Deduction u/s 35(1)(ii) for scientific research allowed in hands of donors, notwithstanding approval granted to Organization withdrawn retrospectively
ABCAUS Case Law Citation
ABCAUS 3448 (2021) (02) ITAT
Important case law relied referred:
Pullangode Rubber Produce Co. Ltd. vs. State of Kerala, 91 ITR 18 (SC)
IT vs. Chotatingrai Tea & Ors., 258 ITR 529
CIT vs. Bhartia Cutler Hammer Co., 232 ITR 785
National Leather Cloth Manufacturing Co. vs. Indian Council of Agricultural Research & Ors., 241 ITR 482
In the instant case, the assessee had challenged the order passed by the CIT(A) in confirming addition of weighted deduction for expenditure on scientific research claimed u/s 35(1)(ii) of the Income Tax Act, 1961 (the Act).
The appellant is a company incorporated under the provisions of the Companies Act, 1956. The return of income was selected for scrutiny under CASS
The appellant company had made donation to one organization (donee). The Assessing Officer in order to verify the genuineness of the claim conducted enquiry with the said organization by issuing notice u/s 133(6) of the Act.
The reply from the done revealed that the said organization before the Settlement Commission had admitted that it was engaged in providing accommodation entries for donations through certain mediators and the donations were refunded to the donors. Further, the Assessing Officer received information from Investigation Unit of Department from Kolkata that said organization is engaged in providing accommodation entries of donations.
The Managing Director of the company pleaded ignorance of modus operandi adopted by the donee organization. However, he admitted that the claim for deduction u/s 35(1)(ii) would be withdrawn.
However, this admission was retracted during the course of assessment proceedings and it was contended that the appellant company acted bona-fide and it was not responsible for the fraud committed by the donee organization and it did not receive back money in form of cash or through banking channels and also in any other form.
The Tribunal observed that the Ministry of Finance had rescinded the approval granted to the donee organization with retrospective effect stating that the approval given earlier shall deem to have been never issued for tax concessions. However, the Explanation inserted by the Finance Act, 2006 w.e.f. 01.04.2006 states that The deduction, to which the assessee is entitled in respect of any sum paid to a research association, university, college or other institution to which clause (ii) or clause (iii) 63[63a[to which clause (ii) or clause (iii)]] applies, shall not be denied merely on the ground that, subsequent to the payment of such sum by the assessee, the approval granted to the association, university, college or other institution referred to in 63b[63c[clause (ii) or clause (iii)]] has been withdrawn.
The Tribunal stated that there was no conclusive evidence on record to show that the appellant company had received back the money from the donee made either in cash or any other or through banking channels. Nor was there any other material to show that the appellant company is also a party to the fraud committed by the donee organization.
The Tribunal opined that in view of the Explanation inserted, the intent of the Legislature is clear that the donors should not be made suffer on account of fraud committed by the donee organization.
The Tribunal stated that it is settled principle of Rule of construction of statute that if the words it uses, and, if the words are plain and susceptible of no doubt or difficulty, the intention manifested by the words alone can be given effect to. Legislative intent cannot be inferred to mean otherwise when the law is plain.
The Tribunal held that the claim made by the assessee company towards deduction u/s 35(1)(ii) of the Act on account of donation was clearly allowable. Accordingly, it allowed the appeal in the favour of the assessee.
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