- (1.) AT the instance of the assessee, the present reference is made before this court where in the following questions have been referred : '(i) Whether, on the facts and circumstances of the case, the Appellate Tribunal was right in law in holding that the contribution paid as per the provisions of Section 69 of the Gujarat Rajya Co -operative Societies Act, 1961, is not deductible in the computation of the total income ? (ii) Whether, on the facts and circumstances of the case, the Appellate Tribunal was right in law in holding that depreciation was not admissible on 30 per cent value of the plant and machinery received from Indian Dairy Corporation ? (iii) Whether, on the facts, the Appellate Tribunal was right in law in holding that 30 per cent. of value of the plant and machinery received from Indian Dairy Corporation was not to be included in the computation of the capital employed for the purpose of granting relief under Section 80J ?' The assessee, Mehsana District Co -operative Milk Producers' Union Limited, Mehsana, a co -operative society registered under the provisions of the Gujarat Co -operative Societies Act, 1961, was assessed for the assessment years 1976 -77 and 1978 -79.
(2.) SO far as question No. 1 is concerned, in the case of the present assessee, for the earlier assessment years, a Division Bench of this court was required to consider similar facts Mehsana District Co -operative Milk Producers' Union Ltd. v. CIT : [1993]203ITR601(Guj) . The question raised before the court was as under (page 604) : '(2) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the contribution made by the assessee to the Gujarat Co -operative Education Fund was not an allowable deduction in computing the total income of the assessee for the assessment years 1967 -68 to 1972 -73 ?' The contribution was in compliance with Section 69 of the Gujarat Cooperative Societies Act, 1961. The relevant provision of Section 69 reads as under : 'Every society which declares out of current year's profit, a dividend to its members at the rate of 30 per cent. or more, shall contribute towards the educational fund of the Gujarat State Co -operative Union at such rate as may be prescribed.' Rule 31 of the Gujarat Co -operative Societies Rules, 1965, lays down the rates at which the society was required to contribute. Reading the provisions under Section 69(1) of the Act and Rule 31 of the Gujarat Co -operative Societies Rules, 1965, it transpires that it was the duty of the co -operative society to contribute the amount on the basis of profits and gains. The Tribunal in para. 25 of its judgment considered the aforesaid provisions and also Section 40(a) of the Income -tax Act, 1961, which reads as under : 'Notwithstanding anything to the contrary in Sections 30 to 39, the following amounts shall not be deducted in computing the income chargeable under the head 'Profits and gains of business or profession', - -(a) in the case of any assessee - -. . . (ii) any sum paid on account of any rate or tax levied on the profits or gains of any business or profession or assessed at a proportion of, or otherwise on the basis of, any such profits or gains.' The Tribunal expressed its opinion that the amount is to be paid not in order to earn income, but by way of application of income. Therefore, there can be no question of treating the said amount as expenditure. For the aforesaid purpose, the Tribunal relied on the decision of the Madras High Court in CIT v. South Arcot District Co -operative Supply and Marketing Society Ltd. : [1981]127ITR467(Mad) . The Division Bench in the case of Mehsana District Co -operative Milk Producers' Union Ltd. v. CIT : [1993]203ITR601(Guj) considered this case and the Division Bench pointed out that (page 613) : 'The provisions of our Act cannot be said to be in pari materia with the provisions of the Madras Act and, therefore, the said provisions would not be applicable to a case arising under the Gujarat Act. We need not, however, consider the correctness of the reasons given by the Madras High Court as we are of the opinion that the contribution made by the assessee to the co -operative education fund is an allowable deduction under Section 37 of the Act.' The Division Bench considered the provisions of law and held that (page 613) : 'Thus, the assessee's claim for deduction was under Section 37 of the Act and when its claim is decided on the merits, it would not be proper to rejectthat claim only on the ground that the assessee had not made a specific claim in that behalf by reference to Section 37 of the Act.' The court held that the Tribunal was not right in holding that such contribution did not amount to a legitimate business outgoing.
(3.) IT is required to be noted that the payment was required to be made out of net profits made by the assessee and only because it had declared dividend. The said contribution, being statutory one, while computing real profit, the amount should be taken into consideration or not is the real question.;