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TMI Blog1992 (1) TMI 94X X X X Extracts X X X X X X X X Extracts X X X X ..... n 5, the fund was to be held by the Corporation and administered by a board of administrators. Regulation 10 provided for subscribers' accounts in which the subscriptions, contributions and interest on subscriptions and contributions were to be credited. Under regulation 11, it was made incumbent upon the Corporation to credit interest on the amounts standing to each subscriber's credit at a rate indicated therein. Admittedly, in the assessments which were made for the assessment years 1962-63 to 1971-72, the interest amounts so credited to the accounts of subscribers under regulation 11 were allowed as deduction in the computation of the assessee's income. Out of the total amount of Rs. 2,05,471 constituting the fund as on March 31, 1971, an amount of Rs. 1,03,000 was invested in fixed deposits with nationalised banks as per the policy of the Corporation to invest the fund money in fixed deposits with the nationalised banks on long-term basis. The balance amount of Rs. 1,02,471 was, however, not invested in fixed deposits with banks but was invested in the Corporation's business for which no separate accounts were maintained. The interest earned on the investment of the said amoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orporation was to credit interest to the account of each of the subscribers as required by regulation 11 and since that was, admittedly, done by the assessee-Corporation ever since the constitution of the fund and such payment of interest under regulation 11 was allowed as a deduction in the computation of the assessee's income in all the years, there was no legal liability to pay interest to the fund by reason of the assessee-Corporation having utilised the portion of the monies of the fund for the purpose of its business and, therefore, it was not entitled to deduction of the amount of Rs. 53,119. The Tribunal negatived the contention of the assessee that the payment of Rs. 53,119 should be taken to have been made for the purpose of keeping the employees of the Corporation contented and for securing their goodwill. The Tribunal held that there was no commercial expediency involved in the payment of the interest on the amount of the fund which was utilised by the Corporation for its own business. It, therefore, reversed the finding of the Appellate Assistant Commissioner in respect of the said claim and restored the order of the Income-tax Officer. The Tribunal has, in the above b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ass or classes of employees are received and held on their individual accounts, and includes any contributions and any interest or increment accruing on such subscriptions, deposits or contributions under the rules of the Fund. As noted above, under the Regulations of the fund framed in 1961, on the creation of the fund, under regulation 4, it was required to be administered by the board of administrators as provided by regulation 5 though the fund was to be held by the Corporation. There is no dispute about the fact that the fund was to be separately held by the Corporation and administered by the administrators of the fund and that no portion of the fund could have been utilised by the Corporation for its own business. Admittedly, the policy of the Corporation as reflected from the audit note dated 12/18th April, 1972, was to invest the fund money in fixed deposits with nationalised banks on long-term basis. Under section 8 of the State Financial Corporations Act, 1951, a financial corporation may accept deposits as provided therein. Thus, in the normal course, the amounts which were paid in the fund were required to be deposited by the assessee-Corporation as per its own policy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he fund. Such course was necessary to prevent discontent amongst the employees who had subscribed to the fund. It cannot be suggested that the assessee-corporation had any indirect or ulterior motive in making the said payment and it appears to us that the only motive by which the assessee-corporation was actuated to pay the interest amount on the portion of the fund utilised by it was a purely commercial expediency for the ultimate benefit of the business of the Corporation by securing goodwill amongst the employees. Learned counsel for the Department tried to distinguish the decision in CIT v. Raipur Manufacturing Co. Ltd. [1972] 84 ITR 508 (Guj) on the ground that, in that matter, peace would have been endangered in the factory due to strikes, stoppage of work or rowdyism. It is not necessary to wait till an ugly situation arises for commercial expediency to come into the picture. Preventing such occurrences by forethought and proper action would be a greater commercial expediency. Therefore, if the assessee-Corporation resolved to pay interest on the amount of the fund which it had utilised to ensure that there is no possibility of any discontent among the employees, it would b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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