TMI Blog1986 (4) TMI 13X X X X Extracts X X X X X X X X Extracts X X X X ..... mbers as contemplated under section 80P(2)(iii) of the Income-tax Act, 1961 ? (ii) Under the facts and circumstances of the case, whether the amount of Rs. 1,66,763 required to be transferred to the reserve fund under section 43(2) of the Madhya Pradesh Co-operative Societies Act, 1960, was an allowable deduction either as a business expenditure or as having been diverted by an overriding title? " The assessee is a co-operative marketing society registered under the M.P. Co-operative Societies Act (hereinafter referred to as " the Societies Act"). The assessee, apart from the business of rice-milling, is also carrying on various business activities including cloth, grain and other ancillary activities thereto. The assessment year rela ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decision of this court, needs no elaborate discussion and as such the same is answered in favour of the Revenue. As far as the second point is concerned, the finding reached by the Tribunal that the apportionment of profit for capital redemption was not allowable expenditure and the Societies Act does not even indicate the purpose for which the apportionment is made, appears to have been reached by misconstruing the provisions of sections 28, 36 and 37(1) of the Income-tax Act, 1961, and section 43(2)(a) and (b) and section 44(2) of the Societies Act and against the settled law as laid down in numerous decisions. The reserve fund created under section 43(2) of the Societies Act is It statutory one " and is created at the instance of the R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income-tax, but not notional profits and, therefore, the statutory deposit (reserve fund) in the instant case, as contemplated under section 43(2) of the Societies Act, which after its creation comes within the domain of the Registrar under section 44(2) of the Societies Act, cannot be said to be profit in the real sense. On this background, learned counsel appearing for the assessee argued that the said amount of Rs. 1,66,763 does not comprise income of the assessee, because the said amount has been diverted under section 43(2) of the Societies Act. In support of his contention, learned counsel relied upon the principle enunciated in Poona Electric Supply Co. Ltd. v. CIT [1965] 57 ITR 521 (SC), wherein it has been held that the reserve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tory provisions of section 43(2) of the Societies Act, then certainly, in our opinion, the assessee can claim deduction under section 37(1) of the Act which reads as under: " 37. (1) Any expenditure (not being expenditure of the nature described in sections 30 to 36 and section 80VV and not being in the nature of capital expenditure or personal expenses of the assessee), laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head 'Profits and gains of business or profession'. " The view taken in Poona Electric Supply Co.'s case [1965] 57 ITR 521 (SC), was followed by the Bombay High Court in Amalgamated Electricity Co. Ltd. v. CIT [1974] 97 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ir Sultan Tobacco Co.'s case [1981] 132 ITR 559(SC), the main question raised was whether amounts retained or appropriated or set apart by the concerned assessee-company by way of making provision (a) for taxation, (b) for retirement gratuity, and (c) for proposed dividends from out of profits and other surpluses, could be considered as " other reserves " within the meaning of rule I of the Second Schedule to the Super Profits Tax Act, 1963, for inclusion in the capital computation of the company for the purpose of levying super tax. Their Lordships of the Supreme Court remanded Vazir Sultan Tobacco Co.'s case as it was found that there was no sufficient material on record regarding whether the appropriation made by the Vazir Sultan Tobacco ..... X X X X Extracts X X X X X X X X Extracts X X X X
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