TaxTMI 
TaxTMI 
1979 (7) TMI 22
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.... co-operative society engaged in the business of purchase and sale of foodgrains, pulses, sugar, agricultural operation requisites and marketing of commodities for the Government. The ITO determined, by his assessment orders for the relevant years, the total income as follows Rs. For the assessment year 1965-66 50,000 1966-67 2,14,670 1967-68 2,87,620 1968-69 3,02,560 In doing so, he disallowed the claim of the assessee for the amount set apart towards " education fund " on the ground that " the payment was not made to any educational institution or charitable trust ". The assessee appealed to the AAC and contended that the amount set apart towards " education fund " was in compliance with the provisions of the Madras Co-operative Societies Act, 1961, and that the amount so set apart had to be paid to the Tamil Nadu Co-operative Union and it had also been paid to the Tamil Nadu Co-operative Union within a period of two months and that, therefore, the ITO should have allowed the deduction of the said amount in the assessment made for the several years. The AAC, on appeal, negatived the claim holding that the provisions of r. 46 of the Co-operative Societies Rules do not ....
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....in s. 62. Rule 46, in so far as it is relevant, runs as follows : " Distribution of net Profits.-... (6) (i) Every society shall set apart a sum calculated at two per cent. of its net profits subject to a maximum of Rs. 2,500 for contribution to the co-operative education fund. The sum so allocated shall be remitted to the Tamil Nadu Co-operative Union within two months of the date of allocation of the net profits by the general body. (ii) The fund shall be maintained and administered by the Tamil Nadu Co-operative Union. It shall be utilised for the furtherance of cooperative education including propaganda as contemplated in the bye-laws of the said union. (iii) No part of the co-operative education fund shall be spent by the Tamil Nadu Co-operative Union except in accordance with the bye-laws of the Union and the general directions that may be issued by the Registrar from time to time. (iv) The Tamil Nadu Co-operative Union shall maintain a separate account for this fund in accordance with regulations to be framed by the Union with the approval of the Registrar. (v) It shall be competent for the Registrar to constitute a committee of not more than five persons, of w....
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....Registrar of Co-operative Societies, appropriations are to be made in the manner contemplated by this rule. Clause (3) of r. 46 speaks of the payment of dividend on shares to members by a society at a rate not exceeding six per cent. per annum. just as, as seen already, the payment of dividends cannot be said to be any diversion of the profits by any overriding title, similarly payments made to the education fund would only be an appropriation out of the net profits and not profits diverted by the overriding title. In all the cases, where there is a diversion, the legal position is that before the profits reach the society, the profits are diverted to some one other than the society. In this case, the profits reached the society and the appropriation thereafter cannot affect the taxability of the net profits, which are the subject of appropriation. Merely because the statute contemplates the creation of a particular fund and its utilisation in a particular manner, it does not mean that there is any diversion by overriding title as such. If s. 62 read with r. 46 is analysed, it dealt with what could or should be done after the profits are earned and have reached the assessee, and do....
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....ties Act, 1961, which provides that a registered society may invest or deposit funds in certain types of security. Section 60 runs as follows: " Investment of funds.-Subject to the provisions of sub-section (3) of section 58, a registered society may invest or deposit its funds (a) in the Government Savings Bank, or (b) in any of the securities as specified in section 20 of the Indian Trusts Act, 1882 (Central Act II of 1882), or (c) in the shares or securities of any other registered society, provided that no such investment shall be made in the shares of any society with unlimited liability except with the general or special sanction of the Registrar and subject to such limits as may be specified by him from time to time, or (d) with any bank or person carrying on the business of banking, approved for this purpose by the Registrar, or (e) in any other mode permitted by the rules." The surplus funds of the society were invested in Govt. securities in the present case. The society is not a dealer in such securities, nor is it carrying on any banking or financing business. Its business, as seen already, is that of only a dealer in foodgrains, pulses, sugar, etc. The question ....