Law:

Section:

Section 37(1) of the Income-tax Act, 1961 - Business expenditure - Allowability of -Assessee was a primary co-operative society carrying on business of marketing - On 26-8-1967 Registrar of Co-operative Societies issued directions to marketing societies to procure maize directly from farmers to ensure good price to farmers by eliminating middlemen and also encourage production - It was also directed that a good proportion of profits made should go back to cultivators as bonus to encourage them to grow maize - Assessee passed a resolution in general body meeting held on 22-11-1967 deciding to give bonus up to 50 per cent to cultivators -Resolution was subsequently approved by Registrar - Whether claim of assessee for such bonus in accounting year ended on 30-6-1968 was to be allowed as business expenditure in assessment year 1989-70 irrespective of fact as to when in fact same was paid - Held, yes Facts The assessee was a primary co-operative marketing society, carrying on business of marketing. The apex body at the State level was the State Co-operative Marketing Federation. The assessee adopted mercantile basis of accountancy. On 26-8-1967 the Registrar of Co-operative Societies issued directions to the co-operative societies to procure maize direct from cultivators to ensure good price to the farmers by eliminating the middlemen and also to encourage production of more maize. It was also directed that a good proportion of the profits made by the societies in maize should go back to the cultivators as bonus to grow more maize. The managing committee of the assessee in order to implement the aforesaid direction passed a resolution deciding to give bonus up to 50 per cent of the total net profits on the procurements to the cultivators. This resolution was approved by the general body at its meeting held on 22-11-1967, which was subsequently approved by the Registrar of Societies. The assessee in accounting year ended on 30-6-1968 paid certain amount of aforesaid bonus to the cultivators and claimed deduction as business expenditure in the relevant assessment year, i.e., 1969-70. The ITO disallowed the same. On appeal, the AAC reversed the view taken by the ITO.…

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