COLABA CENTRAL CO OPERATIVE CONSUMERS WHOLESALE AND RETAIL STORES LIMITED Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) BY this reference under S. 256(1) of the IT Act, 1961, the Tribunal has referred the following question of law to this Court for opinion at the instance of the assessee :

(2.) THIS reference pertains to the asst. 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 ten years unless extended by the Registrar. For the purpose of enabling the co operative societies to repay the Government share capital contribution within the specified period, the co operative societies were required to set aside necessary amount for a fund known as the "Government share capital redemption fund" before arriving at its profits for the purpose of appropriation under S. 65(2) of the Maharashtra Co operative Societies Act. The amount standing to the credit of Government share capital redemption fund had to be deposited by the assessee as fixed deposit with the Central Finance Agency or invested in the Government loan and securities in consultation with the registering authority as contemplated under S. 70 of the Maharashtra Co operative Societies Act, 1960. The assessee society was not entitled to use the fund standing to the credit of the above account in its business of wholesale stores. During the previous year relevant to the asst. year 1975 76, the assessee society set apart a sum of Rs. 2,10,000 for repayment of the Government share capital contribution and transferred the same to an account named as "Government share capital redemption fund". In its return under the IT Act, 1961 ("the Act"), for the above assessment year, the assessee claimed deduction of the above amount in computing its business income. This claim of the assessee was rejected by the ITO. Appeal of the assessee against the above decision of the ITO was dismissed by the AAC. The assessee went in further appeal to 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.

(3.) DR . V. Balasubramanium learned counsel for the Revenue, on the other hand, submits that neither it is a case of diversion of income by overriding title nor the amount set apart is an allowable expenditure under S. 37 of the Act. According to the learned counsel, in the instant case, despite keeping apart the particular sum out of its income for redemption of Government share capital in future and crediting the same to the Government share capital redemption fund, the assessee remained the owner of the amount so kept apart. In such a situation, the learned counsel submits, there is no diversion of income at all. In support of this contention, reliance is placed on the decision of this Court in CIT vs. V.G. Bhuta (1993) 115 CTR (Bom) 39 : (1993) 203 ITR 249 (Bom) : TC 38R.730, CIT vs. M.P. Poncha (1995) 125 CTR (Bom) 274 : (1995) 211 ITR 1005 (Bom) : TC 38R.735 and the latest decision of the Supreme Court in Associated Power Co. Ltd. vs. CIT (1996) 130 CTR (SC) 393 : (1996) 218 ITR 195 (SC) : TC 38R.675.