Bombay High Court
Commissioner Of Income-Tax vs Khosala Metal Powder Pvt. Ltd. on 25 June, 1993
JUDGMENT
V.A. Mohta J.
1. Under section 256(1) of the Income-tax Act, 1961, the Income-tax Appellate Tribunal has referred the following question at the instance of the Revenue :
"Whether, on the facts and in the circumstances of the case and in law, the Tribunal was right in holding that the assessee is entitled to weighted deduction under section 35(2A) in respect of the donations of Rs. 15 lakhs given in the calendar year 1974, relevant to the assessment year 1975-76, even though the programmes of the University of Poona had been approved by the Department of Science and Technology, New Delhi, only after the dates of donation and on December 9, 1975 ?"
2. The relevant assessment year is 1975-76 for which the previous year is the calendar year 1974. The assessee had donated to the Poona University a sum of Rs. 15 lakhs in two instalments - Rs. 5 lakhs on July 5, 1974, and Rs. 10 lakhs on December 20, 1974 - to be used only on scientific research projects approved for the purposes of section 35(2A) of the Income-tax Act, 1961. The University of Poona was approved under section 35(1)(ii) of the Income-tax Act. After receiving the donation, the university approached the Department of Science and Technology, Government of India (the prescribed authority), for approval of as many as 23 research programmes to be undertaken by the university to utilise the above grant of Rs. 15 lakhs. The prescribed authority, vide communication dated December 9, 1975, approved 20 out of 23 projects submitted for approval.
3. The assessee had claimed weighted deduction under section 35(2A) in respect of the donation of Rs. 15 lakhs. The Income-tax Officer allowed the claim. The Commissioner of Income-tax, by an order under section 263, held that the allowance was illegal because - (a) the approval is subsequent to the donation, and (b) the approval is not retrospective in operation. The assessee came in appeal before the Tribunal, which upheld the claim.
4. Section 35 deals with "Expenditure of scientific research". Under section 35(1)(ii), any sum paid to a scientific research to a university, college, etc. which has as its object the undertaking of scientific research, is to be deducted as business expenditure, provided the said body is for the time being approved for that purpose by the prescribed authority. The deduction allowed under section 35(1)(ii) is equal to the amount of donation. Section 35(2A) pertains to additional benefit. It provides that if a donation is made to the approved body for a programme of scientific research which is also approved by the prescribed authority having regard to the social, economic and industrial needs of India, then the deduction would be of a sum equal to 1 1/3 (one and one-third) times the sum paid, subject to a condition that the donor would not be entitled to the deduction under section 35(1)(ii) simultaneously. Thus, the additional one and one-third benefit is granted by section 35(2A). For entitlement to this additional benefit, two conditions have to be fulfilled, -
(i) The assessee must pay a sum to a scientific research association or the university, etc., referred to in section 35(1)(ii); and
(ii) The sum must be paid with the object that it is to be used for scientific research undertaken under a programme approved in that behalf by the prescribed authority having regard to the social, economic and industrial needs of India.
5. The undisputed position is that the University of Poona is approved for the purposes of section 35(1)(ii) since December 4, 1972. The programmes of scientific research undertaken by the University of Poona have been approved by the "prescribed authority", vide memorandum dated December 9, 1975. The resolution passed by the executive council of the University dated March 13, 1976, clearly indicates that the donations given would be utilised only in 20 approved schemes.
6. The question, in this background, is whether the benefit of additional 1 1/3 (one and one-third) deduction could be denied to the assessee only because the approval to the programme did not exist on or before the date of donation. The provision will have to be read as a whole and keeping its purpose in view. Even if there is any reasonable doubt, its benefit must go to the taxpayer.
7. The question in the instant case is more or less academic, because, quite clearly, the approval dated December 9, 1975, is with retrospective effect. In this background, the Tribunal was perfectly justified in permitting to the assessee additional benefit under section 35(2A).
8. The question is, therefore, answered in the affirmative and in favour of the assessee.
9. There will be no order as to costs.