Trust wins appeal after CBDT wrongly rejected section 35(1)(ii) approval for scientific research expenditure

The Gujarat HC allowed the Trust's appeal against CBDT's rejection of approval under section 35(1)(ii) for expenditure on scientific research. CBDT questioned the Trust's character and objectives, arguing scientific research was not its sole object. The HC held that Rule 5D's requirement for scientific research as sole object cannot be rigidly implemented, as the Trust's primary objective was research and development in animal husbandry and agriculture. The HC noted CBDT had granted approval continuously from 1965-1996 without material changes to Trust's objects, requiring strong reasons for denial. The Court found scientific research was the Trust's main object with subsidiary objects being consequential, satisfying Rule 5D(1) requirements.

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Issues:
Challenge to order rejecting approval under section 35(1)(ii) of the Income Tax Act, 1961.

Analysis:
1. The petitioner, a research association, challenged the Central Board of Direct Tax's order rejecting their request for approval under section 35(1)(ii) of the Income Tax Act, 1961.

2. The petitioner, registered under the Bombay Public Trust Act, had a history of approvals for scientific research since 1965. The petitioner applied for renewal in 2011, emphasizing its significant contributions to animal husbandry and agriculture through research and development.

3. The CBDT rejected the application primarily due to the petitioner's diverse objectives and engagement in activities beyond scientific research, as per Rule 5D of the Income Tax Rules, 1962. The CBDT also cited a commercial agreement and lack of empirical scientific research evidence.

4. The petitioner argued that scientific research was their main activity, supported by a Scientific Advisory Committee and consistent approvals in the past. They contended that subsidiary objects did not dilute the primary focus on scientific research.

5. The Court analyzed Rule 5D, emphasizing scientific research as the sole object for approval under section 35(1)(ii) of the Act. The Court reviewed the Trust's objects, noting the primary focus on research and development in animal husbandry and agriculture.

6. The Court found that the CBDT erred in rejecting the application, considering the Trust's long history of approvals and the subsidiary objects' alignment with the main objective of scientific research. The Court dismissed the CBDT's contentions regarding the commercial agreement and lack of scientific research evidence.

7. Relying on the Supreme Court's decision in Commissioner of Income Tax vs. Excel Industries Ltd., the Court emphasized consistency in assessments and overturned the CBDT's rejection, setting aside the impugned order dated 20.03.2012.

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