TMI Blog1997 (7) TMI 97X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee-society paid a sum of Rs. 50,000 in each of the two previous years relevant to the assessment years 1978-79 and 1979-80. The assessee claimed deduction of the above amount in its assessments under the Income-tax Act, 1961 ("Act"), for the two assessment years as an allowable expenditure. The Income-tax Officer allowed the deduction. However, the Commissioner of Income-tax initiated proceedings under section 263 of the Act for suo motu revision of the above order of the Income-tax Officer as, in his opinion, the decision of the Income-tax Officer to allow the deduction of the amounts contributed by the assessee to the education fund was erroneous and prejudicial to the interests of the Revenue and after hearing the assessee reversed the order of the Income-tax Officer and directed him to recompute the income by disallowing the claim of the assessee for deduction of the amount of contribution paid in the two assessment years to the education fund of the State federal society. Aggrieved by the order of the Commissioner of Income-tax, the assessee appealed to the Tribunal. The Tribunal, following a decision of its Special Bench in Shri Panzara-kan-Sahakari Sakhar Karkhana Ltd. v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntended that the payment was made only because the assessee was a manufacturer of sugar and a co-operative society. We have carefully considered the rival submissions. We have also perused the decision of the Special Bench of the Income-tax Appellate Tribunal, Pune, dated April 29, 1983, in Shri Panzara-Kan Sahakari Sakhar Karkhana Ltd. v. ITO which has been followed by the Tribunal in this case. Section 37 of the Act provides for deduction of any expenditure laid out or expended wholly and exclusively for the purposes of the business in computing the income chargeable under the head "Profits and gains of business or profession". The only exception is capital expenditure or personal expenses of the assessee or expenditure of the nature described in other sections of Chapter IV of the Act. There is no dispute in this case about the fact that the expenditure incurred by the assessee by way of contribution to the education fund is not a capital expenditure or expenditure in the nature of personal expenses, or expenditure described in any of the sections in Chapter IV of the Act. The only controversy is whether the contribution to the education fund is an expenditure laid out or expe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al society notified as aforesaid." The rates at which the contribution is to be made have been prescribed under rule 53 of the Maharashtra Co-operative Societies Rules, 1961. Under the said rule, different rates of contribution have been prescribed for different classes of societies. The rate of contribution applicable to co-operative sugar factories at the material time was 25 paise per ton of sugarcane crushed subject to a maximum of Rs. 50,000 per year. Thus, a co-operative society was obliged under section 68 of the Maharashtra Co-operative Societies Act to contribute to the education fund of the State federal society at the rate of 25 paise per ton of sugarcane crushed, the maximum contribution being Rs. 50,000 per year. In the instant case, the assessee paid the maximum contribution in both the years. It is clear from the provisions of section 68 of the Maharashtra Co-operative Societies Act read with rule 53 of the rules that it is a statutory obligation of the co-operative society to contribute to the education fund at the rates prescribed in rule 53. In the instant case, the assessee was liable to pay to the education fund at the rate of 25 paise per ton of sugarcane c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion made by it to the District Welfare Fund as an allowable deduction under section 37 of the Act. The Income-tax Appellate Tribunal held that the contribution made by the assessee in pursuance of the above scheme was allowable under section 37(1) of the Act. While arriving at the above conclusion, the Tribunal observed that though there was no compulsion on the appellant to make a contribution to the welfare fund, still the contributions made in pursuance of the scheme which was evolved by the Rice Millers' Association in consultation with the District Collector would show that an advantage would ensue on the payment of the contribution and, therefore, the deduction was allowable under section 37(1) of the Act. The Tribunal also repelled the contention of the Revenue that such contributions were opposed to public policy. However, on a reference at the instance of the Revenue, the High Court held that the payment to the welfare fund was opposed to public policy and hence no deduction was allowable under section 37(1) of the Act. On appeal by the assessee, the Supreme Court reversed the decision of the High Court and held that any contribution made by the assessee to a public welfar ..... X X X X Extracts X X X X X X X X Extracts X X X X
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