Centre For Development Of ... vs Uoi And Ors.
2013 Latest Caselaw 1344 Del

        THE HIGH COURT OF DELHI AT NEW DELHI
%                                 Judgment delivered on: 19.03.2013
+       W.P.(C) 9016/2011

        CENTRE FOR DEVELOPMENT OF
        TELEMATICS AND ANR.                                  ....Petitioners
                versus

        UOI AND ORS.                                       ..... Respondents

Advocates who appeared in this case:
For the Petitioner  : Mr Ajay Vohra with Ms Kavita Jha and Mr Somnath Shukla,
                       Advocates.
For the Respondent   : Ms Maneesha Dhir with Ms Geeta Sharma and Ms Priya
                       Singh, Advocates for R-1.
                       Mr N. P. Sahni, Sr. Standing Counsel for Revenue.
CORAM:-
HON'BLE MR JUSTICE BADAR DURREZ AHMED
HON'BLE MR JUSTICE R.V.EASWAR

                                JUDGMENT

BADAR DURREZ AHMED, J (ORAL)

1. In this writ petition the question that has been raised is whether the

petitioner (Centre for Development of Telematics - C. DoT) is a

'scientific research association' for the purposes of clause (ii) of sub-

section (1) of section 35 of the Income Tax Act, 1961 (hereinafter

referred to as 'the said Act'). If the petitioner is regarded as such a

research association, any income of the petitioner would be not included

in the total income by virtue of section 10(21) of the said Act.

2. Section 35(1)(ii) deals with two categories of institutions. One

category is that of a 'scientific research association' which has as its

object the undertaking of scientific research and the other category is that

of a University, College or other institution which undertakes some

amount of scientific research. The petitioner is aggrieved by the fact that

it has been placed in the second category of 'other institutions' partly

engaged in scientific research. According to the petitioner, it should be

placed in the former category of a 'scientific research association' in as

much as according to the petitioner its sole object is of undertaking

research. The case of the petitioner is that while it receives certain

royalty and support services fee and consultancy charges, those are

ancillary to its sole object of undertaking scientific research. As such, it

ought to be categorised in the category of a 'scientific research

association' as contemplated in section 35(1)(ii) of the said Act.

3. The learned counsel for the petitioner drew our attention to section

35(3) of the said Act and submitted that if any question arises as to

whether and, if so, to what extent any activity constituted scientific

research, the Board is required to refer the question to the central

government and that the decision of the central government would be

final. According to the learned counsel for the petitioner, in the present

case, the Board has not made any such reference to the central

government and the central government has also not taken a definitive

decision as to why the petitioner does not fall within the category of

'scientific research association'. He, therefore, submitted that the stand

of the central government in categorising the petitioner as 'other

institution' partly engaged in scientific research has been done without

considering and rejecting the petitioner's claim that it falls in the category

of 'scientific research association'. He also submitted that the

petitioners' case was only considered from the standpoint of whether the

petitioner was an 'other institution' and not from the standpoint of

whether the petitioner fulfilled the criteria for being recognised as a

'scientific research association'.

4. Mr. Sahni appearing on behalf of respondents has produced the

relevant file before us and has argued at length to demonstrate that the

issue had been considered by the central government as to whether the

petitioner fell in the category of 'scientific research association' or in the

category of 'other institutions' as mentioned in section 35(1)(ii) of the

said Act. However, on going through the said file, we do not find any

clear cut reference from the Board to the central government requiring the

central government to decide as to whether the petitioner fell within the

category of a 'scientific research association' or in the second category of

'other institution' partly doing scientific research as referred to in section

35(1)(ii) of the said Act. We also observe that in the note prepared at

page 10 of the relevant file and in particular paragraph 7(b) thereof, it

appears that the fact that in the process of activities engaged in part by the

petitioner, the petitioner also received some payments, reimbursements

and royalties based, weighed heavily with the central government in

deciding that the petitioner fell into the category of 'other institutions'.

However, we find that this may not be the correct approach inasmuch as

section 10(21) and in particular the third proviso thereto recognises a

situation where the research association could have profit and gains from

business also. In fact, the proviso goes to the extent of saying that the

exemption under section 10(21) would apply even to profits and gains of

business of a research association provided the business was incidental to

the attainment of its object and separate books of accounts were

maintained in respect of such business. Therefore, the fact that the

petitioner also received certain payments towards royalty, service

charges, etc. would not in itself mean that the petitioner was not a

scientific research association. This factor also needs to be kept in mind

while determining as to whether the petitioner was a scientific research

association or it fell in the category of 'other institution' partly engaged in

scientific research.

5. For the sake of clarity, we feel that the issue of whether the

petitioner fell within the category of a 'scientific research association' or

in the category of 'other institution' partly doing scientific research

should be considered by the central government afresh in the manner

indicated above and in accordance with law. To enable this, we are

setting-aside the notification dated 12.04.2007 and direct the central

government to decide this question afresh within three months. The

central government will examine the observations above as also the

requirements of Rule 5D of the Income Tax Rules, 1962. The writ

petition is disposed of accordingly.

BADAR DURREZ AHMED, J

R.V.EASWAR, J MARCH 19, 2013 hs