ORDER
R.L. Sangani, Judicial Member
1. This four appeals by the assessee have been heard together with the consent of the parties and are being decided by this common order.
2. The assessee is an unlimited company incorporated with effect from 22-1-1981. The main objects of the assessee-company are to conduct research in the field of science to acquire and establish medical research and to run hospitals, dispensaries, nursing homes and to acquire, establish, provide medical aid running laboratories and factories for research in and production of chemicals, drugs and Pharmaceuticals. For the assessment year 1982-83, the assessee filed a return showing income at nil. In the relevant accounting year, the assessee had derived income by way of interest. The company had share capital of Rs. 62 lakhs out of which an amount of Rs. 59,13,000 had been given as loans to various companies, with the result that the assessee derived an interest income of Rs. 4,41,743. The assessee filed profit and loss account in which this receipt was shown. The expenses were only administrative expenses as observed in the assessment order. The assessee had given an amount of Rs. 4,50,000 to Shri Mohan Dai Oswal Cancer Treatment & Research Foundation, which was a registered society at Delhi. The said institution was recognised for the purposes of Section 35(1)(ii’) of the Income-tax Act, 1961 (‘the Act’). The assessee had deducted this amount from the interest income while computing the net income. For that reason, there was a net loss. The ITO examined the claim for deduction of Rs. 4,50.000. This deduction was claimed under Section 35(1)(ii). The ITO examined the receipts and found that the amount had been paid by the assessee to said institution with specific direction that the said amount would form part of the corpus of the said institution. In the receipt issued by the said institution, it was specifically mentioned that the amount had been received towards its corpus. The ITO held that since the amount had been donated towards the corpus of the said institution, deduction under Section 35(1)(ii) was not available. The said institution was one of the institutions, to which Section 80G of the Act applied. The ITO, therefore, held that the assessee was entitled to the deduction under Section 80G(2)(iv). The deduction admissible, according to him, was 50 per cent of the amount donated. He, therefore, allowed the deduction of Rs. 2,25,000 under Section 80G.
3. Against the disallowance of the claim of deduction of entire donation under Section 35(1)(/7), the assessee filed appeal before the Commissioner (Appeals) held that deduction under Section 35(1)(ii) was available only if the amount was paid to concerned institution ‘to be used for scientific research’. In the present case, according to him, the amount had not been paid for being used for scientific research. It was paid towards corpus of the institution. The amount paid towards corpus of the institution, according to him, could be used by the institution in the investment in shares or in any other investment and not necessarily for scientific research. Consequently, the deduction under the said provision was not available.
4. After the assessment order was passed, the ITO noticed that he had a mistake in calculating the amount deductible under Section 80G(2)(/v). As already stated, he had allowed deduction of Rs. 2,25,000 being 50 per cent of Rs. 4,50,000 which was the amount donated. He noticed that under Sub-section (4) of Section 80G the allowance was liable to be restricted to 10 per cent of the gross total income if that amount was smaller than Rs. 5 lakhs 10 per cent gross total income, according to him came to Rs. 21,624. Consequently, the amount deductible under Section 80G was Rs. 21,624. He, therefore, rectified the original amount allowed as deduction under Section 80G to Rs. 21,624. Against that order which was passed on 16-12-1985 in exercise of powers under Section 154 of the Act, the assessee filed appeal before the Commissioner (Appeals). The Commissioner (Appeals) upheld the order of the ITO. Against that order of the Commissioner (Appeals) IT Appeal No. 541 (Bom.) of 1986 has been filed before us and we shall be dealing with that appeal also.
5. The other two appeals, IT Appeal Nos. 4619 (Bom.) of 1985 and 542 (Bom.) of 1986 relate to the assessment year 1983-84, The facts are identical. In that year the amount donated to the said institution was Rs. 8,09,000. In that orginal assessment order, the ITO allowed deduction of Rs. 4,04,500 under Section 80G being 50 per cent of that amount rejecting the claim of deduction of entire amount under Section 35(1)(ii). The Commissioner (Appeals) dismissed the appeal against the said assessment order and the assessee has come now in appeal before us and that appeal is IT Appeal No. 4619 (Bom.) of 1985. The ITO subsequently passed an order under Section 154 restricting the allowance under Section 80G to 10 per cent of the gross total income. The deduction was reduced to Rs. 38,090. Against that order which was passed on 16-12-1985 by the ITO in exercise of powers under Section 154, the assessee filed appeal, which was dimissed by the Commissioner (Appeals). Against that order of the Commissioner (Appeals), the assessee has come in appeal before us and that appeal is IT Appeal No. 542 (Bom.) of 1986.
6. Section 35(1)(ii) is in the following words :
(1) In respect of expenditure on scientific research, the following deductions shall be allowed-
(i) ** ** ** (ii) any sum paid to a scientific research association which has as its object the undertaking of scientific research or to a university, college or other institution to be used for scientific research : Provided that such association, university, college or institution is for the time being approved for the purposes of this Clause by the prescribed authority
7. Shri S.E. Dastur, the learned counsel for the assessee submitted that this Section does not lay down that if any amount is paid to an approved institution towards its corpus the same would not be allowed as deduction. In the absence of restrictive words, regarding the nature of donation, the payment towards corpus would also be eligible for deduction under the said section. The learned departmental representative, on the other hand, contended that the amount paid towards corpus of the concerned institution would not be eligible for deduction because it could not be said that such an amount had been paid to the said institution for being used for scientific, research. Consequently, according to him, the assessee was not entitled to deduction under the said provision. Another submission made on behalf of the department was that since the assessee had no income from business, the provisions of Section 35(1)(iiii’) would not be attracted. Regarding this argument, the reply of the learned counsel for the assessee was that the assessee had in its return shown the income as business income and the ITO has not stated in the assessment order that the income had been assessed under any other head. Consequently, according to him that provisions of Section 35(1)(ii) would not become inapplicable for the said reasons,
8. We have considered the rival submissions. The opening words of Section 35(1) indicate that deduction contemplated under various clauses was in respect of expenditure on scientific research and not on expenditure on any other item. In Clause (ii) also, it is specifically mentioned that the sum which is eligible for deduction would be the sum paid to approved institution to be used for scientific research. In this Clause also emphasis is laid for payment of the sum for being used for scientific research. Consequently, it is obiviously that in order to claim deduction under the said provision, the assessee has to establish the sum which had been paid to the approved institution to be ysed for scientific research. If the amount has been paid to the approved institution to be used for any other purpose, deduction under the said provision would not be allowable. It is to be noted that university or college would have diverse activity. Some activities would be towards scientific research. Other activities would be for other research. There would be other activities which would not be connected with any research at all. If donation to such university or college is to be claimed as deduction, it would not be enough if the assessee merely makes payment to such university or college. The assessee has to make payment to such university or college for being used for scientific research in order to claim deduction. If the payment is not made for being used for scientific research, the amount received from the university or college could be used for any other purpose and the very object of Section 35(1) would be frustrated if deduction is allowed in respect of the payment which may not be used for scientific research. In the present case, the assessee has not given direction that the amount paid should be used for scientific research. On the other hand, he has given a specific direction that the amount paid should form part of the corpus of the trust. The assessee by said direction has prohibited the concerned institution from using the said amount directly for scientific research. The amount paid towards corpus would not be the income of the concerned institution. That amount could be used by the said institution for any other investment. In the circumstances, when the assessee has paid the amount with specific direction that the amount would form part of the corpus of the institution, it could not be said that the amount had been paid for being used for scientific research. In this view of the matter, provisions of Section 35(1)(/7) would not apply.
9. The learned counsel for the assessee drew our attention to the provision in Sub-section (2A) of Section 35. Prior to its amendments with effect from 1-4-1984 by the Finance Act, 1984 that section laid down that where the assessee paid any sum to a scientific research association or university or college or other institution referred to in Clause (ii) of Sub-section (1) of Section 35 to be used for scientific research undertaken under a programme approved in this behalf by the prescribed authority then the deduction shall be equal to one and one-third times the sum so paid, The effect of amendment made in the said Sub- section is that deduction at enhanced rate mentioned therein would be available only if the payment was made before 1-3-1984 with a specific direction that the same shall not be used for acquisition of any land or building or construction of any building. The submission made before us was that this amendment indicated that a direction that the sum shall be used for acquisition of land and building or construction of building would also be eligible for deduction. We find that this does not in any way assist the assessee. Even if there is a direction that the sum should be used for acquisition of land or building or construction of building, deduction would be available only if such acquisition of land and building or construction of building was for scientific research. USe for scientific research is the main ingredient of the said provision. If the payment had no connection with use for scientific research, deduction would not be eligible. Payment towards corpus stands on different footing from payment towards acquisition of land or building or construction of building to be used for scientific research. Payments towards corpus is not payment to be used for scientific research. Consequently, provisions of Section 35(1)(ii) were not attracted in the present case.
10. As already stated, one of the points debated was whether provisions of Section 35(1)(ii) would be attracted when the income of the asssssee is from investment only. Shri S.E. Dastur, the learned counsel for the assessee submitted that the investment itself was the business of the assessee-company. The submission of the learned departmental representative, on the other hand, was that even if investment is treated as business of the assessee, the head under which the interest income would be computed would not be ‘Profits and gains of business or profession’. Unless the income falls under the head ‘Profits and gains of business or profession’, the computation provisions of Sections 30 to 43A of the Act would not be applicable. This aspect has not been considered either by the ITO or by the Commissioner (Appeals). We do not find it necessary to record our finding on the question whether the provisions of Section 35(1)(ii) would be inapplicable because of the fact that the income derived by the assessee was only by way of interest.
11. The learned counsel for the assessee drew our attention to Section 80GGA of the Act. Under this Section deduction is available in respect of the sum paid by the assessee to any scientific research association or to a university, college or other institutions to be used for scientific research provided such association, university, college or institution is for the time being approved for the purpose of Clause (ii) of Sub-section (1) of Section 35. However, this deduction is allowable only in those cases where gross total income of the assessee does not include income chargeable under the head ‘Profits and gains of business or profession’. Consequently, if we had come to the conclusion that the income of the assessee did not come under the head ‘Profits and gains of business or profession’, deduction would have been available to the assessee under Section 80GGA(2)(a), provided the sum had been paid to the concerned institution to be used for scientific research. The condition for eligibility of deduction under this provision is the same as under Section 35(1)(ii). As already stated the sum paid with direction that it would form part of the corpus of the institution would not come under the category of the sum paid to the concerned institution to be used for scientific research. Consequently, the assessee would not be entitled to deduction under Section 80GGA(2)(a) to which our attention was drawn by the learned counsel for the assessee.
12. Before parting with these appeals, we may refer to the notification dated 26-12-1980 by which approval has been granted to the concerned institution under Section 35(1)(ii), read with Rule 6(ii) of Income-tax Clauses, 1962, a copy of which has been filed before us by the assessee. In that notification the very first condition mentioned is that the said ¦ institution would maintain a separate account of the sums received by it for scientific research. This indicates that the institution was bound to enquire from donor whether the amount was being paid for scientific research or for any other purpose and the institution would normally specify in the receipt that particular sum has been received for scientific research. If the amount is received for purpose other than scientific research, then it would not be mentioned in the receipt that the amount had been received for scientific research. The institution may have a plan for construction of a building or acquiring land for construction of a building for carrying on activity of scientific research. If the amount is paid for that purpose then also the payment would be for being used for scientific research. However, when the payment is specifically towards corpus, it would not figure in the account of amount received for scientific research. We do not say that the fact that the concerned institution is under legal obligation to maintain separate account for sum received for scientific research would itself ipso facto lead to conclusion that amount paid towards corpus was not to be for scientific research. However, the above fact is relevant for construing the nature of payment. At the time of making payment, the assessee has to make up its mind. If the assessee wants to make payment as general donation to the institution, he would be entitled to deduction admissible under Section 80G. However, if the assessee intended that deduction of entire amount should be allowed either under Section 35(1)(ii) (if the income is under the head Profits and gains of business or profession’), or under Section 80GGA (if the income is under any other head) the assessee has to make payment to the concerned institution for being used for scientific research. Normally, one would expect that there would be specific direction that the amount was being paid for use for scientific research. Even if such specific direction is not there the payment should be shown otherwise to have been made for being used for scientific research, when the amount is paid with specific direction that it should form part of the corpus of the institution, without any indication for being used for scientific research, said payment amounts to general donation and not payment for use for scientific research and as such, deduction either under Section 35(1)(ii) or under Section 80GGA would not be available.
13. For all these reasons, we confirm the orders of the Commissioner (Appeals) in the two appeals filed against the original assessment orders. This would disposed of IT Appeal Nos. 1988 and 4619 (Bom.) of 1985.
14. We now come to IT Appeal Nos. 541 and 542 (Bom.) of 1986. As already stated, these appeals are directed against orders of the Commissioner (Appeals) confirming the orders of the ITO reducing deduction under Section 80G, to 10 per cent of the gross total income in exercise of power under Section 154. We find that there is express statutory provision which restricts the allowance to 10 per cent of gross total income. Consequently, when the ITO in the original assessment orders allowed deductions of 50 per cent of the donations there was a mistake apparent on record. Such mistakes are liable to be rectified in exercise of powers under Section 154. The point was not debatable at all and no long drawn reasoning was necessary. We, accordingly, confirm the orders of the ITO rectifying the original assessment orders.
15. In the result, all the appeals are dismissed.
