TMI Blog1979 (12) TMI 88X X X X Extracts X X X X X X X X Extracts X X X X ..... re covered by ss. 50 to 63. Sec. 50 states that "the State Govt. may subscribe directly to the share capital of a Society with limited liability upon such terms and conditions as may be agreed upon." Secs. 51 to 54 deal with aid to Apex Societies and so we need not consider them. Sec. 55 states that when any shares are purchased in a Society by the State Govt. the liability in respect of such shares, in the event of winding up, be limited to the amount paid in respect of such shares. Secs. 56 to 62 deal with the Finance of Apex Societies. Sec. 63 allows State Govts. to give loans, guarantee debentures, repayments and subsidies. 2. Under these powers the State Govt. had entered into an agreement with the assessee co-op. society for financ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rity as contemplated under s. 70 of the Maharashtra Co-operative Societies Act, 1960." 3. The accounting year of the societies is the year ended 30th June, 1974. As per cl. 8 of the terms and conditions for providing Govt. share capital, the assessee had set apart Rs. 2,10,000 to the Capital Redumption Fund. This was claimed as a deduction for the purpose of computing the income. The ITO held that it was not allowable. Before the AAC, it was submitted that under r. 51(iii) of the Co-op. Society Rules, it was mandatory to set apart such contribution. A decision of a Bench of the Tribunal was also relied on. The AAC found it amounted to merely paying back borrowed capital and not allowable. 4. This has brought the assessee to the Tribun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion. The assessee's case rests on the principles laid down by the Supreme Court in (1965) 57 ITR 521 (SC) and adopted by Bombay High Court and Kerala High Court in the cases reported in (1974) 97 ITR 334 (Bom) and (1974) 93 ITR 582 (Ker). These principles do not apply to the facts of the present case. It is enough if we refer to the Bombay High Court decision, for the other two decisions are considered and followed there. The Bombay High Court therein considered funds set apart to (1) Consumers' Benefit Reserve, (2) Contingencies Reserve and (3) Tariffs and Dividend Control Reserve under Sch. VI of the Electricity (Supply) Act, 1948. All these funds were held to be not taxable in the assessee's hands. The Consumers' Benefit Reserve and Tari ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only. It is not from funds provided for by any other agency other than the income generated by business. In applying these funds towards the retirement of the capital provided by State Govt. the only beneficiary is the assessee society. By applying these funds a liability of the Society is reduced and finally got rid of. Only the society reaps an advantage therefrom. It is always a fund of the society but its appropriation is subject matter of an agreement with the creditor Govt. When the assessee agreed to accept capital contribution from the Govt. on retirement in instalment basis, the assessee has to make provision for such repayment. So, contribution to the fund from which the capital would be returned is merely carrying out what the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment to the creditor Govt. was part of the terms of the loan. See CIT vs. Madras and Southern Mahratta Railway Co. Ltd. (1940) 8 ITR 280 (Mad) and 11 ITR 380. It only remains to deal with the decision of a Bench of the Tribunal relied on by the assessee. Therein the ITO allowed a similar claim, but later he passed an order reversing it under s. 154. The Tribunal held that s. 154 would not apply since its allowability depended on a long drawn process or reasoning. While holding so, they also observed that the appropriation to the Capital Redumption Fund was a deduction by an overriding title. These observations while disposing of a matter of appeal against order under s. 154 have no relevance here. 9. On a consideration of all the facts, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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