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TMI Blog1995 (6) TMI 80X X X X Extracts X X X X X X X X Extracts X X X X ..... a matter of record that the said institution was approved by the Director General (I.T. Exemption) in concurrence with the Secretary, Department of Scientific and Industrial Research for purposes of section 35(1)(ii) of the I.T. Act, 1962 read with Rule 6 of the Income-tax Rules, 1961 --- see Government of India, Ministry of Finance (Department of Revenue), Notification No. 1 F.No. DG/TN-5/CAL/35(1)(ii)/89-IT(E) of 26-10-1989. 4. During the previous year relevant to the assessment year 1990-91, which is now before us, the assessee contributed a sum of Rs. 25 lakhs to the aforesaid M.S. Swaminathan Research Foundation and claimed revenue deducation in respect thereof under section 35(1)(ii) of the I.T. Act, 1961. It is common ground that the said sum of Rs. 25 lakhs came out of the salary earned by the assessee during the period from April 1982 to April 1988 in his capacity as Director General, IRRI, and which the assessee had banked, with the prior approval of the Reserve Bank of India, with Citibank, New York. On his return to India from the Philippines, the assessee, from time to time, transferred from Citibank, New York funds to the credit of his account with Citibank, New Del ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... im. In this connection he put forward a two-fold thesis. First, section 35(1)(ii) of the Income-tax Act, 1961 is designed to give fillip to scientific research. Given the said rationale of the said section, the section should be construed liberally. In this connection he refferred to and relied upon couple of cases in which it has been held that a concession granted by a statute should be given full scope and amplitude and should not be whittled down by importing limitations not inserted by the Legislature. 9. Secondly, there is nothing in section 35(1)(ii) to warrant the conclusion that the sum paid to an approved Scientific Research Association must necessarily come out of current year's income. He contrasted the provisions of section 35(1)(ii) with those of section 80C(2) and section 80CC(1), both of which stipulate that payments relating to life insurance premium or, as the case may be, the sum of money invested in new shares, must have flowed out of assessee's income chargeable to tax. The provisions of section 35(1)(ii), however, do not make any such specific stipulation. A plain reading of the provisions of section 35(1)(ii) would make it clear that all that is necessary is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respect of such expenditure cannot be disallowed on the ground that the revenue expenditure in question came to be met not out of profits of the assessee but out of the money received by him as and by way of gift. The position is not different in a case where capital expenditure on scientific research is incurred by the assessee partly out of the grants-in-aid received by it from the Government. The grant-in-aid received by the assessee merges with its own funds and, therefore, the capital expenditure incurred by the assessee on scientific research is eligible for deduction under sections 35(1)(iv) and 35(2)(i) of the Act. 11. Shri Seetharaman relied upon the said case for the proposition that for claiming deduction under section 35(1)(ii) of the Act it is not necessary for the assessee to show that the payment in question was made out of the taxable income of the assessee. 12. In view of the foregoing, therefore, contended by Shri Seetharaman, the assessee is entitled to succeed. 13. On his part, Shri K. Argal, the learned Departmental Representative strongly supported the orders of the lower authorities. He highlighted the fact that the sum of Rs. 25 lakhs paid by the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in sections 30 to 43A of the Act. Even a cursory glance into sections 30 to 43A will indicate that the deductions allowed are not only those that are warranted by the matching principle with revenue in accountancy sides. Quite a few of the deducations are clearly in the nature of bounty of the Legislature. Thus, investment allowance under section 32A and deductions under section 35(1) (to cite a few examples) are clearly in the nature of bounty of the Legislature. In other words, the said deductions cannot be supported by any principles of accountancy. Yet, the deductions are given as a matter of State policy. 18. For a fact, even the deductions enumerated under Chapter VI-A of the Act cannot all be understood on the basis of the matching principle. Quite a few of them are in the nature of bounty of the Legislature. 19. Now, the question that arises for consideration is: What is the proper approach to be adopted while interpreting such provisions? Strange as it may seem, in such a context both the strict and liberal constructions come into play. Strict construction is applicable while deciding whether an assessee is entitled to a particular concession, exemption or bounty. Thus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... association. No other stipulation has been incorporated And the assessee has paid a sum of Rs. 25 lakhs to M.S. Swaminathan Research Foundation, a duly approved institution for the purposes of section 35(1)(ii) of the Act. It should, therefore, follow that the assessee is entitled to the deduction under the said section. 22. The matter can be looked at from another angle also. We have already stated that not all the deductions, available to the assessee under the fasciculus of sections 30 to 43A (or for that matter under Chapter VI-A of the Act) can be supported on the basis of matching principle. Quite a few of them are in the nature of a concession or bounty of the Legislature. What is more significant the deductions under section 35(1)(ii) are allowed in the process of computing the income taxable under the head 'Profits and gains of business or profession'. Similarly, the deductions under Chapter VI-A are allowed in the process of computing the total income of the assessee. Conceptually speaking, therefore, it will be wrong to insist that the sum paid by the assessee to the Research Foundation must necessarily out of the assessee's current income. This is because it is in the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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