Allahabad H.C : Under Secretary of the Government of India withdrawing the approval of the petitioner for the purpose of ss. 35(1)(ii

High Court Of Allahabad

K. M. Scientific Research Centre vs. Lakshman Prasad & Others.

Sections 10(21), 35(1)(ii), Art. 226

Asst. Year 1981-82, 1982-83, 1983-84

Paritosh K. Mukherjee & M. C. Agarwal, JJ.

Civil Misc. Write Petition No. 690 of 1980

13 the September, 1996

Counsel Appeared

Vikram Gulati, S.P. Gupta & Shakeel Ahmad, for the Petitioner : M. Halim & Bharat Ji Agarwal, for the Respondents

M.C. AGARWAL, J. :

By this petition, the petitioner challenges (i) a Notification No. 6551 F. No. 203/23/957, dt. 2nd Jan., 1986, issued by the Under Secretary of the Government of India withdrawing the approval of the petitioner for the purpose of ss. 35(1)(ii) and 10(21) of the IT Act, 1961 (hereinafter referred to as “the Act”), with retrospective effect from 17th Jan., 1980 : (ii) notices issued by the ITO, Faizabad, respondent No. 4, under ss. 148 and 139(2) of the Act; (iii) order dt. 21st July, 1986, passed by the CIT under s. 263 of the Act setting aside the petitioner’s assessment for the asst. yrs. 1981-82 and 1982-83 and directing the AO to make fresh assessments after making proper enquiries, and (iv) notice issued by the ITO II(3), Kanpur, respondent No. 5, asking for certain information in connection with the assessment for the asst. yr. 1983-84. Writ of prohibition also sought to restrain the respondents from taking any further proceedings in pursuance of the various notices mentioned above.

2. We have heard Sri S.P. Gupta, learned senior advocate, assisted by Sri Shakeel Ahmad for the petitioner, and Sri Bharat Ji Agarwal, learned senior standing counsel, for the respondents. The petitioner’s case is that it is a society registered under the Societies Registration Act, and its object is to undertake scientific research in connection with sugarcane varieties, manuring, irrigation, soil testing and crop diseases, in pest control, etc. It has a research centre situate in village Masondha, Motinagar, in the District of Faizabad while its head office is situate at Moti Bhawan, Collectorganj, Kanpur. The petitioner applied to the prescribed authority, namely, Indian Council of Agriculture Research, for recognition for the purpose of s. 35(1)(ii) of the Act and the prescribed authority after due care and scrutiny gave its approval, vide Notification No. 2739 (F. No. 203/197-78 ITA-II) [see (1979) ITR (St) 32], dt. 18th March, 1979, for a period of one year form 17th Jan., 1979, to 16th Jan., 1980. Further approval for the period 17th Jan., 1980, to 16th Jan., 1983, was granted, vide Notification No. 4185 (F. No. 203/134/79-ITA-II) [see (1982) 133 ITR (St) 18], dt. 20 Aug., 1981, and again, vide Notification No. 5431 (F. No. 203/170/82-ITA-II), dt. 22nd Oct., 1983 [see (1984) 145 ITR (St) 19]. Approval was accorded for the period 17th Jan., 1983, to 30th June, 1984. The last approval was subject to the following conditions [see (1984) 145 ITR (St) 19] : “(i) That the K.M. Scientific Research Centre, Faizabad, will maintain a separate account of the sums received by it for scientific research. (ii) That the said association will furnish annual returns of its scientific research activities to the prescribed authority for every financial year in such forms as may be laid down and intimated to them for this purpose by 30th April, each year. (iii) That the said association will submit to the prescribed authority by 30th June, each year, a copy of their audited annual accounts showing their total income and expenditure and balance- sheet showing its assets and liabilities with a copy of each of these documents to the concerned CIT.”

3. It is claimed that with every application for approval the petitioner furnished all the particulars and details required therein and the petitioner was granted approval only after satisfying all its queries and conditions. It is alleged that although in terms of the first two approvals it was not obligatory on the part of the petitioner to submit copies of its annual accounts, even then the petitioner submitted such accounts after the same were completed. By letter dt. 7th June, 1985, respondent No. 1, namely, Principal Scientific Officer, Government of India, Ministry of Science and Technology, Department of Scientific and Industrial Research, informed the petitioner that it was proposed to withdraw the approval retrospectively w.e.f. 17th Jan., 1980, copy of the said letter has been annexed as Annexure “6” to the writ petition and it is stated that it gave no reason for the withdrawal. It is claimed that the petitioner was surprised and shocked to receive the said communication because it has been carrying on very wide and extensive research work and has been rendering yeoman services to the sugarcane farmers. By letter dt. 7th Sept., 1985, the petitioner submitted the audited annual accounts of the research centre for the year ending 30th Sept., 1982, along with a copy of the annual report for 1983-84 and also a note on the work relating to research and demonstration conducted under the auspices of the research centre. The petitioner in its meeting with respondent No. 1 strongly pleaded for continuation of the approval and exemption under s. 35(1)(ii) and submitted that there was no case whatsoever for the proposed retrospective withdrawal which was granted only after full satisfaction regarding the various research activities being carried on by the petitioner. The petitioner was, however, informed by the Under Secretary to the Government of India by notification dt. 2nd Jan., 1986, that the notifications dt. 20th Aug., 1981, and 22nd Oct., 1983, were withdrawn retrospectively w.e.f. 7th June, 1980. The petitioner through a letter dt. 24th Jan., 1986, addressed to the third respondent, namely, the Under Secretary to the Government of India, submitted full facts about the research centre which had not been taken into account by the prescribed authority while withdrawing the approval and requested for a reconsideration of the matter. With the said letter, the audited balance-sheet for the year 1981-82 was also submitted and the petitioner undertook to file shortly thereafter the annual accounts for the year 1982-83 after the same were compiled and audited. The first respondent, vide his letter dt. 7th Feb., 1986, informed the petitioner that the comments of the Department have already been sent to the Ministry of Finance and the petitioner may contact the said Ministry of further action. Respondent No. 3 in his turn asked the petitioner to contact the prescribed authority and it was alleged that the petitioner’s application for reconsideration was pending. As a consequence of the withdrawal of the approval, the ITO, Faizabad, respondent No. 4, has issued four notices dt. 3rd Feb., under s. 148 of the Act for the asst. yrs. 1981-82 to 1984-85 calling upon the petitioner to submit its return of income for those assessment years. The said officer also issued a notice under s. 139(2) of the Act for the asst. yr. 1985-86. It is claimed that the petitioner is being assessed by the ITO II(3), Kanpur, and the said notices are illegal and the reply to this effect has been sent. The CIT, Kanpur, respondent No. 6, also issued show-cause notice under s. 263 for the asst. yrs. 1981-82 and 1982-83 proposing to set aside the assessment in view of the retrospective withdrawal of approval under s. 35(1)(ii) and in spite of objections by the petitioner he has ultimately passed orders (copies Annexures 21 and 22) quashing the assessments and directing the AO to make fresh assessments. The ITO II(3), Kanpur, also issued a notice dt. 25th July, 1986, requiring the petitioner to furnish details of all names and addresses of the parties to whom the petitioner had made donations totalling to Rs. 43,00,000 and also called upon the petitioner to explain why excess of income over expenditure to the extent of Rs. 19,97,779 be not brought to tax. The petitioner contends that all these proceedings are without jurisdiction and premature as the prescribed authority had no power or jurisdiction to give the notification retrospective operation. It is claimed that the notices issued by the ITO, Faizabad, are without jurisdiction as the petitioner’s AO is ITO II(3), Kanpur, who has already made assessments for some hears and that the notification withdrawing the approval with retrospective effect is ultra vires and all his actions in pursuance thereof are illegal and the notice for the asst. yr. 1983-84 is also bad in law because the assessment proceedings for that year were pending before the ITO II(3), Kanpur. It is claimed that the assessment orders were not erroneous and prejudicial to the interests of the Revenue when they were passed because at the time of making of the assessments the approval was in force and hence actions taken under s. 263 are illegal. It is also claimed that the assessment orders that have been cancelled by the CIT under s. 263 were no assessment orders in the eyes of law as there was neither income nor loss determined and, therefore, there was nothing for the CIT to cancel. It is claimed that the petitioner has no effective, adequate remedy against the aforesaid actions of the authorities concerned.

4. Respondents No. 1, 2, 3 and 7 filed a separate counter-affidavit while another counter-affidavit has been filed on behalf of respondent Nos. 5 and 6. An affidavit sworn by Sri Ramesh Chandra Gupta, Inspector of Income-tax, Faizabad, has been filed on behalf of respondent No. 4. On behalf of the prescribed authority and its allies, it has been stated that up to 30th June, 1982, the Indian council of Agricultural Research was the prescribed authority for the purposes of s. 35 (1)(ii) in the filed of agricultural research. Thereafter, the Department of Science and Technology was given the function of the prescribed authority and at present Ministry of Science and Technology (Department of Scientific and Industrial Research) is acting as the prescribed authority. It is claimed that in accordance with the procedure prescribed by the Ministry and interdepartmental research review group has been set up to review that annual returns of these institutions. This group consists of representatives of the Indian council of Agricultural Research, CSIR, ICMR, the Ministry of Science and Technology (Department of Scientific and Industrial Research), and the CBDT. The annual returns are placed before this group for review and to make recommendations on them for consideration of the prescribed authority. The petitioner was one of the associations which was granted approval for the periods from 17th Jan., 1980, to 16th Jan., 1983, and 17th Jan., 1983, to 30th June, 1984. On receipt of several complaints about the misutilisation of funds, and absence of any scientific research ant case of the petitioner was examined by the prescribed authority and it was noted that the Centre had not been submitting the prescribed annual returns. By letter dt. 13th Aug., 1984, the petitioner was asked to submit annual returns for the years 1982-83 and 1983-84. The petitioner did not respond in spite of reminder dt. 14th Sept., 1984. Then on the recommendation of the research review group a reminder was sent by registered post, a copy of which is Annexure “A”. Again there was no response and a further letter dt. 7th Dec., 1984, a copy of which is Annexure “B” was sent. The petitioner then sent a letter dt. 17th Dec., 1984, stating that the accounts were being prepared and will be submitted within three to four weeks but still the requisite information was not furnished and a further reminder dt. 25th Feb., 1985, was issued a copy of which is Annexure “C” to the counter- affidavit. Ultimately, a show-cause notice dt. 7th June, 1985, was issued to the petitioner by registered post to show cause why the approval be not withdrawn. The letter contained the reasons for the approval (sic) and the petitioner was asked to send a reply by 8th July, 1985. No reply was received yet to afford another opportunity to the petitioner, a hearing was fixed at 10-11 a.m. on 9th Aug., 1985. The petitioner sent a reply dt. 1st July, 1985, along with the annual progress report for the year 1982-83 and letter dt. 29th July, 1985, was received requesting for postponement of the hearing fixed for 9th Aug., 1985. The hearing ultimately took place on 9th Sept., 1985, in which the petitioner was represented by Sarvasri L.K. Jhunjhunwala and M.P. Mehrotra. The petitioner’s representatives were asked to explain the following expenses incurred by the petitioner as to how they were relevant for conducting agricultural research : Rs. (in lakhs)

It is alleged that the aforesaid representatives of the petitioner could not give any details of the institution to which Rs. 43.24 lakhs were given and the purpose thereof. They were asked to supply the details under taken by the petitioner in agricultural science. They were also asked to furnish details of the donations collected at Bombay. The said representatives waited some time, hence 24th Sept., 1985, was fixed for further hearing. On the said date, no one appeared on behalf of the petitioner nor any information was furnished and, accordingly, the prescribed authority passed an order recommending the withdrawal of approval. It was in pursuance of the said recommendation that the Ministry of Finance issued the impugned notification.

It is claimed that the power to grant approval contained within its scope of power to revoke the same and it is for the purpose that s. 35(3) permits the Board and the prescribed authority to examine whether the activities constituted a scientific research and whether the assets were used for scientific research. According to the reply, the prescribed authorities had, on consideration of the facts of the case, taken a view that was possible and no interference by the High Court was warranted. It is claimed that the petitioner has not come to the Court with clean hands and has not disclosed the full facts and in fact it has not taken any scientific research and has misused the funds. It is claimed that the conditions set forth in the approval dt. 22nd Oct., 1983, were incorporated on the recommendation of the Public Accounts Committee and were intended to streamline the procedure and for monitoring the research work and utilisation of funds collected for scientific research. It is claimed that before the ultimate show-cause notice, various other letters, as already mentioned were issued to the petitioner to which it has made no reference in the writ petition. The respondents denied that the petitioner was carrying on scientific research. It is claimed that the representation made by the petitioner against the retrospective withdrawal of approval has already been rejected and no such representation is pending.

In counter-affidavit filed on behalf of respondents No. 5 and 6, it has been contended that for the asst. yr. 1980-81 onwards the petitioner has been assessed by the ITO, Circle II(3), Kanpur. It is claimed that the CIT duly considered the petitioner’s reply dt. 14th July, 1986, while passing the order dt. 31st July, 1986, under s. 263 of the Act. It is claimed that the jurisdiction to assess the petitioner vests in the ITO, Circle II(3), Kanpur. It is claimed that the order under s. 263 is appealable to the Tribunal and thus, the petitioner has an alternative remedy.

In its counter-affidavit respondent No. 4 has contended that he was directed by the CIT, Allahabad, to issue notices under ss. 148 and 139(2) of the Act and, accordingly, the impugned notices were issued by him and that since the petitioner had submitted that it was being assessee by the ITO, Circle II(3), Kanpur, copies of the notices were sent to the said officer as well. It is further claimed that it is now for the ITO, Circle II(3), Kanpur, to decided whether the proceedings for reassessment are to be initiated or not.

At the hearing, Sri Bharat Ji Agarwal, learned counsel for the respondents, raised a preliminary issue that the High Court at Allahabad had no jurisdiction to entertain the present writ petition because, according to the petitioner, it had its establishment at Motinagar in the District of Faizabad and the notices were issued by the ITO, Faizabad. Reliance was placed on Nasiruddin vs. State Transport Tribunal AIR 1976 SC 331, and U. P. Rashtriya Chini Mill Adhikari Parishad vs. State of U.P. AIR 1995 SC 2148, in both of which, it has been held that in respect of causes of action arising in the territories of 12 districts attached to the Lucknow Bench of the Allahabad High Court, the said Lucknow Bench has the jurisdiction to entertain the writ petition and not the Allahabad Bench. District Faizabad, in the territories of which the petitioner’s research centre is situate, is attached to the Lucknow Bench and it is, therefore, claimed that the writ petition should have been filed before the Lucknow Bench of this Court and the Allahabad Bench has no jurisdiction. This contention in our view is not tenable. This writ petition was filed more than a decade ago and no such plea was realised at any time earlier. Further, admittedly, the assessee’s registered office is situate in Kanpur within the jurisdiction of the Allahabad Bench. The assessments under the Act are being made at Kanpur. It is the CIT, Kanpur, who took action under s. 263 and it is the ITO, Circle II(3), Kanpur, who is proceeding further in the matter, as a consequence of the withdrawal of the approval. As the counter-affidavit filed on behalf of the ITO, Faizabad, shows it has not been claimed that he was the officer having jurisdiction to take action in the matter. The major part of the cause of action, therefore, has arisen within the territories over which the Allahabad Bench of this Court exercises jurisdiction. Therefore, the writ petition was properly filed at Allahabad and it has rightly been entertained here. This plea is, therefore, rejected.

10. Sec. 10 of the Act specifies incomes that are to be excluded form the total income for the purposes of levy of tax. Clause (21) thereof provides for the exclusion of the income of a scientific research association. This clause as originally enacted stood as under : “(21) any income of a scientific research association for the time being approved for the purpose of cl. (ii) of sub-s. (1) of s. 35 which is applied solely to the purposes of that association.” Then w.e.f. 1st April, 1984, the following proviso was added by the Finance Act, 1983 : “Provided that nothing contained in this clause shall apply if for any period during the previous year— (i) any sums by way of contributions received by the association are invested or deposited after the 28th Feb., 1983, otherwise than in any one or more of the forms or modes specified in sub-s. (5) of s. 11; or (ii) any funds of the association invested or deposited before the 1st day of March, 1983, otherwise than in any one or more of the forms or modes specified in sub-s. (5) of s. 11 continue to remain so invested or deposited after the 30th Nov., 1983, or (iii) any shares in a company (not being a Government company as defined in s. 616 of the Companies Act, 1956 (1 of 1956), or a corporation established by or under a Central, State or Provincial Act) are held by the association after the 30th Nov., 1983,”

11. Thus, s. 10(21) granted exemption to the income of a scientific research association subject to the conditions prescribed therein. Since the income of such associations mostly comes in the form of contributions and donations corresponding exemption was conferred on the donors/ contributors by s. 35(1)(ii) by allowing the whole of such amount as an expenditure to be deducted in computing the total income. The said clause at the relevant time stood as under : “(ii) any sum paid to a scientific research association which has as its object the undertaking of scientific research or to 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.”

12. The Direct Tax Laws (Amendment) Act, 1989, amended the aforesaid proviso w.e.f. 1st April, 1989, by adding the words “by notification in the Official Gazette” after the words “prescribed authority.” Thus, prior to 1st April,

1989, the approval was not required to be notified in the Official Gazette. The retrospective withdrawal of the approval would affect the persons who made contributions to the petitioner as they would become disentitled to the deduction that was allowed or was allowable under s. 35(1)(ii). At the same time it would disentitle the research association also from claiming exemption under s. 10(21) of the Act.

13. Learned counsel for the petitioner contended that the approval confers certain benefits on the research association as well as the contributor and, therefore, a retrospective withdrawal cannot be made. It was also contended that on the basis of the approval the petitioner conducted its affairs and was engaged in scientific research and, therefore, the Revenue was estoppel by the principles of promissory estoppel from revoking the approval with retrospective effect. It was pointed out that the first approval for the period 17th Jan., 1979, to 16th Jan., 1980, granted, vide notification dt. 1st March, 1979, copy of which has been annexed to the writ petition as Annexure-2 was not withdrawn which shows that the petitioner was in fact engaged in scientific research and that the notification is a non-speaking order which does not state the reason for the withdrawal of approval. Learn standing counsel for the respondents, on the other hand, contended that there were complaints against the petitioner that it was misutilising its funds, instances of which have been mentioned in the counter affidavit and was not doing any research and that in spite of repeated opportunities it did not submit its accounts and annual returns of its scientific research activities as required by the last approval contained in the notification dt. 22nd Oct., 1983, copy of which has been annexed to the write petition as Annexure-4 and that for this reason the prescribed authority was authorised to cancel the approval with retrospective effect. It was contended that the fact indicates that the petitioner obtained the approval by misrepresentation and, therefore, the action of the authorities was justified and that the Court should not interfere in its extraordinary jurisdiction.

14. On behalf of the petitioner reliance was placed on Seksaria Biswan Sugar Factory Ltd. vs. IAC (1990) 86 CTR (Bom) 35 : (1990) 184 ITR 123 (Bom) in which the same notification, which is impugned in the present writ petition, came up for consideration before a learned Single Judge of the Bombay High Court. The said sugar factory had made a donation of Rs. 12,00,000 to the present petitioner during the period relevant to the asst. yr. 1982-83 and was granted a deduction under s. 35(1)(ii). On the withdrawal of the approval by the impugned notification dt. 2nd Jan., 1986, the AO initiated action under s. 147 of the Act and issued a notice under s. 148. The learned single Judge quashed the notice under s. 148. Placing reliance on a judgment of the Supreme Court in ITO vs. M.C. Ponnoose (1970) 75 ITR 174 in which it was held that the State Government could not issue a notification to invest the Tahsildar with the powers of a TRO w.e.f. a date prior to the date of the notification, and that in exercise of delegated legislation the State Government cannot legislate by issue of a notification with retrospective effect because the statute did not confer the power of retrospective legislation on the State Government, it was held that the impugned notification dt. 2nd Jan., 1986, was invalid. That was a case in which a statutory notification was under challenge and in our view that analogy could not be applied to a public notice which has been given the title of a notification. As is evident the so-called notifications under which approval was granted to the petitioner on three occasions are merely public notices intimating the petitioner and other members of the public that the petitioner has been approved as a scientific research association in terms of s. 35(1)(ii). Similarly, the impugned notification merely contains an intimation to the public at large that the approval that was notified through notifications dt. 20th Aug., 1981, and 22nd Oct., 1983, has been withdrawn retrospectively w.e.f. 17th Jan., 1980. The statute, namely, the IT Act, 1961, did not require the approval or the revocation thereof to be notified in the Official Gazette. In any case even if it is required to be notified in the Official Gazette the notification cannot amount to delegated legislation. The grant of approval under s. 35(1)(ii) or its revocation are purely administrative acts and are of the same nature as many notifications we find published in the Official Gazette regarding appointment, transfer and grant of leave, etc., to gazetted officers. Such notifications do not make or amend any law. In our view, therefore, the ratio in the case of M.C. Ponnoose (supra),could not be applied to the present notification and we are, therefore, with respect unable to hold that the impugned notification was, for that reason, invalid as held by the Bombay High Court.

15. However, it is necessary to examine whether under the provisions of the Act the prescribed authority has the power to revoke the approval once granted by it under s. 35(1)(ii) of the Act. The language of cl. (ii) of s. 35(1), as reproduced above would show that approval can be granted to a scientific research association which has as its object the undertaking of scientific research. This clause does not require that at the relevant time, i.e., for the period for which the approval is sought, the scientific research association must be actually engaged in scientific research. In other words, the Act permits approval of an association which is in the process of establishing infrastructure for scientific research a few years hence. This is clear form the language of cl. (21) of s. 10 as well which requires application of the income solely to the purpose of that association. For example, a society is registered for the purposes of scientific research with an initial capital of Rs. 10,000 only. The nature of the scientific research contemplated by it involves investment of a few crores of rupees in acquiring lands and buildings, scientific laboratory equipment, etc., and it starts collecting funds for that purpose. In the first year, it collects Rs. 10,00,000 and spends the whole of it for the purchase of land on which the building of the association would be raised. In the next year, it collects another Rs. 25,00,000 and spends the same in the construction of a building for the purposes of the research association and it goes on spending its annual income for five years towards the establishment of the infrastructure and actually starts conducting research in the sixth year only. The provisions of s. 35(1)(ii) as well as s. 10(21) clearly point out that even during the first five years an association can be approved even though no actual research work has started.

16. Initially, there was no provision in the Act specifically authorising the prescribed authority to make necessary enquiries in the matter before grating approval to a scientific research. Such power has been conferred by the second proviso to s. 35(1) which has been enacted w.e.f. 1st April, 1989, and stands as under : “Provided further that the prescribed authority may, before granting approval under cl. (ii) or cl. (iii), call for such documents (including audited annual accounts) or information from the scientific research association, university, college or other institution as it thinks necessary in order to satisfy it self about the genuineness of the activities of the scientific research association, university, college or other institution and that authority may also make such inquiries as it may deem necessary in this behalf.”

17. Although no such specific provision existed earlier, we are of the view that the inquiries authorised to be made under the aforesaid proviso could be made even in the absence of such specific provision because such inquiries were natural and were necessary for taking a decision as to whether approval should be granted to a particular applicant or not and it would be inconceivable that approval could be granted to any applicant without appropriate inquiry in the matter. Regarding the power of revoking the approval either with prospective or with retrospective effect there never existed any provision in the Act authorising the prescribed authority to do so. The third proviso the s. 35(1) introduced from 1st April, 1989, provides that a notification of approval under s. 35(1)(ii) shall not have effect for a period of more than three years meaning thereby that at one time approval can be granted for a maximum period of three years. Even while enacting the aforesaid second and third provisos the legislature did not think it necessary to confer the power of rectification or revocation on the prescribed authority. The Act, therefore, seems to have the legislative policy that the prescribed authority which has indicated in the counter-affidavit is constituted by very senior scientific experts of the Government, would be made after due deliberation and would be final (sic). Wherever the legislature has thought it necessary it has made such provision and conferred jurisdiction on the IT authorities to cancel or rectify their orders or to make reassessment. A specific instance is s. 186 of the Act which confers jurisdiction on the AO to cancel registration granted to a partnership firm if he is of the opinion that during the previous year no genuine firm is in existence as registered. He can cancel the registration of eight preceding years. Under s. 154, he can rectify his orders and under s. 254(2) the Tribunal can also rectify its orders. Under s. 147, the AO can make a reassessment in certain situations. The legislature could have, therefore, conferred some such power on the prescribed authority to revoke the approval, but no such power has been conferred and in our view this has purposely been so done. The reason is not far to seek. As far as the persons who make contributions to a scientific research association approved by the prescribed authority acting on the basis of such approval are concerned, they would be taken unawares and would be seriously prejudiced for no fault of their own and for aiding scientific research which the Government wanted to augment and adopted a legislative policy for that purpose. As regards the association it self the exemption from income was not automatic on the grant of approval under s. 35(1)(ii). What was exempt was any income which is applied solely to the purpose of that association. Therefore, the legislature placed the duty on the AO to examine from year to year whether the association concerned is applying its income solely to the purpose of that association, viz., scientific research. An AO, therefore, is bound to make necessary inquiries as to whether the association is actually engaged in scientific research and to restrict the exemption only to that part of the income that is applied solely for the purposes of scientific research. At the relevant time there was no provision in the Act that allowed a scientific research association to accumulate its income. Such provisions, on the parity of charitable trust, have been enacted w.e.f. 1st April, 1989, with the result that it is now possible not to spend anything directly on scientific research in a particular year or years and to accumulate the income for the future and failure to spend the accumulated amount would attract the provisions of s. 11(3) of the Act and make it taxable in the year in which the income ceases to remain so accumulated. These provisions clearly indicate that the legislative policy was that the prescribed authority should restrict itself to seeing whether the association has as its object scientific research, whether it is a genuine scientific research association and when it applies for approval for subsequent periods also to see whether the association is actually engaged in scientific research. The job of seeing how the research association earned its income and how it spent the same was assigned to the AO.

It was contended on behalf of the respondents that the power to grant exemption includes within its scope the power to revoke the exemption with retrospective effect. We are of the view that the administrative authorities have no general or inherent powers like this. In Nava Smaj Ltd. vs. Registrar of Companies AIR 1966 Bom 218, the question was whether exemption granted under sub-s. (4) of s. 89 of the Companies Act, 1956, could be subsequently withdrawn. The Bombay High Court on a detailed consideration of the matter held that the power to grate exemption exhausts itself with the grant and it is not permissible to the Central Government to revoke the exemption subsequently. In State of Bihar vs. D.N. Ganguly (1958) 15 FJR 118 : AIR 1958 SC 1018, the question was whether the appropriate Government having referred an industrial dispute for adjudication under s. 10(1)(d) of the Industrial Disputes Act, the said Government can supersede a reference pending adjudication by revoking the reference. The Supreme Court held that the Act does not expressly confer any power on the appropriate Government to cancel or supersede a reference made under s. 10(1) of the Act nor can such power be claimed by implication on the strength of s. 21 of the General Clauses Act.

The revocation of the approval by the prescribed authority amounts to reviewing its earlier order by which it granted the approval and in Patel Narshi Thakershi vs. Pradyumansingji Arjunsinghji AIR 1970 SC 1273, the Supreme Court held that the power to review is not an inherent power. It must be conferred by law either specifically or by necessary implication. As discussed above, the IT Act has not made any provision that may indicate that the prescribed authority has the power to review its earlier order granting approval under s. 35(1)(ii). Therefore, having once granted the approval the prescribed authority becomes functus officio for that particular period and the impugned notification revoking the approval granted by the two earlier notifications is in our view illegal and unsustainable.

It is contended that the last approval that was granted by notification dt. 22nd Oct., 1983, was conditional upon the fulfilment of the three conditions mentioned above and that if those conditions are not complied with by the research association the approval can be laying down any such condition and, as discussed above, the AO has been given sufficient authority to look into the relevant aspect of the matter and deny exemption if no research is carried on or the income is spent for purposes other than scientific research. Even the subsequent amendment referred to above did not provide that any condition can be imposed. By a subsequent amendment the prescribed authority has been specifically given the power to make necessary inquires that are relevant for the purposes of grant of approval. Therefore, the conditions that are mentioned in the notification dt. 22nd Oct., 1983, would be relevant only for deciding the propriety of grant of approval for a subsequent period. If the research association does not damply with the aforesaid conditions it may be permissible to the prescribed authority not to grant approval for a subsequent period but it cannot use the default for revoking the approval already granted. The second proviso to s. 35(1) clearly indicates that it is “before” granting the approval that the prescribed authority must call for the accounts or information. Calling for any information after the approval is already granted does not sever any purpose.

It was also contended that the petitioner has misutilised its funds in making unauthorised investments unconnected with scientific research and has procured approval under s. 35(1)(ii) by misrepresentation and has not conducted any research. The High Court should not, therefore, grant any relief to the petitioner in exercise of its extraordinary jurisdiction under Art. 226 of the Constitution of India. We find that the respondents have merely issued a notification under the signatures of an under Secretary to the Government of India, Ministry of Finance, who is admittedly, not the prescribed authority. The actual order and conclusions of the prescribed authority do not seem to have been supplied to the petitioner nor have the respondents annexed to their counter affidavit and copy of the order of the prescribed authority revoking the approval. The counter-affidavit filed on behalf of respondent Nos. 1, 2, 3 & 7 which is sworn by Sri C.D. Khurana, Senior Scientific Officer, Ministry of Science and Technology (Department of Scientific and Industrial Research), New Delhi, states that the prescribed authority “passed an order recommending the withdrawal of approval”. In para 20 of the said counter affidavit it is stated that “the case was examined and the prescribed authority ordered sending an intimation to the Ministry of Finance for retrospective with drawl of the approval”. The Act confers the power of grant of approval on the prescribed authority and if the prescribed authority had the power to revoke the approval the order of revocation should also be passed by the

prescribed authority. A recommendation or an intimation cannot amount to an order of the prescribed authority and the respondents have thus failed to show that the impugned notification is based on any order of the prescribed authority which it purports to notify. The notification says that the approval has been withdrawn by the prescribed authority bun no such order is mentioned in the counter-affidavit nor a copy thereof has been annexed thereto. Without this, it is not possible for the respondents to contend that the petitioner has not conducted any research or that it procured the approval by fraud or misrepresentation. Therefore, the contention that the petitioner does not deserve the benefit of the discretion of this Court under Art. 226 of the Constitution of India is not tenable.

It was contended on behalf of the petitioner that before revoking the approval no proper opportunity of hearing was afforded to it . we have been taken through the averments made in the counter-affidavit as well as the copies of various intimations sent to the petitioner by the prescribed authority which are annexed to the petition, the counter- affidavit and the rejoinder-affidavit and we find that the prescribed authority gave sufficient indulgence to the petitioner in providing it an opportunity of hearing and the action of the respondents could not be challenged on this ground.

It was also contended on behalf of the petitioner that the revocation of approval with retrospective effect is hit by the principle of promissory estoppel and is, therefore, invalid. In our view, the said principle cannot be invoked in the present case because the authorities have acted in the exercise of statutory power by granting the approval in exercise of the authority conferred by the statute. No promise can be said to have been held out to the petitioner and if the revocation had been authorised by the statute no question of estoppel would arise. It is established law that there is no estoppel against a statute and patently in this case there was no promise. This contention, therefore, is not tenable.

In this writ petition, the petitioner has sought a writ of certiorari for quashing the notification dt. 2nd Jan., 1986, and in view of the above discussion the revocation of the approval is without jurisdiction and deserves to be quashed. The petitioner has also sought quashing of notices issued by the ITO, Faizabad. The same are patently without jurisdiction and deserve to be quashed.

The petitioner has sought quashing of the CIT’s orders under s. 263 of the Act by which he set aside the assessments of the petitioner for the asst. yrs. 1981-82 and 1982-83. The power of revision under s. 263 has been exercised for the solitary reason that the approval under s. 35(1)(ii) has been withdrawn. Since we are quashing the impugned notification dt. 2nd Jan., 1986, the orders under s. 263 have lost their base and must all. It may be mentioned that the CIT’s orders appeared to be perfunctory because he did not set up the ground that the AO failed in his statutory duty of making the necessary verification as required by s. 10(21) of the Act. Had he done so his orders could have been sustained even in the face of the quashing of notification dt. 2nd Jan., 1986.

Lastly, the petitioner seeks quashing of a notice dt. 25th July, 1986, issued by the AO for the asst. yr. 1983-84 calling for certain details. The AO had the power to do so under s. 142 of the Act for making the necessary verification for purposes of s. 10(21) of the Act. Learned counsel for the petitioner, Sri S.P. Gupta, fairly conceded that this notice is valid one and the AO had the jurisdiction to ask for the necessary details.

In the result, the writ petition is partly allowed. The impugned Notification No. 6551 (F. No. 203/23/86 ITA II), dt. 2nd Jan., 1986, copy of which is Annexure-“8” to the writ petition is hereby quashed. The notices issued by the ITO, Faizabad, under ss. 148 and 139(2) of the Act and copies whereof are annexures-“12” to “16” to the writ petition are also hereby quashed. The orders dt. 31st July, 1986, passed by the CIT under s. 263 of the Act for the asst. yrs. 1981-82 and 1982-83, copies of which are annexures-“21” and “22” to the writ petition, are also quashed. In other respects, the writ petition is dismissed, the parties shall bear their own costs.

[Citation : 229 ITR 23]

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