Delhi High Court

Director Of Income Tax vs Indian National Science Academy on 22 January, 2010

Author: A.K.Sikri

*            IN THE HIGH COURT OF DELHI AT NEW DELHI

                         ITA No. 1345 of 2008

                               Reserved On: 23rd December, 2009.
%                            Pronounced On: 22nd January, 2010.

Director of Income Tax                                 . . . Appellant

                        through :      Ms.    Prem     Lata      Bansal,
                                       Advocate.


                             VERSUS

Indian National Science Academy                    . . .Respondent

                        through:       Mr. Satyen Sethi, Advocate.

CORAM :-
   THE HON'BLE MR. JUSTICE A.K. SIKRI
   THE HON'BLE MR. JUSTICE SIDDHARTH MRIDUL

      1.     Whether Reporters of Local newspapers may be
             allowed
             to see the Judgment?
      2.     To be referred to the Reporter or not?
      3.     Whether the Judgment should be reported in the
             Digest?

A.K. SIKRI, J.

1. Certain very prominent persons in the field of science,

which included the then Director General of Council of

Scientific and Industrial Research (CSIR) came together

to form INSA. Most of these scientists were either the

holders of prominent offices in Government/semi-

Government bodies like CSIR, Planning Commission,

Indian Agricultural Research Institute, Bhabha Atomic

Research Centre, Central Drug Research Institute, Indian

Council of Medical Sciences, National Institute of

Oceanography or the Professors in prominent Universities

like Universities of Delhi, Rajasthan, Calcutta, Punjab,

etc. Certain scientists were retired persons, who had

held high positions in such institutions/bodies of

prominence were also included. Dr. Atma Ram, Director,

CSIR was the first President and renowned scientist M.S.

Swaminathan was the first Secretary, when the original

name, National Institute of Science of India established in

January, 1935 was changed to Indian National Institute

of Science Academy in February, 1970. It is adhering

Institute of Science, ICSU on behalf of the country. It

was established with the object of nurturing eminence

and recognizing scientists in India and harnessing

scientific knowledge for the cause of national welfare.

Some of the prominent objects of the petitioners Society

stated in its memorandum of association are as under:

a) The promotion of natural knowledge in India

including its practical application to problems

of national welfare.

b) To act as a body of scientists of eminence for

the promotion and safeguarding of the interests

of scientists in India; and to represent

internationally the scientific work of India.

c) To act through properly constituted National

Committees in which other learned academies

and societies will be associated, as the National

Research Council of India, for undertaking

such scientific work of national and

international importance as the Council may be

called upon to perform by the public and by

government.

                d) To     publish     such     proceedings,         journals,

                   memoirs         and     transactions       and           other

publications as may be found desirable.

There is no change in the object. It is for this reason that

the INSA for the last more than twenty five years has

been granted approval as a Scientific Association under

Section 35(1)(ii) of the Income Tax Act (hereinafter

referred to as „the Act‟) and recognized Scientific and

Industrial Research Organization (SIRO) by the

Government in respect of the year in question as well as

later years.

2. Section 35 of the Act allows certain deductions in respect

of expenditure on scientific research. Clause(ii) of sub-

section (1) thereof, with which we are concerned, permits

deduction of an amount equal to one and one-fourth

times of any sum paid to scientific research institution,

which reads as under:

"(ii) an amount equal to one and one-fourth times of 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 university, college or institution is for the time being approved for the purposes of this clause by the Central Government by notification in the Official Gazette;"

As proviso to this clause puts a condition of obtaining

approval by the Central Government becoming entitled to

get this deduction, the INSA had also applied for this

approval for last more than twenty five years, approval

has been granted by the Central Government as a

"Scientific Research Association". The gist of these

approvals granted from time to time is provided by the

appellant as under:

"1. As per records INS was approved u/s. 35(1)(ii) of the Act w.e.f. 01.07.1977 as per the vide letter dated 05.03.1980 issued by DST. Min. of Finance had issued a gazette notification No.2139 File No.203/143/77 ITA-II dated 28.01.1978.

2. Further to the omission of Section 35 in Income Tax Act 1987 and consequent to the introduction of Scheme on Recognition of Scientific and Industrial Research Organizations

- 1988, INSA was recognized under SIR-1988 for the period from 01.04.1988 to 31.03.1989.

3. Renewal under SIRO-1988 extended from 01.04.1989 to 31.03.1992. The recognition under SIR-1988 has been renewed continuously renewed and the present renewal is upto 31.03.2009.

4. The Section 35 of Income Tax Act was restored with modifications by Direct Tax Laws (Amendment) Act, 1989 from 01.04.1989, vide DST letter No.4/220/89-TU-V, dated 08.11.1989. Accordingly, INS applied for recognition under 35(i)(ii) on 12.01.1990.

5. The Academy was approved u/s.35(i)(ii) of Income Tax Act under category "Association" from 01.04.1992 to 31.03.1995 as per notification issued by Department of Revenue, Min. of Finance.

6. Further renewed from 01.04.1995 to 31.03.1996, 01.04.1996 to 31.03.1999, 01.04.1999 to 31.003.2000, and 01.04.2000 to 31.03.2003 under category "Association"."

3. Once an approval is granted as scientific association to

an institute, such an institute becomes entitled to avail

tax exemption under Section 10(21) of the Act, in the

following terms:

"10. Incomes not included in total income.-In computing the total income of a previous year of any person, any income falling within any of the following clauses shall not be included -

(21) any income of a scientific research association for the time being approved for the purpose of clause (ii) of sub-section (1) of section 35:"

We may note only that proviso to this sub-section (21)

stipulates certain conditions on the scientific research

association to enable it to get the tax exemption.

However, as we are not concerned with those, that part is

not reproduced.

4. Notification dated 01.03.2001 was effective only upto

31.03.2003 and did not cover the year under

consideration, though at that time application for this

purpose was pending with the CBDT. The AO

accordingly framed the assessment at an income of

Rs.1,38,44,790/-. Against this order, the NISA filed an

appeal before the CIT (Appeals). By that time Notification

dated 28.03.2007 had been issued granting approval to

the NISA under Section 35 (1) (ii) of the Act in view

thereof CIT (A) allowed the appeal vide orders dated

30.08.2007 granting exemption under Section 20(21) of

the Act to the NISA. The Revenue went in appeal against

this order of the CIT (A). The Income Tax Appellate

Tribunal (hereinafter referred to as „the Tribunal‟),

however, has maintained the order of the CIT(A) in view

of the aforesaid Notification issued under Section 35(1)(ii)

of the Act and dismissed the appeal vide its decision

dated 11.04.2008. Against this order, the present Appeal

is preferred and the plea of the Revenue is that since the

NISA is granted approval under Section 35(1)(ii) as in

"other institutions", which would mean it was partly

engaged in research activities, and not "Scientific

Research Association", benefit of exemption under

Section 10(21) of the Act would not be available.

5. Since the last approval was coming to end of 31 st March,

2003, the INSA again made an application dated

14.01.2003 to the Director, Income Tax (Exemptions)

seeking renewal of the approval from 01.04.2003 to

31.03.2008. This approval was granted after vigorous

and constant follow-up for almost three and half years

with effect from 01.04.2003 vide Notification dated

28.03.2007. However, this time, this approval was given

to the INSA under the category of "other institutions".

Due to change in category from "Scientific Research

Association" to "other institutions", Income Tax

authorities are of the view that INSA is not entitled to

avail tax exemption under Section 10(21) of the Act.

Though the INSA has also submitted representation to

the Director, CBDT on 15.05.2007 requesting to place it

under "Association Category". This application is still

pending with CBDT.

6. The order of the CIT(A) shows that it went by the approval

granted by Notification dated 28.03.2007 and held that

since this Notification was available as per which

approval was granted with effect from 01.04.2003, which

had not been issued when the assessment order was

passed, the assessee would be entitled to exemption. In

appeal, the Revenue had specifically averred that the CIT

(A) had erred in overlooking the fact that the Notification

was put to the NISA under the category of "other

institutions" and not "Scientific Research Institutions". It

is clear from the ground No. 2 raised in the appeal and

the arguments based thereupon reads as under:

"2. On the facts and in the circumstances of the case, the ld.CIT(A0) (sic) ld. CIT (A) has grossly erred in overlooking the fact that as per notification dated 28th March, 2007 issued by CBDT, the assessee‟s case is notified under the category of "other institution" and not under the category of Scientific Research Association."

3. Ld. CIT(A0 (sic) CIT(A) has erred in law in holding that he income of the assessee is exempted u/s 10(21) of Income Tax Act ignoring the fact that the provisions of the Section 10(21) are applicable only to "Scientific Research Association" and not to the assessee notified under the category of „Other Institutions‟."

7. Notwithstanding this specific plea, the Tribunal while

dismissing the appeal of the Revenue did not even advert

to this plea and summarily rejected the appeal again

relying upon the Notification dated 28.03.2007 in the

following words:

"4. The AO did not treat assessee as Scientific Research Association for the purposes of sec. 35 (1) (ii) which is the pre-requisite for claim of exemption u/s 10(21) of I.T. Act, 1961. The AO did not grant such exemption on the ground that the certificate earlier granted to the assessee was not renewed for the year under consideration. Ld. CIT(A) had held that the assessee is eligible for exemption u/s 10(21) of the Act as approval has been granted by CBDT to consider the assessee as Scientific Research Association in accordance with provisions of sec. 35(1)(ii) of the Act vide their order dated 28.3.2007 which is subsequent to the passing assessment order i.e. 11.12.2006.

5. At the time of hearing a copy of approval by CBDT was given by ld. AR to ld. DR and time was allowed to ld. DR to go through the said approval of CBDT. After going through the said approval ld. DR submitted that it is a proper approval. In this view of the situation, we find no infirmity in the order of CIT(A), therefore departmental appeal is dismissed."

8. No doubt, the learned DR had conceded that it was a

proper approval. However, such a concession in law

would not be binding upon the party, viz., Revenue in

this case. Since, the basic issue is as to whether

exemption under Section 10(21) is applicable "only to

Scientific Research Institution" and not to "other

institutions" and this aspect has not been dealt with at

all by the Tribunal. We have no option but to set aside

the order of the Tribunal and remit the case back to the

Tribunal for afresh consideration.

9. Before we part with, we would like to make certain

comments. As noted above, the NISA had been allowed