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TMI Blog1980 (5) TMI 27X X X X Extracts X X X X X X X X Extracts X X X X ..... t claimed to have contributed towards the Employees' Provident Fund set up under the provisions of the U.P. Co-operative Societies Act. For the assessment year 1968-69, it also claimed a deduction of Rs. 2,380, the amount of interest paid by it to the said fund. The ITO rejected the claim made by the assessee on the finding that the assessee did not set up any Employees' Provident Fund in accordance with law. The fund had been created by mixing up the employees' contribution, the contribution made by the bank, 1/4th of the business profit and the interest paid by the bank. This fund had been invested in securities, namely, debentures, land mortgages, national plan certificates, etc. These investments made by the bank yielded income to it. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e-earning fund of the bank the Tribunal did not record any finding on these factual aspects of the case. It assumed that the liability created by s. 63 of the U.P. Co-operative Societies Act, 1965, read with rr. 201 to 204, being statutory liability, was allowable as an expense. This court pointed out that s. 63 of the U.P. Co-operative Societies Act required the co-operative societies to establish a contributory provident Fund to which all contributions made by the employees as well as by the society had to be credited. A contributory provident fund was not to be used in the business of the society and is not to form part of the assets of the society. Rule 203 provides that the interest accrued on the investments of the contributory provid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , before the Tribunal, admitted that none of such securities had been separately allocated to the provident fund. All the securities were purchased by the bank in its own name. The interest derived from such securities was being credited to the, profit and loss account of the assessee and in its turn the as credited interest in the provident fund account of the employees, and debited its profit and loss account by that amount. The Tribunal noticed that whereas the assessee derived interest on Government securities at the rate of 5 per cent., it credited the provident fund, account of the assessee with interest calculated at the rate of 6 per cent. In the result, the Tribunal found that the bank had set up an Employees' Provident Fund in acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... capital expenditure or personal expenditure of the assessee) laid out and expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head " Profits and gains of business or profession ". It is not disputed that the fund that has to be established under s. 63 is not a recognised provident fund within the meaning of s. 36(1)(iv) of the I.T. Act, and that the expenditure claimed by the assessee is not expenditure of the nature described in ss. 30 to 36 and s. 80VV of the Act. Accordingly, such an expenditure would qualify for deduction under s. 37 only if it can be shown that it was incurred wholly and exclusively for the purposes of the business of the assessee. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able for any debt or outstanding demand against the co-operative society. Such an immunity obviously is not intended to be given to a fund which though created for the benefit of the employees, continues to form part of the assets of the society and which fund continue to be used in connection with its business. Merely because s. 63(1) makes it obligatory for a society, like the assessee, to establish a fund, it does not mean that such a fund comes into existence of its own, The society has to take steps to establish such a fund and its liability to make contributions to it accrues and arises only when such fund has been established. According to the findings arrived at by the Tribunal, as mentioned in the supplementary statement of the c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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