|The Tax Publishers2021 TaxPub(DT) 0724 (Pune-Trib)
INCOME TAX ACT, 1961
Deduction in the hands of donor shall not be denied merely because of facts that an approval granted to Research Institution had been withdrawn subsequently with retrospective effect to the payment of donations, the donors, therefore, would not be made to suffer on account of withdrawal of the approval granted to donee organization.
Business deduction under section 35(1) - Research and development work - Weighted deduction - Approval granted to donee organization was withdrawn with retrospective effect
The assessee made donation to one organization called School of Human Genetics and Population Health (SHGPH). The AO in order to verify the genuineness of the claim conducted enquiry with the said organization by issuing notice under section 133(6). In response to the said enquiry notice, the SHGPH responded, wherein it was stated that the said organization filed a petition under section 245C before the Settlement Commission, before whom, it was admitted that it was engaged in providing accommodation entries for donations through certain mediators and the donations were refunded to the donors after retaining the service charges. The donations as well as the refunds were made only through banking channels. AO had conducted survey operations under section 133A on the business premises of the assessee. During the course of survey operations, the Joint Managing Director of the assessee company, namely, A was examined and the statement was recorded, wherein, he accepted the factum having made the donations and pleaded the ignorance of the modus operandi adopted by the donee organization. AO disallowed the claim for deduction under section 35(1)(ii) drawing adverse inferences against the appellant. CIT(A), vide his impugned order confirmed the action of the AO. Held: It was clear that there was no conclusive evidence on record to show that the assessee 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 was also a party to the fraud committed by the donee organization. In view the provisions of Explanation inserted to section 35(1)(ii) by Finance Act, 2006, with effective from 1-4-2006 providing that deduction in the hands of the donor shall not be denied merely because of the fact that an approval granted to the Research institution which had been withdrawn subsequently with retrospective effect to the payment of donations, the donors should not suffer on account of withdrawal of the approval granted to donee organization. The intent of the Legislature is clear that the donors should not be made to suffer on account of fraud committed by the donee organization. Judgements of the Supreme Court in the case of Chotatingrai Tea & Ors. was rendered much prior to the insertion of the Explanation to section 35(1)(ii) and the Explanation inserted by the Finance Act, 2006 with effective from 1-4-2006 which means that the Parliament is deemed to have knowledge of the above judicial precedents and accepted the dictum laid therein. Therefore, the very fact that the approval granted to the donee organization, i.e., SHGPH was rescinded with retrospective effect has no relevance to decide the allowability of deduction under section 35(1)(ii) in the hands of the donors. The claim made by the assessee-company towards deduction under section 35(1)(ii) on account of donation made to SHGPH was, therefore, clearly allowable.
Followed:CIT v. Chotatingrai Tea & Ors. etc. (2002) 258 ITR 529 (SC) : 2002 TaxPub(DT) 1674 (SC) and CIT v. Bhartia Cutler Hammer Co. (1998) 232 ITR 785 (Cal-HC) : 1998 TaxPub(DT) 1056 (Cal-HC)Relied:National Leather Cloth Manufacturing Co. v. Indian Council of Agricultural Research & Ors. (2000) 241 ITR 482 (Bom-HC) : 2000 TaxPub(DT) 938 (Bom-HC), Orissa State Warehousing Corporation v. CIT (1999) 237 ITR 589 (SC) : 1999 TaxPub(DT) 1252 (SC), Pradesh Chambers of Commerce and Industry v. State of Andhra Pradesh (2001) 247 ITR 36 (SC) : 2001 TaxPub(DT) 542 (SC) and Acting. CIT v. Plantation Corporation of Kerala Ltd. (2001) 247 ITR 155 (SC) : 2001 TaxPub(DT) 862 (SC)
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