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Issues Involved:
1. Deductibility of contributions to the "education fund" in computing income for the assessment years 1965-66 to 1968-69. 2. Deductibility of the loss incurred on the sale of Government securities for the assessment year 1968-69. Summary: Issue 1: Deductibility of Contributions to the "Education Fund" The primary issue was whether contributions made by the assessee-society to the "education fund" should be allowed as a deduction in computing income for the assessment years 1965-66 to 1968-69. The assessee, a co-operative society, argued that these contributions were made in compliance with the Madras Co-operative Societies Act, 1961, and should be deductible. The ITO disallowed the claim, stating that the payment was not made to any educational institution or charitable trust. The AAC upheld this decision, noting that the provisions of r. 46 of the Co-operative Societies Rules did not create a charge on the profits but only provided for allocation of profits, which could not justify the claim for deduction. The Tribunal, however, held that the contributions were a statutory obligation and thus admissible deductions. The court analyzed s. 62 of the Madras Co-operative Societies Act, 1961, and r. 46, concluding that the appropriation of profits to the "education fund" was not a diversion by overriding title but an allocation of profits after they were earned. The court emphasized that profits attract tax upon coming into existence, and subsequent application of profits does not affect their taxability. Therefore, the contributions to the "education fund" were not deductible, and the first question was answered in the negative and in favor of the revenue. Issue 2: Deductibility of Loss on Sale of Government Securities The second issue concerned whether the loss of Rs. 22,364 incurred by the assessee on the sale of Government securities should be allowed as a deduction for the assessment year 1968-69. The assessee sold the securities to raise finance for procuring paddy as required by the Government. The ITO and AAC rejected the claim, considering the loss as capital in nature. The Tribunal allowed the deduction, relying on precedents involving financiers. The court examined the nature of the assessee's business and the purpose of holding the securities, concluding that the investment in Government securities was on capital account, not trading account. The sale of securities due to financial necessity did not convert the loss into a revenue loss. The court noted that the assessee was not a dealer in securities nor engaged in banking or financing business. Consequently, the loss was considered capital in nature, and the second question was answered in the negative and against the assessee. The court expressed sympathy for the assessee's situation but emphasized that it was powerless to provide relief, suggesting that legislative intervention might be necessary to address such issues. There was no order as to costs.
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