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TMI Blog1988 (6) TMI 39X X X X Extracts X X X X X X X X Extracts X X X X ..... -operative Education Fund was allowable as a deduction in computing the assessable income." The assessee is a co-operative society registered under the Karnataka Co-operative Societies Act (hereinafter referred to as the "Societies Act"). For the relevant assessment year, the assessee claimed deduction of an amount of Rs. 9,431 being the contribution to the education fund which was made as required under section 57(4)(a) of the Societies Act. The Income-tax Officer disallowed this claim. On appeal, the Appellate Assistant Commissioner allowed the same. On further appeal by the Revenue, the Tribunal confirmed the order of the Appellate Assistant Commissioner. The Tribunal held that the contribution to the education fund was out of the net ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contribute towards the Co-operative Education Fund at a rate not exceeding 1 1/2% of the net profits. The rate of contribution depends upon the rate of dividend. The language of section 57(4)(a) of the Societies Act makes it clear that though the contribution is to be made with reference to the profits, it is not out of profits, and the rate is with reference to the rate of dividend. What is provided in the section is an obligation to contribute to the Co-operative Education Fund under certain contingencies and is a statutory liability which is an overriding charge on the income or profits of the society. In somewhat similar circumstances, in Poona Electric Supply Co. Ltd. v. CIT [1965] 57 ITR 521, the Supreme Court has held that the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its income. It is not a case of application by the assessee of part of its income in a particular way, it is rather an allocation of its receipts before it becomes income in its hands. In this context a reference to two cases reported in CIT v. South Arcot District Co-operative Supply and Marketing Society Ltd. [1981] 127 ITR 467 (Mad) and Keshkal Co-operative Marketing Society Ltd. v. CIT [1987] 165 ITR 437 (MP) is necessary. In the former case, the Madras High Court took the view that the statutory contribution of a portion of its profit to the education fund does not amount to diversion by overriding title and is only an application of income not deductible from total income, whereas, in the latter case, the Madhya Pradesh High Court t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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