Calcutta High Court
Commissioner Of Income-Tax vs General Magnets Ltd. on 3 July, 2001
Equivalent citations: [2002]253ITR471(CAL)
JUDGMENT
1. On an application under Section 256(2) of the Income-tax Act, 1961, this court has directed the Tribunal to refer the following questions for the opinion of this court :
"1. Whether, on the facts and in the circumstances of the case and in view of Explanation (b) below Section 263(1) of the Income-tax Act, 1961, the Tribunal was justified in law in holding that under no circumstances the assessment order can be said to be erroneous in law ?
2. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the approval given under Section 35CCA of the Income-tax Act, 1961, to the society for integral development could not be withdrawn retrospectively by the competent authority ?
3. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in cancelling the order under Section 263 of the Income-tax Act, 1961, passed by the Commissioner ?"
2. In compliance with our direction the aforesaid questions are referred for our opinion.
3. During the course of original assessment, the assessee claimed deduction of Rs, 80,000 under Section 35CCA of the Income-tax Act, 1961. That was allowed by the Assessing Officer. Thereafter on scrutiny of the assessment records, the Commissioner of Income-tax, noticed that the deduction of Rs. 80,000 under Section 35CCA had wrongly been allowed by the Assessing Officer, as the society which was approved by Department for integral development to which the payment was made by the assessee, that approval has been withdrawn in March, 1987, with effect from December 13, 1982, that is with retrospective effect, The assessment year is 1983-84. Year ending is March 31, 1983.
4. The facts are not in dispute that when the assessment order was passed in March, 1986, the approval to the concerned society was valid and in existence, but when the order under Section 263 was passed, at that relevant time, the exemption to the concerned society under Section 35CCA has been withdrawn. Therefore, the Commissioner of Income-tax was of the view that the assessment order passed by the Assessing Officer is erroneous and prejudicial to the interests of the Revenue. He set aside that assessment order. Against that order, an appeal is preferred before the Income-tax Tribunal.
5. The Income-tax Tribunal has considered various judgments including the judgment of the Bombay High Court in the case of Seksaria Biswan Sugar Factory Ltd. v. IAC [1990] 184 ITR 123, wherein the Bombay High Court has taken the view that rule can be amended retrospectively but not to the prejudice of the assessee and, in that case, the court further observed that apart, that was in connection with the power to make rules as distinct from the power to issue notifications and that too, not by the Board but by the prescribed authority other than the Board. The Tribunal was justified in allowing the claim of the assessee restoring the order of the Assessing Officer.
6. Learned counsel for the Revenue, Mr. Mullick submits that on the date of the order under Section 263, the approval granted to the concerned society was withdrawn and once that approval has been withdrawn on the date of the order of the Commissioner, there is nothing wrong in the order of the Commissioner. He placed reliance on the decision of this court in the case of CIT v. Bankam Investment Ltd. .
7. On the other hand, learned counsel for the assessee, Mr. Khaitan submits that the subsequent decision of this court is in favour of the assessee, i.e., in the case of CIT v. Ethelbari Tea Co. (1931) Ltd. (under I. T. R. No. 130 of 2000, order dated June 21, 2000), wherein a similar issue was considered that if the approval under Section 35CCA of the Act is withdrawn retrospectively, but when on the date of the relevant assessment year and even on the date of the assessment order, this court has taken the view that the deduction allowed on the basis that payment has been made to the society which is approved under Section 35CCA, the assessee is entitled for deduction under Section 35CCA.
8. In the case of Bankam Investment ltd. [1994] 208 ITR 208, this court has taken the. view that on the date of the assessment, if the approval to the society under Section 35CCA is withdrawn, doctrine of promissory estoppel is not applicable.
9. In the case of B. P. Agarwalla and Sons Ltd. v. CIT , in a writ jurisdiction, a similar issue has been considered that if the approval is withdrawn subsequently with retrospective effect whether the deduction can be withdrawn on the basis of the notice of the Commissioner of Income-tax under Section 263 of the Act ? This court has taken the view that the Commissioner of Income-tax was not justified when the assessee-company had made a donation of Rs. 3 lakhs during the relevant financial year to a scientific research centre and got the benefit of Section 35(l)(ii) for the assessment years in question, the subsequent withdrawal of the approval to the society by the Government with retrospective effect, that does not mean that the order of the Assessing Officer was erroneous and prejudicial to the interests of the Revenue. The notice issued by the Commissioner of Income-tax under Section 263 was quashed.
10. In K. M. Scientific Research Centre v. Lakshman Prasad , the issue before the Allahabad High Court was that once the approval was granted whether that can be revoked with retrospective effect. The Allahabad High Court has taken the view that the exemption which has been granted under Sections 10(21) and 35, that cannot be withdrawn with retrospective effect.
11. In Seksaria Biswan Sugar Factory Ltd. v. IAC [1990] 184 ITR 123, the Bombay High Court held that the retrospective cancellation of the approval by the authority is invalid. Therefore, the assessment passed on the basis of the retrospective cancellation of the approval after the donation is made by the assessee, the assessment is liable to be quashed. The notice for reassessment passed on that notification was also invalid and liable to be quashed.
12. In the case of C1T v. Bhartia Cutler Hammer Co. [1998] 232 ITR 785, this court has taken the view that once the expenditure by way of payment to an institution for carrying out rural development programme and the assessee furnished a certificate issued under Section 35CCA, the deduction of payment made to such institution should not be denied.
13. In Chotatingrai Tea Estate Pvt. Ltd. v. CIT [1999] 236 ITR 644, the issue before the Gauhati High Court was that when the donation was not utilised actually for the purpose it was donated and a benefit of deduction under Section 35CCA can be denied to the assessee ? The Gauhati High Court has taken the view that the donation is entitled to deduction under Section 35CCA and the assessee need not ensure actual utilisation of the amount for approved programme.
14. The admitted facts in this case are that the assessment year is 1983-84. The approval under Section 35CCA has been given to the society. The amount of Rs. 80,000 has been donated by the assessee. The assessment was made in March, 1986. This approval was not withdrawn not only during the accounting year but even when the assessment was made, as the approval to the society has been withdrawn to the society under Section 35CCA with retrospective effect, i.e., with effect from December 13, 1982, by an order dated March, 1987.
15. For our consideration in this case the issue is when the approval exemption to the society has been withdrawn with retrospective effect, can the order of the Assessing Officer be said to be erroneous or prejudicial to the interests of the Revenue ; our answer will be in the negative. When the assessee has paid donation to the society which held valid approval under Section 35CCA of the Act and that has not been withdrawn not only in the accounting year but till the assessment was made. That approval to society withdrawn in March, 1987, though with retrospective effect, the benefit under Section 35CCA cannot be denied.
16. For no fault of the assessee, he should not suffer and once the approval is given to the society under Section 35CCA and the assessee has paid the amount/donation to that society, he cannot be denied the deduction for which he was entitled under the valid certificate issued by the society which is approved by the Department on the date of payment to that society.
17. Assuming by mistake the approval has been given to the wrong society. But for mistake of the department, why should the assessee suffer ? That withdrawal of approval to the society with retrospective effect is itself bad, No assessee should suffer for mistake of the Department. The Department has the power of withdrawal but in such cases withdrawal can be only with prospective effect. If the donation to the approved society is genuine in that case withdrawal with retrospective effect does not affect the right of the assessee for deduction of the amount which has accrued to the assessee on the basis of the payment to an approved society under Section 35CCA of the Act.
18. In view of these facts, we find no reason to interfere with the order of the Tribunal. In the result, we answer all these three questions in the affirmative and that is in favour of the assessee and against the Revenue.