1995 (6) TMI 80 - AT - Income Tax

Summary

Issues Involved:
1. Eligibility for deduction under section 35(1)(ii) of the Income-tax Act, 1961.
2. Applicability of section 80A and 80B of the Income-tax Act, 1961.
3. Interpretation of the term "expenditure" under section 35(1)(ii).
4. Comparison with section 80GGA(2) and its implications.

Issue-wise Detailed Analysis:

1. Eligibility for deduction under section 35(1)(ii) of the Income-tax Act, 1961:

The primary issue was whether the assessee's contribution of Rs. 25 lakhs to the M.S. Swaminathan Research Foundation qualified for a deduction under section 35(1)(ii) of the Income-tax Act, 1961. The Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)] had denied the deduction on the grounds that the contribution was a donation from past earnings, not from the current year's income. The Tribunal, however, found that section 35(1)(ii) does not stipulate that the contribution must come from the current year's income. It only requires that the payment be made to an approved scientific research association. Therefore, the assessee was entitled to the deduction.

2. Applicability of section 80A and 80B of the Income-tax Act, 1961:

The AO had argued that the deduction could not be allowed because the contribution came from income earned as a Non-Resident Indian (NRI) in prior years, which was not subject to tax in India. The Tribunal rejected this argument, noting that section 35(1)(ii) does not require the contribution to be from taxable income. The Tribunal emphasized that the legislative intent was to promote scientific research, and thus, the provision should be construed liberally.

3. Interpretation of the term "expenditure" under section 35(1)(ii):

The CIT(A) had upheld the AO's decision, stating that section 35(1)(ii) pertains to "expenditure" incurred out of the income earned during the previous year and that the contribution was a donation from savings, not professional income. The Tribunal disagreed, stating that many deductions under sections 30 to 43A are in the nature of legislative bounty and do not necessarily adhere to the matching principle in accountancy. The Tribunal cited the Supreme Court's ruling in Union of India v. Wood Papers Ltd., emphasizing that once the threshold conditions for an exemption are met, a liberal interpretation should be applied.

4. Comparison with section 80GGA(2) and its implications:

The Tribunal noted that the provisions of section 35(1)(ii) and section 80GGA(2) are identical, with the former applicable to business/professional income and the latter to total income excluding business/professional income. The Tribunal observed that there is no stipulation in section 35(1)(ii) that the contribution must come from the current year's income, unlike sections 80C(2) and 80CC(1), which explicitly require payments to be from income chargeable to tax. The Tribunal concluded that the assessee's claim under section 35(1)(ii) was valid, as the section does not impose such a requirement.

Conclusion:

The Tribunal directed the AO to allow the assessee's deduction under section 35(1)(ii) for the contribution of Rs. 25 lakhs to the M.S. Swaminathan Research Foundation. The appeal filed by the assessee was allowed, emphasizing a liberal interpretation of the provision to promote scientific research, as intended by the legislature.