ORDER
V.P. Elhence, Judicial Member
1. to 14. [These paras are not reproduced here as they involve minor issues.]
15. The first ground relates to the claim of deduction made by the assessee under Section 35CCA. The facts relevant to this claim are as follows.
16. If an assessee incurs any expenditure by way of payment of any sum to an association or institution, which has as its object the undertaking of any programme of rural development, to be used for carrying out any programme of rural development which is approved by the prescribed Authority under Section 35CCA(2), the assessee is to be allowed deduction of the amount of such expenditure incurred during the previous year. The society referred to in Section 35CCA(1) was the society for Integral Development, 2, Church Lane, Calcutta (hereinafter referred to as SID) which was granted the necessary approval for the period 13-12-1982 to 12-12-1985 on 17-12-1982, on the basis of its application dated 11-11-1982 for the said purposes. This approval had been granted by the prescribed Authority, Calcutta (Competent Authority) consisting of the Chief Commissioner (Admn.), the Commissioner of Income-tax West Bengal-I and Secretary Agriculture (West Bengal). Thereafter there was ‘a letter dated 29-9-1984 from SID to the assessee giving details of the rural development programmes. The assessee remitted Rs. 15,00,000 by account payee drafts on 16-10-1984 and 10-10-1984 (details appear in para 4 of the assessment order) along with covering letters, by way of donation to SID. The accounting period relevant for the assessment year 1985-86 ended on 24-10-1984. There was a search at the premises of SID on 18-11 -1986. During the search the statement of Shri Krishna Kumar Sukhani, its secretary was recorded the same day. Statements of the assessee’s two partners S/Shri Kedarnath Agarwal and Narendra Kumar Agarwal were also recorded. The prescribed authority purported to withdraw SID approval retrospectively with effect from 13-12-1982 i.e., the very inception of the approval on the ground that SID had violated the conditions subject to which approval had been given on 17-12-1982 by not maintaining proper books of account, not utilising money raised on donation for approved programmes of rural development and merely acting as an Agency for supplying Certificates under Section 35CCA(2) of the I.T. Act 1961 on commission and returning the balance to the alleged donors within a day or two of the clearing of the cheques received as donation. The Assessing Officer, vide letter dated 13-7-1987, asked the assessee regarding details of the donation and vide letter dated 26-11 -1987 the Assessing Officer informed the assessee that exemption under Section 35 CCA could not be allowed to it in respect of the donations of Rs. 15 lakhs. The Assessing Officer took the view that the name of SID was used as a device to help reduce tax liabilities of the alleged contributors. On the basis of the statement of Shri Krishna Kumar Sukhani he took the view that account payee cheques received from such contributors were deposited with ‘he bankers (Canara Bank, Gariahat Branch of Calcutta) and then after appropriating a mutually arranged rate of commission, amount were returned back to those contributors after withdrawing the same by self or bearer cheques. The Assessing Officer found that there was a Hari Gramin Vikas Trust settled by Shri Haricharan Lal Agarwal (Father of Shri Kedarnath Agarwal) which was also approved for the purposes of Section 35CCA and which was operating from the same premises as those of the assessee firm. The suspicion of the ITO was that the conduct of the assessee firm in making contribution to SID was not free from doubt. Thus the deduction claimed under Section 35CCA was rejected. Here, we would like to mention that on 17-12-1987 a writ petition was filed by the assessee before the Rajasthan High Court to challenge the validity of the letter dated 26-11-1987 of the Assessing Authority under Articles 226 and 227 of the Constitution. After the passing of the assessment order on 29-3-1988 the assessee made an application before the High Court on 29-4-1988 for amendment of that writ petition and by means of the orders dated 30-11-1988 and 29-11-1991 the Hon’ble High Court passed interim order staying recovery by coercive process.
17. In appeal before the learned CIT(A), it was submitted on behalf of the assessee that it was not afforded an opportunity of cross examining Shri Sukhani. It was also said that it was not the concern of the assessee to find out as to how the funds were utilised. It was denied that any funds were received back by the assessee firm. It was also argued that notwithstanding the withdrawal of the approval by the Competent Authority on 3-3-1987, the assessee was entitled to the deduction under Section 35CCA. It was also said that the approval granted on 17-12-1982 could not be withdrawn retrospectively and that the doctrine of promissory estoppel came to aid of the assessee firm. Firstly, the learned CIT( A) wondered why the assessee firm made contribution to SID at Calcutta when Hari Gramin Vikas Trust engaged in a similar activity at home and which was closely associated with the assessee’s partners was available. Secondly, he observed that there could not be a direct evidence but only circumstantial evidence about the money flowing back to the assessee firm. Thirdly, he observed that even if the above aspect was ignored, the assessee could not claim deduction under Section 35CCA since the approval granted by the Prescribed Authority had been withdrawn with effect from 13-12-1982. Fourthly, he held that the power of the Prescribed Authority to withdraw the approval retrospectively could not be challenged before him and that the proper remedy lay elsewhere. At the same time he held that the Prescribed Authority had inherent power to withdraw the approval in a case where it was found that the conditions laid down while granting the approval were not satisfied. He also held that the doctrine of promissory estoppel was not of universal application. He therefore, upheld the order of the Assessing Officer.
18. Before us, on behalf of the assessee contentions put forward before the Income-tax Authorities were sought to be reiterated. Additionally reliance was also placed on the following decisions:-
(1) J.P. Jani, ITO v. Induprasad Devshanker Bhatt [1969] 72 ITR 595 (SC),
(2)Motipur Zamindari Co. (P.) Ltd. v. Agrl. ITO [1972] 83 ITR 778 (Pat.),
(3) Chhabra Electric Stores v. Chief Commissioner [1972] 30 STC 85 (Delhi),
(4) Suresh Trading Co. v. State of Maharashtra [1981] 48 STC 207 (Bom.),
(5) Delux Wines v. State of Andhra Pradesh [1990] 77 STC 373 (AP),
(6) Govinddas v. ITO [1976] 103 ITR 123 (SC),
(7) Kishinchand Chellaram v. CIT [1980] 125 ITR 713 : 4 Taxman 29 (SC),
(8) CIT v. M.K. Bros. [1987] 163 ITR 249 (Guj.),
(9) CIT v. Bazpur Co-operative Sugar Factory Ltd. [1988] 172 ITR 321 : 38 Taxman 195 (SC)
(10) Seksaria Biswan Sugar Factory Ltd. v. IAC [1990] 184 ITR 123 : 52 Taxman 257 (Bom.),
(11) Jalannagar Tea Estate (P.) Ltd. v. Dy. CIT [1991] 38 ITD 281 (Gauhati),
(12) Order of Calcutta Bench ‘E’ for assessment year 1985-86 in the case of Bankam Investment Ltd. v. ITO [IT Appeal No. 937 (Cal.) of 1988, dated 22-11-1989],
(13) Union of India v. J.K. Industries Ltd. [1990] 1 WLN 675 (Raj.),
(14) Mohd. Swallehin v. Lt. Governor AIR 1977 Delhi 184,
(15) Motilal Padampat Sugar Mills Co. Ltd. v. State of U.P. AIR 1979 SC 621,
(16) Gujarat State Financial Corporation v. Lotus Hotels (P.) Ltd. AIR 1982 Guj. 198.
On the other hand, on behalf of the Department Shri S.K. Kundra, the learned Senior Departmental Representative strongly relied upon the orders of the Income-tax Authorities. He submitted that the approval could be withdrawn with retrospective effect as a scandal was being run by SID and it was a fraud and the spirit of the approval had been defeated due to non-compliance of the conditions. He also submitted that there could be no inherent right with the SID or the donors to cheat the Government.
19. The rival submissions as also the decisions referred to above have been heard and duly considered. Under Section 35CCA an assessee would be entitled to claim deduction of the amount of expenditure by way of payment of any sum to an association or institution, which has as its object the undertaking of any programme of rural development, to be used for carrying out any programme of rural development approved by the Prescribed Authority. Such expenditure must have been incurred during the previous year relevant to the assessment year for which the claim is made. In order to enable the assessee to claim the aforesaid deduction, the assessee has to furnish a Certificate from such association or institution to the effect that the programme of rural development has been approved by the Prescribed Authority. Section 35CCA(2) provides that no Certificate shall be issued by any association or institution unless it has obtained from the Prescribed Authority authorisation in writing to issue certificates of such nature. We have, therefore, to see if in the facts and circumstances of the present case these requirements were satisfied by the assessee. It appears that SID had made an application dated 11-11-1982 for necessary approval and that with reference to the said request approval had been granted by the Prescribed Authority (State Level Committee) vide its letter dated 17-12-1982 addressed to SID. It will be useful to extract the relevant portion of that letter, copy of which appears at pages 39 and 40 of the assessee’s paper Book-I:
To
The Secretary,
Society for Integral Development
2, Church Lane, Cal.-l.
Sir,
Sub: Approval of Institution Rural Development Programme under Section 35CCA of the I.T. Act, 1961.
I am directed to refer to your application dated 11-11-1982 on the above mentioned subject and convey approval of the Prescribed Authority to your Institution and its proposed Rural Development Programme as detailed in your letter under reference.
2. The approval is accorded under Section 35CCA of the I.T. Act, 1961 and is subject to the following conditions:-
(a) The approval is valid from 13-12-1982 to 12-12-1985.
(b) Proper accounts of income/expenditure and Balance Sheet should be maintained for each programme separately. The account should he audited by a qualified Chartered Accountant and submitted to this office as well as to the ITO concerned having assessment jurisdiction on the assessee within 29th June of every following year.
(c) The areas proposed to be covered by the programme shall qualify as “rural area” within the meaning of Section 35CCA of the I.T. Act 1961.
(d) The Fund to be raised shall be utilised for the programmes approved by the Prescribed Authority and that this should not be diverted for any other purpose.
(e) Proper records shall be maintained of all the assets created for the programme of rural development and that this shall not be transferred or disposed of or mortgaged or utilised for the purposes other than those for which these were acquired.
(f) The representative of the Prescribed Authority shall have the right to visit the place and carry out inspection where the approved programmes are being/would be carried out.
(g) The approvals are subject to your fulfilling the other conditions laid down in the Act in this behalf, as may be amended from time to time by the Parliament.
(h) The approval accorded is only for the purpose of Section 35CCA of the I.T. Act, 1961 and should not be construed to convey the approval of the Commissioner of Income-tax or the Central Government for any other purposes,
(i) The institution shall maintain a separate Bank Account for its Rural Development Programme.
Yours faithfully,
Sd/-
Income-tax Officer, Assess-
ment, For Chairman of the
State Level Committee, West
Bengal and Commissioner of
Income-tax, West Bengal-I,
Calcutta.
The said approval was for the period from 13-12-1982 to 12-12-1985 subject to certain conditions specified thereunder. It appears that SID wrote a letter dated 29-9-1984 to the assessee (copy at page 36) to the effect that it was a social service organisation and engaged in Comprehensive Rural Development in 27 villages of Ramnagar and Kalahari Anchals, P.S. Onda, Dist. Bankura, West Bengal and registered under Section 35CCA of I.T.Act. It was mentioned in that letter that SID had so far invested over Rs. 60 lakhs for the uplift of the weaker section of the society in the project area and also created an asset of over Rs. 50 lakhs in buildings, machineries and other agro-custom equipments. Lastly it was said that SID was short of funds and was requesting the assessee to donate some funds for that good cause. Thereafter the assessee sent 4 (four) account payee demand drafts to SID. They were all dated 16-10-1984 and were for amounts of Rs. 3 lakhs, Rs. 2 lakhs, Rs. 3 lakhs and Rs. 2 lakhs, the first two being on the State Bank of India and the next two on the Dank of .Rajasthan Ltd. After that SID wrote a letter to assessee on 18-10-1984 (copy at page 37) certifying that its programme of rural development had been approved by the Prescribed Authority before March 1, 1983 and that the work on the project was started before March 1, 1983. SID also enclosed a copy of the letter dated 28-3-1984 issued by the Income-tax Department, West Bengal authorising SID to issue the Certificate. Copy of that certificate appears at page 38 of the assessee’s Paper Book-I. SID also confirmed that the donation received from the assessee was within its budget. By means of another letter of the same date, SID acknowledged the donations of Rs. 10 lakhs already received. Thereafter the assessee sent to SID two more account payee demand drafts by registered post (copies at Pages 44 and 45) on 19-10-1984 on the Punjab National Bank for Rs. 3 lakhs and Rs. 2 lakhs respectively. SID acknowledged them by means of letter dated 22-10-1984 (copy at page 43). Therefore, looking to the requirements of Section 35CCA the assessee had done what it had to in order to get deduction. The question, therefore, arises whether the subsequent withdrawal by the Competent Authority of the approval retrospectively with effect from 13-12-1982 could have the effect of disentitling the assessee to claim the deduction.
20. The approval by the Prescribed Authority (State Level Committee) contemplated under Section 35CCA is a statutory approval. Such statutory approvals are a part of the enactment. No doubt, the power to issue a statutory approval or notification includes the power to revoke or rescind it. This power is specifically recognised by Section 21 of the General Clauses Act, 1878. The Authority does not become denuded when once that power has been exercised. It is also a settled proposition that the power can be exercised from time to time. However, in the absence of express words or appropriate language from which retrospectivity may be inferred, a notification takes effect from the date it is issued and not from any prior date. The principle is also well settled that a statute should not be construed so as to create new disabilities or obligations or impose new duties in respect of transactions which were complete at the time the amendment/cancellation/withdrawal came into force. A notification cannot be rescinded retrospectively though a curative notification can have retrospective effect and the error is corrected from the very beginning. Also any amendment to a statute affecting the legal rights of an individual must be presumed to be prospective unless it is made expressly or impliedly retrospective. Retrospective operation is not to be given to a statute so as to impair an existing right or obligation otherwise than as to matters of procedure. A perusal of Section 35CCA shows that no power is conferred therein on the Prescribed Authority to issue or cancel a Notification retrospectively. Therefore, the first point which requires to be noticed is that since the Prescribed Authority sought to withdraw its approval only on 3-3-87 (copy at page 2 of assessee’s paper book-Ill). It could not be given retrospective effect from 13-12-1982 but could only operate prospectively;’. e. from 3-3-1987 onwards if there was no other impediment to challenge its validity even in regard to the prospective withdrawal of the approval.
In the case of Seksaria Biswan Sugar Factory Ltd. (supra), Bombay High Court dealing with a claim of deduction under Section 35(1)(ii) in a similar situation held that the notification issued by the Prescribed Authority withdrawing approval with retrospective effect was not valid. To the same effect was the decision of Gauhati Bench in Jalannagar Tea Estate (P.) L td. ‘s case (supra) while dealing with approval under Section 35CCA itself. Similar was the decision of ‘E’ Bench Calcutta for A.Y. 1985-86 in the case of Bankam Investment L td. (supra) (copy at pages 98 to 100). The cases reported in STC and relied upon on behalf of the assessee relate to retrospective cancellation of registration of dealers against the State Finance Acts. Having regard to the above position and since the accounting period relevant to the assessment year 1985-86 ended on 24-10-1984, it would follow that the date of the withdrawal of the approval being 3-3-1987, it could not affect the claim made by the assessee for the deduction under Section 35CCA. In fact the period for which approval had been earlier given by the Prescribed Authority on 17-12-1982 being from 13-12-1982 to 12-12-1985, the said period had already expired when the withdrawal notification or order was purported to be issued by the Prescribed Authority on 3-3-1987. Another cardinal principle which is settled is that an amending notification cannot infuse life into the earlier notification which has already expired by efflux. By the same analogy it would follow that a cancelling or withdrawing notification cannot cancel a notification which has already run out or expired by efflux.
21. The assessee’s right to claim deduction was derived from the approval of the programme of rural development of SID and in that sense if the approval of that programme was withdrawn, the assessee could not claim deduction. Here one point which also crops up on the basis of the papers on the records is whether SID had challenged the retrospective withdrawal by the Prescribed Authority of the approval granted to it earlier. The Department had also taken the stand which was mentioned in the rejoinder to the writ petition filed by the assessee before the Hon’ble Rajasthan High Court that other donors had surrendered the amounts and paid taxes. However, in our considered view these factors would not come in the way of the assessee so far as the claim of deduction for the assessment year in question is concerned. The assessee was entitled to show that its claim could not be defeated by the retrospective withdrawal of the earlier approval even if other donors had kept quiet or acquiesced in and even if SID had not challenged the action of the Prescribed Authority. Here one more point which requires to be disgressed is that on behalf of the assessee it had been argued that it had not been afforded any opportunity before the approval was withdrawn. So far as this aspect is concerned, we would only say that the assessee was not directly in the picture as regards approval and that this point could be raised only at the instance of SID. So far as the ITO is concerned, he no doubt, did give opportunity to the assessee to show cause why deduction be not denied as claimed.
22. The assessee had invoked the doctrine of promissory estoppel in its favour. This principle has been evolved by equity to avoid injustice. The true principle of promissory estoppel is that where one party has, by words or conduct made to the other a clear and unequivocal promise which is intended to create legal relations or effect a legal relationship to arise in future, knowing or intending that it would be acted upon by the other party to whom the promise is made and it is in fact acted upon by the other party, the promise would be binding on the party making it and he would not be entitled to go back upon it if it would be inequitable to allow him to do so, having regard to the dealings which have taken place between the parties. This principle was exhaustively analysed by the Supreme Court in the case of Motilal Padampat Sugar Mills Co. Ltd. (supra) and reference was made therein to the earlier cases also. This doctrine could be invoked on facts by the assessee successfully not only against SID who prompted the assessee to make donations but also against the Prescribed Authority which granted the approval to SID and which formed the very basis for claiming deduction under Section 35CCA. By now it is well settled that this doctrine can be invoked against the Government as well. We do not think that on facts the Department has successfully made out a case that the public interest in the Government acting otherwise than in accordance with the promise was so overwhelming that it would be inequitable to hold the Government bound by the promise/earlier approval. The fact that it was not possible to restore the assessee to the status quo ante is also relevant here because with the withdrawal of approval with retrospective effect the assessee would suffer loss doubly i.e. it could not get back the monies paid by it from SID and the assessee would have to pay tax on the amount of Rs. 15 lakhs instead of being allowed deduction therefor under Section 35CCA. The assessee had made the contributions in October 1984 which were enjoyed by SID. In the case of J.K. Industries Ltd. (supra) the jurisdictional High Court of Rajasthan had held that the principle of promissory estoppel was applicable and that the Government could not unilaterally revoke the benefit which had been granted by Excise Notification No. 159/85-CE. Again in the case of Gujarat State Finance Corporation (supra), the Supreme Court held that the doctrine of promissory estoppel could be taken advantage of by M/s Lotus Hotel P. Ltd. which, acting upon the undertaking given by Gujarat State Financial Corporation to advance loans, had proceeded to undertake and execute the project of setting up a Four Star Hotel. We are, therefore, of the view that the Income-tax Authorities were not justified in repelling the assessee’s claim inter alia on the ground that the doctrine of promissory estoppel could not be invoked on its behalf.
23. No doubt, the original approval granted by the Prescribed Authority (State Level Committee) on 17-12-1982 was a conditional one. But during the currency of the said approval it does not appear that any breach of those conditions were noticed on the part of the SID or its explanations taken in regard thereto. Actions appear to have been triggered off after the search dated 18-11-1986 which took place at the premises of SID whereafter statement of Shri K.K. Sukhani was recorded under Section 132(4). It is not known if the Prescribed Authority granted approval to the SID for further period after 12-12-1985. There is no evidence on the record as to what was done if SID did not submit its accounts which were due by 30-6-1983, 30-6-1984 and 30-6-1985. It also does not appear if in terms of the approval granted on 17-12-1982 any representative of the Prescribed Authority made any inspection where the approved programmes were being carried out. Even the statement of Shri Sukhani is not that any monies paid by the assessee were paid back to it. The assessee did not have the right or opportunity to cross examine Shri Sukhani. There is no evidence on the record of any abuse of the approval on the part of said qua the assessee for the period under consideration or in fact for any period. The doubt raised by the Assessing Officer as to why the assessee did not give donation to Hari Gram in Vikas Trust settled by Shri Haricharan Lal Agarwal, the father of Shri Kedarnath Agarwal and grandfather of Shri Narendra Kumar Agarwal, is really besides the point. It was the liberty of the assessee. The question to be seen was whether the donations made to SID qualified for deduction under Section 35CCA. SID had withdrawn Rs. 14.50 lakhs on 19-10-1984 and Rs. 4.65 lakhs on 30-10-1984. As already observed earlier, it was not for the assessee to enquire or ensure as to how SID utilised the fund. Having regard to the totality of all the facts and circumstances and on the basis of the above discussion on the points involved, we are of the clear view that the deduction under Section 35CCA as claimed by the assessee in respect of the contributions of Rs. 15 lakhs could not be denied for the assessment year in question as the assessee had satisfied the requisites of Section 35CCA and the approval of SID subsisted during the relevant period.
24. to 32. [These paras are not reproduced here as they involve minor issues.]