the purposes other than for the purpose of society albeit in consonance with general policy of the Act. User of the reserve fund which has primarily its object to have financial strength of the society and to the cooperative movement, has been regulated by the approval of the Registrar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ally provided for disposal or application of net profit. It is only after the net profit reaches the co-operative society that the question of its disposal in terms of the provisions arise of the Act of 1965 and not earlier thereto net profit is to be apportioned by transferring part of it as may be prescribed by Rules to the reserve fund. Part of the profits has to be carried to the co-operative deduction fund constituted under the Rules and the balance is available for utilisation for payment of dividends to the members, bonus to the members and contribution to such other special funds as may be specified in the Rules. Donations not exceeding 10 per cent of net profits of any charitable purposes and payment of bonus to the employees of the society to the extent required by the bye-laws. The reserve funds' object has been set out in Rule 55 by declaring that it shall belong to the society and is intended to meet unforeseen losses. That is to say for societies own purpose in future and ordinarily is not to meet any existing liabilities or obligations. The unforeseen losses and other purposes to which such fund can be used have also been spelt out as noticed by us that, apart fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt in Keshkal Cooperative Marketing Society Ltd. (supra) is founded on the principle enunciated in Poona Electric Supply Co. Ltd.'s case (supra). With utmost respect, we regret our inability to fall in line with the decision in Keshkal Co-operative Marketing Society Ltd.'s case (supra) in this regard. Apparently, the distinction which existed between the reserve fund for the benefit of consumers required to be created under the Electricity Supplies Act, 1948 with object to return to the consumers the excess profit charged by the supply company and the fund created to meet the future requirement of the supply company or the co-operative society had not been noticed. We may also notice that perhaps the attention of the Court was not drawn to detailed scheme of the M.P. Co-operative Society Act, as we do not find any mention thereof in the decision. In the backdrop of later Supreme Court decision in which we have adverted to the case of consumer benefit fund, which arose for consideration in Poona Electric Supply Co. case was for the benefit of consumers exclusively, could not have been equated with the reserve fund created under the Cooperative Societies Act and Rules frame ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... raised by the assessee. The judgment of the Tribunal is set aside and that of the AO is restored. 8. He has also relied upon the decision of the Supreme Court in case of Associated Power Co. Ltd. vs. Commissioner of Income Tax reported in [1996] 218 ITR 195 (SC) wherein it has been held as under:- 17. We hold that the amount credited to the Contingencies Reserve is not diverted by reason of an overriding obligation or title and, in determining the business profits of the assessee, it must be taken into account. Mr. Sachar contended that if the amount credited to the Contingencies Reserved was includible in the computation of the business income of the assessee, the amount so appropriated should be allowed as a business deduction, being expenditure necessary to carry on the assessee's business. As the Calcutta High Court has pointed out, there is no expenditure. The amount appropriated to the Contingencies Reserve is set apart to meet possible exigencies. It is not a provision for known, existing liabilities. 9. The issue no. 2 in Tax Appeal No. 290/2016 is already subject matter of decision before the Supreme Court. 10. The Tribunal while considering the issue has ..... X X X X Extracts X X X X X X X X Extracts X X X X
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