Tax deduction u/s35CCA for donation to approved rural development body upheld despite doubts about fund utilisation

Deduction under s.35CCA for donations to an approved rural development institution was disputed on the ground that the donated amount was allegedly not utilised for an approved programme. The SC held that once the assessee satisfies the statutory conditions for deduction and furnishes the prescribed certificate, there is no legal obligation on the assessee to ensure or prove subsequent utilisation of the funds or that the donee is in fact carrying on the envisaged rural development work; the compliance burden lies within the scheme of s.35CCA and its certification mechanism. The SC further held that the HC exceeded its jurisdiction in quashing the Tribunal's remand order, but upheld the allowance of the deduction and dismissed the appeals.

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Issues:
Appeal against High Court decision on deduction under section 35CCA of the Income-tax Act.

Analysis:
The case involved appeals from the Gauhati High Court's decision regarding the deduction under section 35CCA of the Income-tax Act. The High Court had set aside the Tribunal's order and remanded the matter to the Assessing Officer to determine if the assessees could lose the deduction due to subsequent events. The assessees had fulfilled conditions for claiming the deduction, but the Revenue authorities argued they were not entitled to it as the approval was withdrawn retrospectively, and the donation was allegedly returned. The Tribunal found the assessees met all conditions for the deduction and that subsequent events did not affect their position. However, it remanded the matter to verify if the donation was utilized for an approved program.

The questions referred under section 256(2) of the Act were whether the Tribunal was justified in restoring the matter to the Assessing Officer and whether the entitlement for deduction depended on the utilization of funds by the approved society before the specified date. The High Court followed precedent and held that once the assessees fulfilled all conditions for claiming the deduction, they were not obligated to ensure the funds' utilization. The deduction was allowed based on the certificate provided, and it was not the assessees' responsibility to verify the institution's activities.

The Supreme Court upheld the High Court's decision, stating that the reasoning was sound and required no interference. Although the final observation by the High Court regarding the remand order's quashing and the assessees' entitlement to deduction may have been beyond its jurisdiction, it was a necessary consequence of the answer to the referred question. As a result, the appeals were dismissed without costs.

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