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TMI Blog2017 (11) TMI 522X X X X Extracts X X X X X X X X Extracts X X X X ..... w:- Whether in the facts and circumstances of the case the ITAT was justified in deleting the addition of ₹ 6690540/- made by the Assessing Officer by disallowing the contribution to Primary Agricultural Credit Cooperative Society Development Fund being non business expenditure. 3. The issue is now squarely covered by the decision of this Court in case of Commissioner of Income Tax vs. M/s Rajasthan State Co-operative Bank Ltd. in Tax Appeal No. 18/2012 decided on 5th September, 2017, wherein this court has observed as under:- 6. It seems that totally diverted points as stated hereinabove have been taken into consideration and the authority has wrongly relied upon decision in case of Sri Venkata Satyanarayana Rice Mill Contractors Co. vs. CIT, 223 ITR 101. To extend the details, he has taken us to the Primary Agricultural Cooperative Society Managers, selection, appointment and service condition rules, 2003 wherein Rule 27B 28 reads as under:- 7. He contended that these are the funds which are required to be used for specific purposes and the same are surplus fund which are kept. He has also relied on decision of this Court in case of Commiss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facts of the present case, apparently the obligation to carry a part of net profit to a reserve fund does not envisage diversion of any part of profits in person other than society itself. There is no overriding title vesting in a third party other than the assessee to lay claim to the reserve fund independent of cooperative society. While unravelling the essential character of the reserve fund, we have noticed that reserve fund remains part of the assesseesociety's corpus and is to be applied for assessee's business only, albeit its application is being regulated by the Registrar under the provisions of the Act but the statue does not give any power even to the Registrar to utilise the reserve fund so created out of the profits of the society for any purpose other than for the purpose of the society. Even on dissolution of the society the first obligation of the assets of the society including the reserve fund as part of the total assets and not specifically, is to the discharge of its debts outstanding and obligation towards the shareholders to pay their contribution with interest and dividend payable to them for the period such dividends are not paid. Surplus, if any, l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the need of the society and none else. The fund is always available for the society and forms the part of its assets for paying off its dues and to pay off the share capital on its dissolution. Therefore, there is no overriding title vesting in any other person or obligation to which such profit is diverted before it reaches the society. The requirement of surplus, if any, on dissolution of the society after application of assets to discharge its liabilities towards creditors and shareholders to be used for an object of public utility is also an obligation of the net surplus of the society and not merely of the remainder of reserve fund, if any, towards object of public utility or charitable purposes as may be ordained by the members of the society. That also clearly amounts to application of the funds of the society as per the decision of the general body of the society. At the end of the day, it may be application of remainder as per the requirement of law, but it does not, at the time of creation of a reserve fund becomes a certain obligation which it is obliged to discharge but rest in domains of uncertain contingency. It remains a contingent obligation of the assets of the soc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... statute for meeting out of contingent liability in future. Undoubtedly, in the latter case, it always remained capital of the company and notwithstanding its use could only be with the approval of the State Government, it did not make any difference so far as the nature of the contingency reserve fund is concerned. Apparently, the M.P. High Court has not noticed this distinction and has not adverted to the provisions of the M.P. Co-operative Societies Act which concerned creation of reserve fund, its object and the Government Rules about obligation to apply the reserve fund for the purposes of the society. Had the same been brought to the notice of the Court, perhaps the M.P. High Court would have reached the same conclusion to which we have reached. Be that as it may, in view of the direct decision of the Supreme Court in Associated Power Co. Ltd.'s case (supra) and Vellore India Co. Ltd.'s case (supra) making out a distinction between reserve fund created for the benefit of consumers and reserve fund to be used for the assessee's own income to meet any contingencies occurring in future cannot be excluded from the computation of total income either on principle ..... X X X X Extracts X X X X X X X X Extracts X X X X
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