1991 (5) TMI 122 - AT - Income Tax

Summary

Issues Involved:
1. Disallowance of donation under Section 35CCA due to retrospective withdrawal of approval to the Society for Integral Development.
2. Validity of retrospective withdrawal of approval by the State Level Committee.
3. Examination of the assessee's compliance with Section 35CCA requirements.

Detailed Analysis:

1. Disallowance of Donation under Section 35CCA:
The Assessing Officer disallowed the assessee's claim for a donation of Rs. 5,00,000 to the Society for Integral Development under Section 35CCA. The disallowance was based on the retrospective withdrawal of the Society's approval by the State Level Committee from 31-12-1982. The Committee found that the Society violated conditions by not maintaining proper books, not utilizing funds for approved rural development programs, and acting as an agency to supply certificates under Section 35CCA(2) on commission. The assessee was accused of furnishing inaccurate particulars and attempting to evade tax.

2. Validity of Retrospective Withdrawal of Approval:
The assessee contended that the authorities were unjustified in disallowing the deduction based on the retrospective withdrawal of approval. They argued that the withdrawal was bad in law since the approval was valid when the donation was made. The assessee's counsel cited various legal precedents, including the Delhi High Court's decision in Chhabra Electric Stores v. Chief Commissioner and the Bombay High Court's decision in Suresh Trading Co. v. State of Maharashtra, to argue that retrospective cancellation affecting the donor was not permissible. The Supreme Court's ruling in CIT v. Bazpur Co-operative Sugar Factory Ltd. was also referenced, emphasizing that retrospective amendments without express or implied authority are invalid. The counsel argued that Rule 6AAA of the Income-tax Rules does not confer the power to withdraw approval retrospectively, thus making such withdrawal legally ineffective.

3. Examination of Compliance with Section 35CCA:
The Tribunal considered the submissions and noted that the assessee genuinely acted on the approval given to the Society by the State Level Committee. The assessee fulfilled the conditions of making the donation and obtaining the certificate from the donee. The Tribunal found no material evidence supporting the Assessing Officer's assertion that the donation amount was returned to the assessee. It emphasized that unless explicitly provided by statute, retrospective operation should not impair existing rights or create new liabilities. The Tribunal referred to the Supreme Court's rulings in Govinddas v. ITO and J.P. Jani, ITO v. Induprasad Devshanker Bhatt, which held that retrospective operation should not affect acquired rights unless expressly stated.

The Tribunal concluded that the assessee was entitled to claim the donation amount as a deduction, subject to the conditions laid down by Section 35CCA. It directed the Assessing Officer to re-examine the matter, ensuring that the funds were utilized for approved programs, and providing the assessee an opportunity to be heard. The Tribunal highlighted that the assessee had no control over the utilization of funds by the Society and that the authorities below had not properly examined this aspect before rejecting the claim.

Conclusion:
The Tribunal allowed the appeal, subject to verification of the utilization of funds for approved programs, and remanded the matter back to the Assessing Officer for a thorough examination in line with the statutory requirements and principles laid down by the courts.