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Issues involved:
The issue involves the deductibility of an amount paid by a co-operative society to the Co-operative Education Fund in computing the assessable income. Summary: The High Court of Karnataka addressed a reference under section 256(1) of the Income-tax Act, 1961 regarding the deductibility of an amount paid by a co-operative society to the Co-operative Education Fund. The society claimed a deduction of Rs. 9,431 as required under section 57(4)(a) of the Societies Act. The Income-tax Officer disallowed the claim, but the Appellate Assistant Commissioner allowed it, a decision upheld by the Tribunal. The Tribunal found that the contribution to the education fund was not part of the exclusionary provisions of the Societies Rules and was not a diversion of income at source. The Department argued that the contribution was merely an application of profits, not a diversion of income. The society contended that the contribution was a diversion of income based on various provisions of the Act and the Societies Rules. The Court analyzed the provisions of the Societies Act and rules, emphasizing that the contribution to the Co-operative Education Fund was a statutory liability and an overriding charge on the income or profits of the society. Referring to relevant case law, the Court concluded that the payment represented a diversion of profits at source due to the statutory obligation on the society. Therefore, the payment was held to be deductible. In light of the above analysis, the Court answered the question in the affirmative, ruling in favor of the co-operative society and against the Department.
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