In second appeals filed by the assessee for all the assessment years the Income Tax Appellate Tribunal held that the amount standing to the credit of the Loss Equalisation and Capital Redemption Reserve Fund which was utilised by the assessee for the purpose of its business represented moneys borrowed for the purpose of its business and that interest paid on such moneys was eligible for deduction under s. 36 1 iii of the Income tax Act, 1961.
1,18,716 for the assessment year 1968 69.
1,34,609 The Income Tax Officer took the same view for these assess ment years as he did for the assessment year 1968 69.
The claim was rejected by the Income Tax Officer.
From the Judgment and Order dated 6.9.78 of the Allaha bad High Court in I.T.R. No.
The balance of the said amount shall be refunded to the members soon after the present loan from the Industrial Corporation of India is repaid, whereafter the fund shall cease to exist.
A further question companymon to the assessment years 1969 70 to 1972 73 was also flamed.
Every producer shareholder shall deposit every year a sum number less than 0.32 paise and number more than 0.48 paise per quintal of the sugarcane supplied by him to the society, as may be determined by the Board until the shares to be subscribed by the members are fully paid up.
1,34,609 1971 72 Rs.
On 8 September, 1967 the Board of Directors of the Society decided in their meeting to pay interest at 6 on the balance available in the aforesaid Fund to its various members to whom the balance money be longed.
50 was incorporated in the Bye laws of the Society.
With a view to inducing these members to make further companytribution to the capital of the Society, bye law No.
It was on this account that the Society claimed an amount of Rs.
The same order was passed by the Appellate ASsistant Commissioner on the appeals for the remaining years.
The Appellate Tribunal negatived the companytention of the Revenue that only such deposits companyld companystitute capital borrowed within the meaning of s. 36 1 iii of the Act which were initially borrowed with the stipulation to pay interest thereon.
At the instance of the Revenue the following two ques tions in respect of the five assessment years were referred by the Appellate Tribunal to the High Court at Allahabad for its opinion.
A part of the amount was also utilised for companyverting the partly paid up shares into fully paid up shares.
1,34,609 1970 71 Rs.
50 did number provide for the refund of the amount standing to the credit of the members at any time before the payment of the loan to the Industrial Finance Corporation of India, that the loan was still outstanding on 30 June 1967, the last day of the previous year relevant to the assessment year 1968 69, and moreover the Bye law did number provide for payment of interest at all.
In the initial years of the working of the Society, certain partly paid shares were allotted to its farmer members.
For the assessment years 1969 70 to 1972 73 the claim to deduction on this account was as follows 1969 70 Rs.
CIVIL APPELLATE JURISDICTION Civil Appeals Nos.
C. Manchanda, Mrs. A.K. Verma and Joel Pares for the respondent.
In appeals preferred by the assessee the Appellate Assistant Commissioner of Income tax companyfirmed the disallow ance for the assessment year 1968 69 on the ground that Bye law No.
1358 61 of 1979.
1,81,7 16.
The money available in the Loss Equalisation and Capi tal Redemption Reserve Fund was utilised by the assessee for the purpose of its business.
The amount standing to the credit of this fund presently or to be credited in future, shall be used for making the partly paid shares fully paid up.
The bye law as amended provides There shall be established a Loss Equalisation Capital Redemption Reserve Fund in the society.
This was interest paid to the accounts of its members, who had deposited certain amounts with the assessee in accordance with Bye law No.
1,34,609 1972 73 Rs.
B .B. Ahuja, K.C. Dua and Miss. A. Subhashini for the appel lants.
For the assessment year 1968 69 it claimed payment of interest amounting to Rs.
The Judgment of the Court was delivered by PATHAK, CJ.
These appeals by special leave are directed against the judgment of the High Court at Allahabad dispos ing of an Income tax Reference in favour of the assessee and against the Revenue.
50 and it was debited by the assessee to its profit and loss account.
114/78.
The assessee is a companyoperative society running a sugar mill.
