NATIONAL LEATHER CLOTH MANUFACTURING CO. VS INDIAN COUNCIL OF AGRICULTURAL RESEARCH, 2002 PTD-BOMBAY-HIGH-COURT-INDIA 1230 (1999)

Income-tax---

----Reassessment---Scientific research---Donation to approved institution for scientific research---Claim for deduction under S.35(1)(ii) granted-- Withdrawal of approval with retrospective effect to institution to which donation was granted---Approval valid and subsisting at time of donation-- Assessee entitled to deduction---Notice to assessee to withdraw relief granted under S.35(1)(ii)---No escapement of income---Reassessment to withdraw deduction was not valid---Indian Income Tax Act, 1961, Ss.35(1)(ii), 147 & 148.

During the previous year relevant to the assessment year 1983-84 the assessee donated a sum of Rs.2,00,000 to an institution and claimed deduction under section 35(1)(ii) of the Income Tax Act, 1961, in respect of the above donation on the basis of the notification of the prescribed authority approving the said institution for the purpose of section 35. The claim of deduction was originally allowed but the Inspecting Assistant Commissioner subsequently issued notice under section 148 to withdraw the relief on the basis of the withdrawal of the approval by Notification, dated January 2, 1986, with retrospective effect from January 17, 1980. On a writ petition to quash the notice under section 148:

Held, that the assessee was entitled to relief on the certificate granted by the prescribed authority under section 35(1)(ii) of the. Act to the institution to which it donated the sum of money for claiming deduction under that section if it was subsisting and valid at the time the donation was made. The retrospective withdrawal or cancellation of the certificate would have no effect upon the assessee who had acted upon it when it was valid and operative. Accordingly, the impugned notice under section 148 was liable to be quashed.

Ramdas Maneklal Gandhi v. Union of India (2000) 241 ITR 437 (Bom.) fol.

Harsh Desai, instructed by V.L. Panjuani for Petitioners.

S.R. Rajguru for Respondents.

JUDGMENT

DR. B. P. SARAF, J.----By this writ petition, the petitioners seek to challenge the notice, dated August 12, 1987, issued by the Inspecting Assistant Commissioner of Income-tax under section 148 of the Income Tax Act, 1961, ("the Act"), for the assessment year 198-84. The case of the petitioners is that the conditions precedent for issuance of notice under section 148 of the Act are absent in this case and hence the notice is wholly without jurisdiction.

We have heard learned counsel for the petitioners as well as for the respondents. We have perused the affidavit filed on behalf of the respondents. The material facts of the case are as under:

In the previous year relevant to the assessment year 1983-84, the petitioner-company donated a sum of Rs.2,00,000 to one K.M. Scientific Research Centre. The said institution was approved for the purpose of section 35(1)(ii) by the Indian Council of Agricultural Research, Government of India, for a period of one year. The approval was extended from time to time. There is no dispute that the approval was subsisting in the previous year relevant to the assessment year under consideration and for the subsequent assessment year till it was withdrawn by Notification, dated January 2,1986, with retrospective effect from January 17, 1980. The petitioners claimed deduction under section 35(1)(ii) of the Act in respect of the above donation on the basis of the Notification of the prescribed authority approving the said institution for the purposes of clause (ii) of subsection (1) of section 35 of the Act which was subsisting and valid at the material time. This claim of the assessee for deduction under section 35(1)(ii) of the Act was allowed by the Inspecting Assistant Commissioner in the original assessment. The impugned notice under section 148 has been issued on the basis of the withdrawal of the said approval by Notification, dated January 2, 1986; with retrospective effect from January 17, 1980, because, according to the Inspecting Assistant Commissioner, in view of the retrospective withdrawal of the approval granted to the K.M. Scientific Research Centre to which the petitioners had donated Rs.2,00,000 in the previous year relevant to the assessment year under consideration, the income of the assessee to the extent of Rs.2,00,000 had escaped assessment. In other words, according to the Inspecting Assistant Commissioner, the relief given to the assessee under section 35(1)(ii) was wrongly granted and this notice has been issued to withdraw the same.

The only question that arises for consideration is whether the assessee who donated a sum of Rs. 2,00,000 to the Scientific Research Association on the basis of the approval granted by the prescribed authority to it for the purposes of clause (ii) of subsection (1) of section 35 of the Act by Notification in the Official Gazette at the material time can be adversely affected by the withdrawal of the approval subsequently with retrospective effect by the prescribed authority. We have already decided an identical controversy in the context of deduction under section 35CCA of the Act in Writ Petition No.957 of 1990 (Ramdas Maneklal Gandhi v. Union. of India (2000) 241 ITR 437 (Bom). The law is now well-settled that the assessee is entitled to rely upon the certificate granted by the prescribed authority under section 35(1)(ii) of the Act to the institution' or association to which it had donated any sum of money for claiming deduction under that section if it was subsisting and valid at the time the donation was made. The retrospective withdrawal and/or cancellation of the certificate will have no effect upon the assessee who has acted upon it when it was valid and operative.

In view of the above, it is clear that there is no escapement of income from tax in this case. The impugned notice under section 148 of the Act is, therefore, quashed and set aside. The writ petition is allowed in the above terms.

M.B.A./610/FCPetition allowed.