Donation to approved scientific research association u/s35(1)(ii): retrospective approval cancellation can't deny deduction; s.148 notice quashed

Where an assessee claimed deduction under s.35(1)(ii) for a donation to a scientific research association holding valid approval at the time of donation, a subsequent retrospective withdrawal/cancellation of that approval cannot retrospectively deny the assessee's deduction. Relying on settled law and earlier HC precedent, the HC held that the assessee is entitled to act on the subsisting certificate/notification issued by the prescribed authority, and retrospective withdrawal does not create "escapement of income" so as to justify reassessment. Consequently, the notice issued u/s 148 was held to be without jurisdiction and was quashed.

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Issues involved: Challenge to notice u/s 148 of the Income-tax Act, 1961 for assessment year 1983-84 based on withdrawal of approval for deduction u/s 35(1)(ii).

Summary:
The High Court of Bombay heard a writ petition challenging a notice dated August 12, 1987, issued by the Inspecting Assistant Commissioner of Income-tax u/s 148 of the Income-tax Act, 1961, for the assessment year 1983-84. The petitioners contended that the notice lacked jurisdiction due to absence of conditions precedent for its issuance.

In the relevant assessment year, the petitioner-company donated Rs. 2,00,000 to a scientific research center approved u/s 35(1)(ii) by the Indian Council of Agricultural Research, Government of India. The approval was later withdrawn with retrospective effect. The Inspecting Assistant Commissioner issued the impugned notice u/s 148, claiming that the income of the assessee had escaped assessment due to the withdrawal of approval for the donation.

The key issue was whether the withdrawal of approval for the donation could affect the assessee's entitlement to deduction u/s 35(1)(ii) based on the approval granted at the time of donation. The Court, citing a previous decision, held that the assessee could rely on the valid approval at the time of donation, and the retrospective withdrawal of approval would not impact the assessee's claim for deduction.

Consequently, the Court found no income escapement in this case and quashed the notice u/s 148 of the Act, thereby allowing the writ petition in favor of the petitioners.

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