TMI Blog1997 (7) TMI 91X X X X Extracts X X X X X X X X Extracts X X X X ..... ee cannot claim deduction either under section 37 or section 28 of the amount set apart for the capital contribution redemption fund ? " This reference pertains to the assessment year 1975-76. The assessee is a co-operative society registered under the Maharashtra Co-operative Societies Act, 1960. Under the scheme of financial assistance to the consumer co-operatives under the centrally sponsored scheme, the State Government contributed to the share capital of the assessee-co-operative society a sum of Rs. 21 lakhs. An agreement was entered into between the State Government and the assessee-co-operative society for that purpose. As per the terms of the agreement, the share capital contribution of the State was to continue for a period of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of the Income-tax Officer was dismissed by the Appellate Assistant Commissioner. The assessee went in further appeal to the Income-tax Appellate Tribunal (" the Tribunal "). Before the Tribunal it was contended by the assessee that the amount set apart by the assessee for the Government share capital redemption fund was an allowable deduction either as an expenditure incurred for the purposes of the business or as an amount diverted by overriding title. The Tribunal did not accept the contention of the assessee and dismissed its appeal. Hence, this reference. We have heard Mr. K. B. Bhujle and Mr. A. Jasani, learned counsel for the assessee, who submit that it is a case of diversion of income by overriding title. The contention of couns ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dited to the Government share capital redemption fund always remained with the assessee. It never got diverted to anybody. Law is well settled that the doctrine of diversion of income by reason of overriding title applies only in cases where the income never reaches the assessee as his income. The mere fact that the assessee has an obligation to apply certain amount out of its income for a particular purpose cannot make it a case of diversion of income by overriding title. An obligation to apply the income accrued, arisen or received amounts merely to the apportionment of income and the income so applied is not deductible, There is a difference between an amount which a person is obliged to apply out of his income and an amount which, by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Co. Ltd. v. CIT [1996] 218 ITR 195. In that case the assessees were companies engaged in the business of generation of electricity and distribution thereof to consumers. The companies were governed by the Electricity (Supply) Act, 1948. By reason of the provisions of the said Act and the Sixth Schedule thereto, the assessee appropriated certain sums out of its revenue to the contingency reserve account and claimed deduction of the same in the computation of its total income for the purposes of the Income-tax Act. The Income-tax Officer rejected the claim of the assessee. However, on appeal, the Appellate Assistant Commissioner allowed the assessee's claim. On appeal by the Revenue, the Tribunal set aside the order of the Appellate Assistan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urther observed : " It is the electricity company which has to invest the sums appropriated to the contingencies reserve. The investment would be in its name and it would be the owner thereof. The restriction that the investment can be made only in securities mentioned in the Indian Trusts Act makes no difference to this position. " The Supreme Court, therefore, concluded that the amount credited to the contingencies reserve was not diverted by reason of overriding obligation or title and, in determining the business profits of the assessee, it must be taken into account. The ratio of the above decision squarely applies to the facts of the present case. In this case also there is no doubt that the amount appropriated to the Government ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... retrievably. That is not so in the case of appropriation of profits to the share capital redemption fund. By such appropriation nothing has been paid out to anybody nor has anything gone from the assessee even for a while not to speak of " irretrievably ". That being so, the question of deduction of the same as an expenditure under section 37(1) of the Act, cannot arise. In view of the above, we are of the clear opinion that the Tribunal was right in holding that the assessee cannot claim deduction either under section 37 or section 28 of the Income-tax Act of the amount set apart for the capital contribution redemption fund. Accordingly, we answer the question referred to us in the affirmative, i.e., in favour of the Revenue and against ..... X X X X Extracts X X X X X X X X Extracts X X X X
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