2025 (4) TMI 1454 - AT - Income Tax

Claim of weighted deduction u/s. 35(2AA) - donations made to a scientific research institution - CIT(A) allowed deduction - HELD THAT - The arguments of the CIT-DR is devoid of merits for the simple reason that when donation was given for specific purpose i.e. for construction of state-of- the-art Auditorium which is also eligible for deduction u/sec.35(1)(ii) of the Act as per the letter issued by the IISc Bangalore in our considered view the AO cannot deny deduction for the said donation only on the ground that it is capital in nature and used for construction of state-of-the-art Auditorium in the name of father of the Director of appellant-company. Moreover even if the amount is spent for construction of state-of-the-art Auditorium in our considered view the Auditorium may be used for the purpose of scientific research of conducting seminars workshops and other activities which means the said purpose is for the prosecution or the provision of facilities for the prosecution of scientific research and therefore the appellant-company is entitled for deduction u/sec.35(1)(ii). CIT(A) after considering the relevant facts has rightly allowed the donation given by the appellant-company to the IISc Bangalore u/sec.35(1)(ii) of the Act. Thus we are inclined to uphold the order of the learned CIT(A) and dismiss the appeal filed by the Revenue.

Summary

The core legal questions considered in this appeal are:

1. Whether the claim of weighted deduction under section 35(2AA) of the Income Tax Act, 1961 (the Act) for donations made to a scientific research institution is allowable when the donation receipt indicates eligibility under section 35(1)(ii) instead.

2. Whether the appellant-company can rectify an inadvertent claim made under the wrong subsection (35(2AA) instead of 35(1)(ii)) without filing a revised return, particularly in light of the Supreme Court decision in Goetze (India) Ltd. v. CIT.

3. Whether the donation made for construction of a state-of-the-art auditorium at Indian Institute of Science (IISc), Bengaluru, which is named after the father of the director of the appellant-company, constitutes an expenditure eligible for deduction under the scientific research provisions or is a capital expenditure not eligible for such deduction.

4. Whether the Assessing Officer erred in disallowing the claim of weighted deduction merely on the basis of the naming rights and without verifying the authenticity of the certificate or the specific use of the donation.

5. The applicability of the legal framework governing deductions for donations to approved scientific research institutions and the interpretation of "scientific research" under the Act.

Issue-wise Detailed Analysis

1. Allowability of Weighted Deduction under Section 35(2AA) vs. Section 35(1)(ii)

Legal Framework and Precedents: Section 35(1)(ii) and section 35(2AA) of the Income Tax Act provide for weighted deductions on donations made to approved scientific research associations or institutions. Section 35(1)(ii) allows a weighted deduction of 150% of the amount donated to approved institutions for scientific research, while section 35(2AA) provides a similar weighted deduction for donations to national laboratories or approved institutions for scientific research. The Central Board of Direct Taxes (CBDT) has issued notifications recognizing IISc, Bengaluru as an approved institution eligible for such deductions.

The Supreme Court decision in Goetze (India) Ltd. v. CIT is relevant regarding the claim of deductions at the assessment stage without filing a revised return.

Court's Interpretation and Reasoning: The Tribunal noted that the appellant-company initially claimed deduction under section 35(2AA) but the receipt from IISc, Bengaluru indicated eligibility under section 35(1)(ii). The Assessing Officer disallowed the claim on the ground that the appellant did not file a revised return to claim deduction under section 35(1)(ii), relying on Goetze (India) Ltd. However, the Tribunal held that this was not a fresh claim but a rectification of a clerical error in claiming deduction under the wrong subsection.

The Tribunal reasoned that since the donation was made to an approved institution and eligible for weighted deduction under section 35(1)(ii), denial of deduction on procedural grounds would be unjustified. The Tribunal emphasized that the Assessing Officer ought to have allowed the deduction under the correct provision, as the quantum of deduction (150%) remains the same under both subsections.

Key Evidence and Findings: The appellant furnished the donation receipt, letter of appreciation from IISc, and the relevant CBDT notification recognizing IISc as an approved institution. The Assessing Officer did not dispute the genuineness of the donation or the eligibility of IISc under section 35(1)(ii).

Application of Law to Facts: The Tribunal applied the statutory provisions and the principle of substance over form, holding that an inadvertent claim under the wrong subsection should not deprive the assessee of the deduction to which it is entitled.

Treatment of Competing Arguments: The Revenue relied on Goetze (India) Ltd. to argue that the claim could not be entertained without a revised return. The Tribunal distinguished the facts, noting that the claim was a correction rather than a new claim, and that the Assessing Officer failed to exercise discretion as per CBDT circulars to allow the claim under the correct provision.

Conclusion: The Tribunal held that the appellant was entitled to the weighted deduction under section 35(1)(ii) despite the initial erroneous claim under section 35(2AA), and the Assessing Officer's disallowance on procedural grounds was unsustainable.

2. Nature of Donation for Construction of Auditorium and Eligibility for Deduction

Legal Framework and Precedents: Section 35(1)(ii) allows weighted deduction for donations made for scientific research or for the provision of facilities for scientific research. The term "scientific research" has been interpreted to include activities integral to the pursuit of scientific knowledge, including seminars and workshops conducted in facilities such as auditoriums.

Court's Interpretation and Reasoning: The Assessing Officer contended that the donation was capital expenditure for construction of an auditorium, which is not eligible for deduction. Additionally, the naming of the auditorium after the director's father was argued as creating rights inconsistent with scientific research.

The Tribunal rejected these contentions, holding that the auditorium is an integral part of the scientific institute and is used for conducting seminars, workshops, and other activities essential to scientific research. The naming of the auditorium did not confer any rights affecting the scientific research or the donation's eligibility.

Key Evidence and Findings: The letter of appreciation from IISc confirmed the purpose of the donation and the use of the auditorium for scientific activities. The Tribunal noted that the Assessing Officer did not verify facts thoroughly before disallowing the claim.

Application of Law to Facts: The Tribunal applied the principle that facilities used for scientific research activities qualify under section 35(1)(ii), and capital expenditure on such facilities is eligible for deduction if it supports scientific research.

Treatment of Competing Arguments: The Revenue's argument that the donation was capital in nature and naming rights precluded deduction was found to be without merit. The Tribunal emphasized the functional use of the auditorium over the formality of naming rights.

Conclusion: The Tribunal upheld the eligibility of the donation for weighted deduction under section 35(1)(ii) despite it being used for construction of an auditorium, as the facility supports scientific research activities.

3. Verification of Authenticity and Procedural Compliance

Legal Framework and Precedents: The Income Tax Act requires that deductions under section 35(1)(ii) and 35(2AA) be supported by proper documentation and approval by prescribed authorities. The CBDT has issued circulars directing Assessing Officers to allow claims even if initially made incorrectly, provided the donation is genuine and to an approved institution.

Court's Interpretation and Reasoning: The Tribunal found that the Assessing Officer did not dispute the authenticity of the donation receipt or the letter of appreciation. The Assessing Officer's failure to verify the certificate's authenticity or the specific use of the donation was a procedural lapse.

Key Evidence and Findings: The appellant submitted the receipt, letter of appreciation, and CBDT notification. The Tribunal noted absence of any contrary evidence from the Revenue challenging these documents.

Application of Law to Facts: The Tribunal emphasized that proper documentary evidence was furnished and accepted, and the Assessing Officer should have allowed the claim accordingly.

Treatment of Competing Arguments: The Revenue's contention that the certificate's authenticity was not verified was rejected due to lack of any adverse material or inquiry.

Conclusion: The Tribunal held that the Assessing Officer erred in disallowing the claim without proper verification and that the claim was duly supported by authentic documents.

4. Effect of Delay in Filing Appeal and Condonation

Legal Framework and Precedents: The Income Tax Appellate Tribunal has discretion to condone delay in filing appeals if sufficient cause is shown. Administrative reasons and work pressure have been accepted as valid grounds in appropriate cases.

Court's Interpretation and Reasoning: The Tribunal condoned the delay of 17 days in filing the appeal by the Revenue, finding the reasons explained satisfactory.

Conclusion: Delay was condoned and the appeal admitted for adjudication.

Significant Holdings

"In our considered view, when donations paid by the appellant company to IISc, Bangalore is eligible for deduction u/s.35(1)(ii) of the Act, merely for the reason of making a wrong claim u/s.35(2AA) of the Act, the deduction available to the appellant-company cannot be denied only on the ground that the appellant-company has not made the claim by filing a revised return as required under law."

"The Assessing Officer is completely erred in rejecting the claim of the appellant-company by citing the decision of Hon'ble Supreme Court in the case of Goetze (India) Ltd., vs., CIT (supra), because, it is not a fresh claim of any deduction, but, it is only a rectification of mistake in making a claim under appropriate provisions of law."

"The donation was made by the appellant for the purpose of creation of auditorium facilities in the scientific institute, which is integral part of the scientific activity of the said institute and also naming of the said auditorium after the father of the director of the appellant company as 'A.V. Rama Rao Auditorium' did not create any acquisition of rights in or arising out of scientific research."

"The appellant is eligible for the claim of weighted deduction of the said payment of Rs. 5,00,00,000/- and, accordingly, the appellant is eligible 150% deduction of the payment of said donation for the current year to the tune of Rs. 7,50,00,000/-."

"Even if the amount is spent for construction of state-of-the-art Auditorium, the Auditorium may be used for the purpose of scientific research of conducting seminars, workshops and other activities which means the said purpose is for the prosecution or the provision of facilities for the prosecution of scientific research and, therefore, the appellant-company is entitled for deduction u/sec.35(1)(ii) of the Act."

"The Assessing Officer ought to have allowed the claim of the appellant-company under appropriate provisions of law. This is because the CBDT has issued circular way back in the year 1955 and directed all the Assessing Officers that even in a case of incorrect claim made by an assessee, but, it is the duty of the Assessing Officer concerned to educate the assessee and allow the claim as per the provisions of Income Tax Act."

The Tribunal dismissed the Revenue's appeal, thereby confirming the allowance of weighted deduction under section 35(1)(ii) of the Income Tax Act for the donation made to IISc, Bengaluru for the construction of an auditorium used for scientific research activities, despite the initial erroneous claim under section 35(2AA) and without filing a revised return. The decision establishes that procedural lapses in claiming deductions should not defeat substantive rights where the donation is genuine and eligible, and that capital expenditure on facilities integral to scientific research qualifies for weighted deduction under the Act.