H.N.Seth, J. - (1.) The assessee in both the references is the Allahabad District Co-operative Bank Ltd., Allahabad. Whereas the assessment years involved in I.T.R. No. 374 of 1974 are 1966-67 to 1968-69, that involved in I.T.R. No. 230 of 1975 is the year 1969-70.
(2.) For the assessment years involved in the two references, the assessee claimed deduction of Rs. 1,201, Rs. 3,272, Rs. 2,814 and Rs. 422, being the amounts which it 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.
(3.) 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. Contributions to a fund which had not been set apart in trust and which formed part of income-earning funds of the bank cannot be allowed as deduction. This view of the ITO was affirmed in appeal by the AAC. Being aggrieved, the assessee went up in appeal before the Income-tax Appellate Tribunal which held that even though the assessee's claim was not allowable under Section 36(1)(iv) of the I.T. Act, 1961 (as the contribution had not been made to a recognised provident fund), it was none the less the assessee's statutory liability under Section 63 of the U.P. Co-operative Societies Act, 1965. Such contributions were thus in the nature of expenditure wholly and exclusively laid out for the purposes of business and were allowable as deduction under Section 37(1) of the I.T. Act, 1961.;