By TIOL News Service

NEW DELHI, APR 22, 2019: THE ISSUE BEFORE THE DIVISION BENCH IS - Whether scientific research activity must be undertaken by its every department, if a deemed University seeks approval u/s 35(1)(ii). NO IS THE VERDICT.

Facts of the case:

The assessee is a registered trust formed with the object to undertake educational & research activities, and it was also granted registration as a deemed university with effect from July 03, 1993. Later, on June 23, 2014, the assessee applied for approval u/s 35(1)(ii). Accordingly, The applicant was required to furnish details regarding scientific research activities being pursued in various departments, inter-alia, connected with sectors like nursing, business management, arts etc. However, the applicant had merely filed explanation about the activities undertaken by the students under the projects assigned to them as a part of curriculum and no details of any full-fledged research activity being pursued in Schools of Nursing, Communications and Commerce was furnished. Further, the relevant documents submitted in Form 3CF-II also showed that scientific research activity was not being carried out in these schools. It was further seen that even though the Applicant was accorded 'deemed university' status in 1993, as evidenced by 3CF-II application, the various claimed research activities had not materialized in a significant way. The application filed by assessee was therefore rejected.

High Court held:

++ the provision of Section 35 enables donors to an approved institution/association to claim deduction of the amount donated from their taxable income. One of the categories of entities entitled to such approval is covered by Section 35(1)(ii). The donee institution, in turn, may claim exemption u/s 10(23C). In the present case, the subject order itself recognizes that the purpose of the Rules is to enable the Central Government to come to a conclusion about the genuineness of the activities of the institution concerned. An analogy may be drawn with eligibility u/s 10(23C). The Supreme Court has held that the consideration at the stage of granting exemption is regarding the genuineness of the activities, which must also thereafter be monitored in accordance with the Act and Rules. For the purposes of Section 35(1)(ii) also, Rules 5D and 5E specify the conditions, which must be followed by an approved institution. It may be noticed at the outset that Section 35(1)(ii) makes a distinction between the conditions which a research association must satisfy in order to avail of the benefit of the clause, and those applicable to a "university, college or other institution". While a research association must have the objective of undertaking scientific research, a university, college or other institutions is entitled to the benefit if the sum paid is to be used for scientific research. The statute, therefore, does not restrict the benefit of the provision, in the case of universities, only to those formed with the objective of scientific research, but instead emphasizes the purpose for which the money is spent;

++ the information submitted by the assessee about activities carried out in sectors like nursing, business management and arts have been discounted in the order, on the grounds that they were not part of the research facilities mentioned in the assessee's original application, that they are "undertaken by the students under the projects assigned to them as a part of curriculum" and that scientific research activity is not being carried out in these schools. The assessee's claim that it is doing broad based scientific research in all institutions/departments has, therefore, been rejected on the basis that these schools are involved in teaching activities only. The reasons assigned by the I-T Department are not in keeping with the statutory regime. They seem to have proceeded on the basis that every department of the applicant university must undertake scientific research. However, that is not a proper understanding of the provisions, at least insofar as they relate to universities colleges and other institutions. Similarly, Rule 5E(2) expressly recognizes that research activities may be carried out through faculty members or enrolled students of the institution. The assessee had submitted a significant amount of material showing the activities undertaken by it, including publication of research papers, patents granted, and grants and funds received from various national and international agencies. However, these have been discarded on the ground that these research activities "have not materialized in a significant way either in form of new theories/models, new hypothesis which has wide acceptance, copyrights, earnings from patents etc.";

++ the scientific research is no less so because the researcher has not discovered a new theory or invented a patentable product. In any event, an assessment of the "value" of the research at the hands of the I-T Department, is not contemplated by the Act or the Rules. Further, in view of Rule 5E (2) expressly contemplating research activity carried out through faculty members, the analysis of the Department appears to be rather sketchy. The question required to be considered by the I-T Department was whether the activities claimed by the assessee were genuine, and whether the funds being paid to the assessee were intended for the stated purpose. On these, the subject order is silent. It is, therefore, set aside and the I-T Department is directed to reconsider the assessee's application in accordance with the procedure prescribed.

(See 2019-TIOL-868-HC-DEL-IT)