Statutory reserve contribution for cooperative service obligations was held allowable as a business deduction under tax law.

Contribution towards PACS managers' salary and the related statutory reserve was treated as mandatory under the cooperative service rules and linked to the assessee's legal obligations. Because the amounts had to be kept in reserve under the applicable framework, the expenditure was regarded as laid out wholly and exclusively for business and not as a contingent or discretionary appropriation. The deduction was therefore allowable under the Income-tax Act in favour of the assessee.

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Issues: Whether the contribution made towards PACs Managers' salary and the related statutory reserve requirement was allowable as a deduction under the Income-tax Act.

Analysis: The contribution was treated as mandatory under the cooperative service rules and linked to the assessee's statutory obligations. The Court noted that the amounts were required to be kept in reserve under the applicable rules and that non-compliance carried consequences under the cooperative law framework. In these circumstances, the expenditure was regarded as laid out wholly and exclusively for the purposes of business and was not to be treated as a mere contingent or discretionary appropriation.

Conclusion: The deduction was allowable and the issue was answered in favour of the assessee and against the department.

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