Judgment

KANIA, J. :- This is an appeal against the judgment of a Division Bench of the Allahabad High Court in Income-tax Reference No. 67 of 1969 (reported in 1971 UPTC 813). The appeal has been filed at the instance of the Commissioner of Income-tax, U. P.

2. The relevant facts are as follows :-

The respondent (assessee) is a Co-operative Society registered under the Co-operative Societies Act, 1912. It carries on the business of manufacture and sale of sugar and runs a Mill situated at Bazpur. The relevant assessment year is the assessment year 1961-62, corresponding to the accounting year 1st July, 1959 to 30th June, 1960, which was the relevant co-operative year. The assessee had established a fund called "Loss Equalization and Capital Redemption Reserve Fund". On the opening day of the year of account, namely, 1st July, 1959, a sum of Rs. 1,30,196/-stood to the credit of this fund. During the relevant accounting year, the respondent society added a sum of Rs. 5,15,863/- to this fund by deduction from the price payable by the respondent to its members for the supply of sugarcane received from its members. These deductions were made under the provisions of bye-law 50 of the Bye-l