The Judgment of the Court was delivered by

Ajit K. Sengupta, J.:— In this reference under section 256(2) of the Income-tax Act, 1961, for the assessment year 1985–86, the following question of law has been referred to this court:

“Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the initiation of proceedings under section 263 of the Income-tax Act by the Commissioner of Income-tax was not valid and in that view setting aside the order of the Commissioner?”

2. Shortly stated, the facts are as under:

The assessee paid a donation of Rs. 40,000 during the relevant period to the Society for Integral Development which was granted approval under section 35CCA of the Income-tax Act, 1961, as per letter of approval dated December 17, 1982, for the period from December 13, 1982, to December 12, 1985. The assessment of the assessee for the year under consideration was completed under section 143(1) on June 26, 1987, on a total loss of Rs. 2,380 wherein the claim for deduction of Rs. 40,000 was allowed.

3. The Commissioner of Income-tax subsequently found that the approval under section 35CCA to the Society for Integral Development which was accorded by the State Level Committee was withdrawn on March 3, 1987, with retrospective effect from December 13, 1982. The Commissioner of Income-tax was of the opinion that the assessment dated June 26, 1987, in which the donation of Rs. 40,000 was allowed was erroneous and prejudicial to the interests of the Revenue. He, accordingly, passed an order under section 263 on February 15, 1988, setting aside the assessment order with direction to the Assessing Officer to pass a fresh order. The assessee came up in appeal before the Tribunal. It is recorded in the statement of case as follows:

“The Tribunal observed that the approval to the Society for Integral Development under section 35CCA of the Income-tax Act, 1961, was withdrawn on July 3, 1987, with retrospective effect from December 13, 1982. The Tribunal, therefore, held that on the date of assessment, i.e, June 26, 1987 (and not June 27, 1987, as mentioned by the Tribunal), the approval under section 35CCA of the Act was in force and as such the assessment cannot be treated as erroneous and prejudicial to the interests of the Revenue. The Tribunal thus concluded that the initiation of proceedings under section 263 was not proper,”

4. At the hearing before us, Mr. Bagchi, learned counsel for the assessee, has submitted that the approval to the Society for Integral Development under section 35CCA was withdrawn on July 3, 1987, with retrospective effect from December 13, 1982. He submits that the exemption once granted cannot be withdrawn with retrospective effect as it affects adversely the assessee. He has also submitted that the Revenue must be held to be bound by the doctrine of promissory estoppel inasmuch as upon the representation that the entire income donated to the approved institution is exempt from tax under section 35CCA, the assessee had in reliance paid such donation to the institution, and thus acted to its detriment. The Revenue cannot contend to the contrary. He has also submitted that the society cannot be penalised after the donation was paid to an approved institution. It is his contention that the assumption of jurisdiction by the Commissioner of Income-tax under section 263 is wholly illegal inasmuch as the Income-tax Officer acted on the basis of approval subsisting on the date of the assessment. The assessment was made on February 26, 1987, and the approval was withdrawn on July 3, 1987, as recorded by the Tribunal. He has also drawn our attention to section 295(4) of the Act which provides, inter alia, that no retrospective effect shall be given to any rule so as to prejudicially affect the interests of the assessee.

5. On the other hand, learned counsel for the Revenue has supported the order of the Tribunal. We have considered the rival contentions.

6. In this case, the assessment was made under section 143(1) on June 26, 1987, on a total loss of Rs. 2,380. The net profit of the assessee was Rs. 42,448 out of which a sum of Rs. 40,000 was paid as donation to the Society for Integral Development approved under section 35CCA.

7. The approval was granted on December 17, 1982, by the State Level Committee for Rural Development constituted under section 35CCA. The said approval was valid from December 13, 1982, to December 12, 1985. The Tribunal in its appellate order recorded that “the approval was granted on March 3, 1987, and it was withdrawn on July 3, 1987” which is contrary to the material on record. The minutes of the State Level Committee which is annexed to the statement of the case shows that the meeting was held by circulation in the month of March, 1987.

8. The State Level Committee found that the said society has violated the conditions as laid down in the letter of approval of December 17, 1982, in (i) not maintaining proper books of account; (ii) not utilising money raised on donations for approved programmes of rural development; and (iii) merely acting as an agency for supplying certificates under section 35CCA(2) of the Income-tax Act, 1961, on commission and returning the balance to the alleged donors within a day or two of the clearing of cheques received as donation. The Committee, therefore, resolved on March 3, 1987, that the approval accorded to the Society for Integral Development, vide letter dated December 17, 1982, be withdrawn retrospectively from December 13, 1982.

9. The assessment was made on June 26, 1987, after the approval had been withdrawn. It is surprising that the assessee having a net profit of Rs. 42,000 ventured to donate a sum of Rs. 40,000 to the said society resulting in the assessment in a negative figure. No one, particularly an investment company, would do so unless there are compelling reasons. The reasons are not far to seek. The State Level Committee found that the said society was merely acting as an agency for supplying certificates on commission and returning the balance to the alleged donors.

10. The assessment was made under section 143(1) on June 26, 1987, and as such on the date when the assessment was made there was no valid approval. We have already set out what has been incorporated in the statement of case. It has been stated that the approval was withdrawn on July 3, 1987. The Tribunal in the appellate order recorded as follows:

“The withdrawal of the approval is on July 3, 1987. The Commissioner of Income-tax invoked the provisions of section 263 of the Act and passed the order under section 263 on February 15, 1988. Therefore, the only question which has arisen for my consideration is how can the assessment order passed on July 27, 1987, be said to be erroneous and prejudicial when the approval of the donation was in force on that date granted under section 35CCA of the Act.”

11. But, in the order rejecting the reference application, the Tribunal recorded as follows:

“The Revenue's contention was that the withdrawal was in force and the Income-tax Officer should not have allowed the exemption. However, the Tribunal has held that it was not within the knowledge of the Income-tax Officer that the approval given under section 35CCA was withdrawn with retrospective effect from December 17, 1982, that is, from the date of approval on the date of making assessment, i.e, on June 27, 1987. Therefore, the Tribunal held that though the approval might have been withdrawn on March 3, 1987, with retrospective effect from December 17, 1982, the said order of withdrawal of approval was not within the knowledge of the Income-tax Officer on the date of making the assessment on June 27, 1987.”

12. In our view, the Tribunal has come to an erroneous finding ignoring the materials on record. On the date of assessment made under section 143(1) by accepting the return of the assessee, the approval had already been withdrawn. Whether or not on the date of completion of the assessment under section 143(1) on the basis of the documents furnished, the Income-tax Officer had knowledge of such withdrawal of approval is immaterial. The Commissioner of Income-tax, on examination of records, found that the approval to the society stood withdrawn before the assessment was made and, accordingly, the assessment made by the Income-tax Officer by allowing exemption of the donation to the said society was erroneous in so far as it is prejudicial to the interests of the Revenue. The assessee obtained benefit to which the assessee was not entitled on the date the assessment was made. Such erroneous assessment can be rectified by the Commissioner by exercising his power of revision. Even assuming that the approval was withdrawn after the assessment was made, even then an assessee who indulges in making fictitious donations for the purpose of obtaining an illegal benefit by way of tax evasion cannot claim that such exemption should not have been retrospectively withdrawn. The scheme for giving exemption under section 35CCA is meant for the benefit of the institution carrying out the rural development programmes and not facilitating evasion of tax by the donor.

13. Counsel for the assessee has also urged before us that the doctrine of promissory estoppel binds the public bodies as much as it does private parties. In support he also cited the decision of Motilal Padampat Sugar Mills Co. Ltd. v. State of Uttar Pradesh, [1979] 118 ITR 326, where the Supreme Court has held that promissory estoppel applies to taxation. But this contention is of no assistance to the assessee since the Supreme Court in the said case has at the same breath sounded a note of caution that the said doctrine in public affairs cannot be applied heedless of the circumstances. Where the doctrine exposes the overriding public interest to a jeopardy, the doctrine has to yield. The doctrine in its application to taxation matters must be weighed against its impact on public interest. In this connection, the following observations of the Supreme Court are worth quoting (at page 362):

“The doctrine of promissory estoppel is a significant judicial contribution in that direction. But it is necessary to point out that since the doctrine of promissory estoppel is an equitable doctrine, it must yield when the equity so requires. If it can be shown by the Government that having regard to the facts as they have subsequently transpired, it would be inequitable to hold the Government to the promise made by it, the court would not raise an equity in favour of the promisee and enforce the promise against the Government. The doctrine of promissory estoppel would be displaced in such a case because, on the facts, equity would not require that the Government should be held bound by the promise made by it. When the Government is able to show that in view of the facts which have transpired since the making of the promise, public interest would be prejudiced if the Government were required to carry out the promise, the court would have to balance the public interest in the Government carrying out a promise made to a citizen which has induced the citizen to act upon it and alter his position and the public interest likely to suffer if the promise were required to be carried out by the Government and determine which way the equity lies.”

14. Learned counsel also sought to impress on us that the Income-tax Act itself acknowledges the doctrine. For this purpose, he refers to Explanation 2 below section 80G which provides that a donor's rights to deduction under section 80G shall not be prejudiced in the event the donee charitable institution contracts any disqualification. We are not impressed with such argument inasmuch as there is no such provision in section 35CCA. We cannot read into the provision something which is not there. The Explanation below section 80G as referred to is in quintessential nature a substantive provision. But no such substantive right is conferred on a contributor to the society under section 35CCA. In the absence of such a protection carved out for the donor, it is not open to the assessee to plead for it. That would be grafting to the law a substantive provision. But the judiciary is content with only interpreting the provisions, not amputating or grafting any limb, more so when the effect would be substantive.

15. The submissions of counsel for the assessee would have been persuasive if the case of the assessee on the face of it had not looked so bizarre in that the assessee which is an investment company sacrifices almost the entirety of its income to the society. This behaviour is grotesque particularly in the light of the finding of the State Level Committee, that the donee society, in fact, operated not as a society for rural development but as a commission earning agent for securing to erring taxpayers mere certificates of payment by the device of clandestinely returning the donation to the assessee who is not a real donor but only pretends as a donor.

16. Counsel for the assessee has urged that the report of the State Level Committee does not specifically raise any allegation in regard to the instant assessee and that the assessee was a stranger to the proceedings whereby the State Level Committee came to its findings. But, to our mind, such arguments are pointless when the facts themselves are tell-tale evidence of the assessee-company being a party to and a beneficiary of the fraud which the purported society foisted on the Revenue.

17. As for Mr. Bagchi's submission that the provision of section 295(4) prohibits the State Level Committee from taking any decision with retrospective effect prejudicially affecting the donor-assessee, we have to say that, in fact, the State Level Committee did not function under any rule-making authority. It acted directly under the main legislation. The power is conferred on the State Level Committee by section 35CCA itself. The power only refers to that of granting approval. Under the provisions of section 21 of the General Clauses Act, 1897, the power to grant approval necessarily implies the power to withdraw approval. The power of withdrawal inheres in the power to give approval. Section 295(4) referred to by Mr. Bagchi is of no avail.

18. For the reasons stated, we are of the opinion that the Commissioner of Income-tax was justified in assuming jurisdiction under section 263 and, therefore, the revisionary proceedings are valid. We, therefore, answer the question in this reference in the negative and in favour of the Revenue. There will be no order as to costs.

Nure Alam Chowdhury, J.:— I agree.