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TMI Blog1995 (7) TMI 17X X X X Extracts X X X X X X X X Extracts X X X X ..... programme of rural development has been approved ? " The assessee is a company registered under the Companies Act, 1956, and is carrying on the business of manufacture and sale of cigarettes. With a view to take initiative for implementation of a rural development programme in respect of which the expenditure incurred is liable to be deducted from the total income under section 35CC of the Income-tax Act, 1961, the assessee implemented the rural development programme between October 1, 1977, and September 30, 1978, which is the accounting period relevant to the assessment year 1979-80. It applied to the prescribed authority for approval of the programme on December 12, 1977. By order dated March 10, 1978, the authority approved the prog ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the assessee, submits that the requirement of obtaining approval though mandatory, the action of the authority in prescribing the date is not contemplated under the Act. Therefore, it must be held that the expenditure incurred for the whole accounting year for the implementation of the programme should be allowed. He further submits that the purpose of granting the benefit under section 35CC is to encourage the people for implementation of the rural programme and, therefore, section 35CC should be liberally construed. He further submits that an analogous provision, i.e., section 80-0, has received a beneficial construction from the Calcutta High Court in CIT v. Birla Bros. P. Ltd. [1982] 133 ITR 373 and as such the same approach may be ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... joins that the expenditure incurred during the previous year by any assessee on any programme of rural development is subject to the condition that the approval of the prescribed authority has been obtained by the assessee in respect of such programme before incurring the expenditure. The Memorandum explaining the provisions in the Finance (No. 2) Bill, 1977 says that with a view to encouraging companies to undertake the work of rural welfare and uplift, it is proposed to provide that expenditure incurred by companies after June 30, 1977, on any programme of rural development will be deducted in computing their taxable profits. It is specifically mentioned therein that the deduction under that provision will be allowed only where the compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in our view means for the balance of the previous year commencing from February 21, till the end of the previous year. What is contended before is that the approval contemplated under section 55CC is the approval of the programme and not of the expenditure, therefore, the abovesaid order of approval cannot be construed to mean that it has placed a restriction or embargo on the expenditure incurred by the assessee. It is true that the proviso contemplates only the approval of the programme. But the fact that the approval ought to be obtained before incurring the expenditure cannot be lost sight of. We may also keep in mind the fact that the prescribed authority is competent to grant approval for implementation of the programme either for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of approval in so far as it approves the programme from February 21, 1978, has to be ignored. Now, we shall refer to the decision of the Calcutta High Court in CIT v. Birla Bros. P. Ltd. [1982] 133 ITR 373. In that case, the question before the Calcutta High Court was the interpretation of section 80-O of the Income-tax Act. That provision allowed deduction in respect of royalties, etc., received from a foreign company by an Indian company assessee. A limited relief was conferred on the Indian company in respect of the income received by way of royalty, commission, fees or any similar payment received by it from a foreign company in consideration for the use of any patent, invention, model, design, secret formula or process, or similar p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made an application to the concerned authority for approval of the agreement in terms of section 80-O of the Act. That application was rejected. However, the assessee claimed the benefit of section 80-O contending that the requirement of approval was merely recommendatory or directory but not mandatory. The High Court having considered the provisions of section 80-0 and the circulars issued by the Central Board of Direct Taxes held that the requirement cannot be held to be merely procedural formality and as such directory. Referring to the judgment of the Calcutta High Court in CIT v. Birla Bros. P. Ltd. [1982] 133 ITR 373, the Bombay High Court agreed that that provision is mandatory. In that view of the matter, the Bombay High Court came ..... X X X X Extracts X X X X X X X X Extracts X X X X
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