Calcutta High Court
B.P. Agarwalla And Sons Ltd. vs Commissioner Of Income-Tax And Ors. on 5 July, 1993
Equivalent citations: [1994]208ITR863(CAL)
Author: Ruma Pal
Bench: Ruma Pal
JUDGMENT Mrs. Ruma pal, J.
1. The assessment years in question are 1982-83 and 1983-84. The subject-matter of challenge are two notices issued under Section 263 of the Income-tax Act, 1961, both dated February 16, 1987, seeking to revise the assessment for the assessment years in question on the identical ground. The ground stated is that the petitioner had made a donation of Rs. 3 lakhs during the relevant financial year to K.M. Scientific Research Centre and got the benefit of Section 35(1)(ii) for the assessment year in question. It has further been stated that the approval allowed to the research centre had been withdrawn with retrospective effect from January 17, 1980, by the Government of India by a notification dated January 2, 1986, and that the benefit had been allowed wrongly to the petitioner-company in the assessment for the assessment year by the Inspecting Assistant Commissioner.
2. The petitioner has contended that the basis of the notices is invalid as there could be no retrospective cancellation of approval. Reliance has been placed on the decision of a learned single judge of the Bombay High Court in Seksaria Biswan Sugar Factory Ltd, v. IAC [1990] 184 ITR 123 in this connection, ITO v. M.C. Ponnoose and Babul Cashew Co. v. STO . The respondents have contended that the petitioner had an alternative remedy as the Commissioner could decide the issue raised. Reference has been made to CITv. Ramendra Nath Ghosh . It is also contended that unless there was an initial lack of jurisdiction, the court should not interfere. Reliance has been placed on the decision in Samnuggar Jute Factory Co. Ltd. v. CIT and Simbhaoli Industries Pvt. Ltd. v. CIT . Thirdly, it is contended that a Division Bench of this court had held that proceedings for rectification under Section 154 were permissible on the basis of the retrospective amendment of the law. It is argued that if that is possible, proceedings under Section 263 should, by the same token, be permitted. The Division Bench judgment is CIT v. E. Sefton and Co. (P) Ltd. . It is stated that the Commissioner could take the subsequent fact of the withdrawal of the notification into consideration while exercising powers under Section 263. It is submitted that the case of CIT v. S.M. Oil Extraction (P) Ltd. supported this submission. It is stated that the Commissioner's action would have to be judged with reference to the time when the Commissioner issued the impugned notices. As on that date there was no approval of the research centre, payment to the research centre did not entitle the petitioner to the benefit of deduction under Section 55 of the Act. Section 35(1)(H) reads as follows :
"35. (1) In respect of expenditure on scientific research, the following deductions shall be allowed,--. . .
(ii) any sum paid to a scientific research association which has as its object the undertaking of scientific research or to a university, college or other institution to be used for scientific research :
Provided that such association, university, college or institution is for the time being approved for the purposes of this clause by the prescribed authority."
3. The notification dated August 20, 1981, reads as follows (see [1982] 133 ITR (St.) 18.) :
"No. 4185 (F. No. 203/134/79-ITA.II) : In continuation of this office Notification No. 2739 (F. No. 203/197/78-ITA.II), dated March 1, 1979, it is hereby notified for general information that the institution mentioned below has been approved by the Indian Council of Agricultural Research, the prescribed authority for the purposes of Clause (ii) of Sub-section (1) of Section 35 of the Income-tax Act, 1961.
INSTITUTION K.M. Scientific Research Centre, Masondha, Moti Nagar, Faizabad (U.P.) This notification is effective for a period of 3(three) years from January 17, 1980, to January 16, 1983."
5. The payment by the petitioner to the research centre was made on December 29, 1981, and December 28, 1982. In other words, when the payment was made the notification was very much in effect.
6. No doubt under Clause 21 of the General Clauses Act a power to issue an approval would include the power to rescind. But the question is whether such decision can be retrospective. It is a well established principle of construction that every statute is to be given prospective effect unless it has expressly or by necessary implication been made to have retrospective operation (see Bakul Cashew Co. v. STO .
7. In the case of ITO v. M.C. Ponnoose the Supreme Court has held (at page 177) :
8. See [19791 118 ITR (St.) 32.
"The courts will not, therefore, ascribe retrospectivity to new laws affecting rights unless by express words or necessary implication it appears that such was the intention of the Legislature. Parliament can delegate its legislative power within the recognised limits. Where any rule or regulation is made by any person or authority to whom such powers have been delegated by the Legislature, it may or may not be possible to make the same so as to give retrospective operation. It will depend on the language employed in the statutory provision which may, in express terms or by necessary implication, empower the authority concerned to make a rule or regulation with retrospective effect. But where no such language is to be found, it has been held by the courts that the person or authority exercising subordinate legislative functions cannot make a rule, regulation or bye-law which can operate with retrospective effect."
9. It may be mentioned that the courts are even wary to interpret a statute as conferring power to act retrospectively where the statute is a fiscal one so that even where the statutory provision is retrospective it is strictly construed.
10. On a plain reading of the section, it appears that a deduction is allowable if at the time when the same is paid to the research association, the research association has as its object the undertaking of scientific research, etc., and that the association is for the time being approved by the prescribed authority. It is not in dispute that both these conditions had been fulfilled when the payment was made by the petitioner. Therefore, the subsequent withdrawal of the approval by the prescribed authority would not affect the right to claim the deduction. This interpretation of the section renders it unnecessary to consider whether the approval could be withdrawn retrospectively.
11. There is, however, nothing in the language of Section 35 which would justify the court in coming to the conclusion that the power to rescind an approval of a research association could be withdrawn with retrospective effect. If there were any doubts in the matter, on the authority of the decisions noted earlier, the Central Government could not have withdrawn the approval granted under Section 35(1)(ii) to the research centre with retrospective effect. It also follows that the basis of the Commissioner's assumption of jurisdiction under Section 263 was wholly illegal.
12. The respondent's contention that the petitioner could have availed of the alternative remedy by appearing before the Commissioner does not appear to be sound. The Commissioner would not be able to determine the legality and validity of the notification dated January 2, 1986, by which the approval granted to the research centre was withdrawn. In any event, the matter has been pending before this court for close on six years. The court entertained the writ petition and issued a rule and passed an interim order. At this stage, after the affidavits had been completed, this court should not, in my view, direct the petitioner to avail of the statutory remedy, if any.
13. There could be no quarrel with the proposition that the court exercising jurisdiction under Article 226 will interfere with the issuance of a notice under Section 263 when there is an initial lack of jurisdiction. But in neither of the cases cited by the respondents did the courts hold that the ambit of the court's power is limited to scrutinising whether the jurisdiction was properly assumed or not by the Commissioner.
14. In the case of Indian Card-board Industries v. Collector of Central Excise [1992] 58 ELT 508 (Cal), after considering the decision cited, I had held that the court in exercising the jurisdiction under Article 226 of the Constitution will interfere with the show-cause notice in the following circumstances:
"(1) When the show-cause notice ex facie or on the basis of admitted facts does not disclose the offence alleged to be committed.
(2) When the show-cause notice is otherwise without jurisdiction.
(3) When the show-cause notice suffers from an incurable infirmity.
(4) When the show-cause notice is contrary to judicial decision or decision of the Tribunal.
(5) When there is no material justifying the issuance of the show-cause notice."
15. The same principles will apply to notices under Section 263 of the Act.
16. In my view, in this case, the notice under Section 263 suffers from an incurable infirmity and can be set aside by this court under Article 226.
17. The Bombay High Court in the case of Seksaria Biswan Sugar Factory Ltd. [1990] 184 ITR 123 had to consider a situation which was substantially identical with the facts in the case before me. In that case, the assessee had claimed deduction in respect of a donation to the very same research centre. The deduction was allowed as the research centre was enjoying the approval of the prescribed authority at that time. The approval was subsequently rescinded. A notice was issued by the Income-tax Officer under Sections 147(b) and 148 seeking to reassess the assessee on the ground that the deduction had been wrongly allowed. The Bombay High Court held that (at page 126) :
"It has to be held that the information in the form of retrospective cancellation of the approval of the concerned institution as an agricultural institute within the meaning of Section 35(1)(ii) by notification dated January 2, 1986, was apparently invalid and unreliable. The formation of belief that income chargeable to tax had escaped assessment on the basis thereof was, thus, without any material."
18. With respect to the learned judge, I adopted the reasoning in that judgment in support of the conclusion reached by me in this case.
19. The decision of the Division Bench of this court in CIT v. E. Sefton and Co. (P) Ltd. , relied upon by the respondents, is not applicable to this case. In that case, there was admittedly a retrospective amendment. It was therefore, held that the assessment order could be revised. In this case there is no such statutory provision enabling the Central Government to rescind a notification retrospectively.
20. The decision in S.M. Oil Extraction (P) Ltd. also does not assist the respondents. The Commissioner can certainly take into consideration subsequent information for the purpose of initiating proceedings under Section 263 so that an assessment order which was good when it was made, in the light of such subsequent information may appear erroneous. The question, however, is not whether the retrospective cancellation of the approval could be considered but whether the Central Government could have retrospectively rescinded the approval at all.
21. Therefore, for, the reasons aforesaid, I allow this writ application, and make the rule absolute. The impugned notices under Section 263 dated February 16, 1987, in respect of the assessment years 1982-83 and 1983-84, being annexure "G" to the petition, are set aside. Any proceedings taken on the basis of the impugned notices are also quashed.
22. There will be no order as to costs.