- (1.) ON an application under Section 256(1) of the Income-tax Act, 1961, the Tribunal has referred the following question for our opinion : "Whether on the facts and in the circumstances of the case, the Tribunal was justified in holding that the contingency reserve is a deductible amount from the total income of the assesses ?"
(2.) THE assessee has created a contingency reserve at 1/2 per cent, of the original cost of the fixed assets of Rs. 94,96,282. This, according to the assessee, was in accordance with Clause (iv) of the Sixth Schedule to the Electricity Supply Act, 1948. THE reserve was invested in the manner prescribed by the Co-operative Societies Act. THE assessee has claimed this amount of reserve as deduction from its profit for the purpose of taxation. THE Income-tax Officer negatived this claim but Commissioner of Income-tax (Appeals) has allowed the claim of the assessee holding that once the amount is transferred to a contingency reserve fund which is a statutory liability and the assessee has no control over that, thereafter, it should be allowed as a deduction. THE Tribunal has considered the view taken by the Commissioner of Income-tax (Appeals), following the decision of the Patna High Court in the case of CIT v. Darbhanga Laheriasarai Electric Supply Co. [1985] 154 ITR 812. Heard learned counsel for the parties. Mr. Singhi relied on the decision of the Madras High Court in Vellore Electric Corporation Ltd. v. CIT [1977] 109 ITR 454 and Shree Safari Mills Ltd. v. CIT [1985] 156 ITR 585 (SC). This issue has also been considered by the Madhya Pradesh High Court in the case of Keshkal Co-operative Marketing Society Ltd. v. CIT [1987] 165 ITR 437 wherein the view has been taken that once the contingency reserve fund is created under the statute and if any amount is transferred into that fund the assessee is entitled for deduction of that amount. In this decision, at page 442, the court has observed as under : "Therefore, in the instant case also, the deduction as claimed by the assessee-society amounting to Rs. 1,66,763 is an allowable deduction as the said amount does not comprise income of the assessee because the same having been diverted under the provisions of Section 43(2) of the Societies Act, can only be invested or utilised in such manner and on such terms and conditions as may be laid down by the Registrar in this behalf as required under Clause (2) of Section 44 of the Societies Act. As such, the said amount is not available for the use of the assessee-society at its option. Therefore, the real test for such sum to be deductible is that if by making statutory deposits, the assessee loses control over the said amount, being not available for its use, then such amount is certainly deductible from the income as contemplated under Sections 36 and 37 of the Income-tax Act, 1961." Considering the admitted facts that the contingency reserve fund has been created under the statute, is a statutory liability and that the fund cannot be utilised other than the purpose for which the fund has been created and the assessee has no control over that fund. The assessee cannot use that fund other than the purpose for which the fund has been created. On these admitted facts, we find no infirmity in the view taken by the Tribunal. In the result, we answer the question in the affirmative, i.e., in favour of the assessee and against the Revenue. The reference, so made, is disposed of accordingly. ;