TaxTMI 
TaxTMI 
2019 (4) TMI 715
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....ns reached by the respondent are evident from the following extracts of the impugned order: "III. The provisions of section 35(1)(ii)of the Act bestows number of benefits on the organization approved under this section. As per provisions of section 35(1)(ii) of Income Tax Act, any sum paid to an approved and notified organization engaged in Scientific research by any business entity is eligible for a weighted deduction of 175% as business expense. The donees falling in category of 'university, college or other institution', subject to fulfillment of requisite conditions, may claim exemption of income u/s 10(23C) or section 11 read with section 12 of the Act. Further, with effect from 13.07.2006, the process of approval has been streamlined by introduction of Rules 5C, 5D and 5E in Income-tax Rules, 1962 and presently, one time approval u/s 35(1)(ii) of the Act is granted which is available in perpetuity unless specifically withdrawn. Therefore, in view of the substantial outgo of revenue in the form of the weighted deduction (available to donor) and exemption of income (available to donee), certain conditions have been laid down in the Act and relevant Income tax Rules. In....
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....quently, when the applicant has furnished details of assets in School of Nursing, it is seen that the equipments mentioned for this School are the general items used in teaching and taking practical sessions but not for any independent research work. o These three schools have also not contributed towards research projects, articles, patents, product innovation, receipt of research grants etc Thus, since these schools are involved in teaching activities only, the claim of the applicant that it is doing broad based scientific research in all institutions/departments within its umbrella is contrary to the facts. Similarly, although the applicant is having full fledged offshore campuses at Malaysia and Dubai which are essentially engaged in teaching of subjects like medicine and engineering, the details submitted do not indicate that any worthwhile scientific research activity is being pursued in these institutions. VII. It is seen that MAHE was accorded 'deemed university' status in 1993 and has been in existence since late sixties. However, as evidenced by 3CF-II application, it is seen that the various claimed research activities of the applicant have not....
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....ing that many of the projects in hospitals have been found to be related to clinical trial activities on which the applicant has applied significant sums out of the figures mentioned in column (2) above. As the clinical trial activities are devoid of element of empirical research, they cannot be considered for purposes of section 35(1)(ii) of the Act. A further corollary to this would be that the expenditure incurred on clinical trial activities would further reduce the figures in column (4) pertaining to percentage utilization of receipts on research vis-à-vis the total earnings of the organization. IX. In support of its claimed research activities, applicant has submitted copies of few research publications also. It has also submitted a CD containing only citations of papers. A critical analysis of some of the papers which have been submitted in 'Hard copy' is as under: xxxx xxxx xxxx &nbs....
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....ing carrying out of studies and projects by other institutions/organizations. Institutions related to medical and pharma education are mostly engaged in doing trial activities which are not of the nature of empirical research work. The applicant has in such cases not furnished the specific break up of empirical research activities. Thus, as observed in preceding paras, in the absence of precise and to the point information supported by relevant documents, it has not been possible to conclude that the claim regarding alleged research activities is satisfactorily explained by the applicant. The applicant has sought approval for all the institutions within its ambit for purposes of section 35(1) (ii) of the Act. However, in view of the deficiencies pointed out above, all the Institutions within the ambit of MAHE do not qualify for approval u/s 35(1)(ii) of the Act. XII. In view of facts mentioned above, the applicant does not merit approval u/s 35(1)(ii) of the Income-tax Act, 1961. Accordingly, the prescribed authority in Central Government, being the Union Finance Minister has held that M/s Manipal Academy of Higher Education, Manipal is not a fit case for the grant of requ....
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....; xxxx (iv) ... Provided that the -research association, University, college or other institution referred to in clause (ii) or clause (iii) shall make an application in the prescribed form and manner to the 8Central Government for the purpose of grant of approval, or continuance thereof, under clause (ii) or, as the case may be, clause (iii): Provided further that the -Central Government may, before granting approval under clause (ii) or clause (iii), call for such documents (including audited annual accounts) or information from the -research association, University, college or other institution as it thinks necessary in order to satisfy itself about the genuineness of the activities of the -research association, university, college or other institution and that -Government] may also make such inquiries as it may deem necessary in this behalf: Provided also that any -notification issued, by the Central Government under clause (ii) or clause (iii), before the date on which the Taxation Laws (Amendment) ....
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....n extension of that business or, as the case may be, all businesses of that class; (b) any scientific research of a medical nature which has a special relation to the welfare of workers employed in that business or, as the case may be, all businesses of that class." 6. In addition to the statutory provisions, the prescribed Rules also deal with applications under Section 35 (1) (ii) of the Act. Rules 5C, 5D and 5 E of the Income Tax Rules, 1962 (hereinafter, 'the Rules ') are relevant for this purpose: "[Guidelines, form and manner in respect of approval under clause (ii) and clause (iii) of sub-section (1) of section 35. 5C. (1) An application for approval,- (i) under clause (ii) [or clause (iii)] of sub-section (1) of section 35by a research association in duplicate in Form No.3CF-I; (ii) under clause (ii) or clause (iii) of sub-section (1) of section 35 by a university, college or other institution in duplicate in Form No.3CF-II, shall be made, at any time during the financial year immediately preceding the assessment year from which the approval is sought, to the Commissioner of Income-tax or the Director of Income-tax hav....
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....ion and send his recommendation to the Member (IT) for grant of approval or rejection of the application before the expiry of the period of three months to be reckoned from the end of the month in which the application form was received in his office. (9) The Central Government may before granting approval under clause (ii) or clause (iii) shall call for such documents or information from the applicant as it may consider necessary and may get any inquiry made for verification of the genuineness of the activity of the applicant. (10) The Central Government may, under sub-section (1) of section 35, issue the notification to be published in the Official Gazette granting approval to the association or university or college or other institution or for reasons to be recorded in writing reject the application. (11) The Central Government may withdraw the approval granted under clause (ii) or clause (iii) of sub-section (1) of section 35 if it is satisfied that the research association or university or college or other institution has ceased its activities or its activities are not genuine or are not being carried out in accordance with all or any of the conditio....
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....s to be undertaken during the forthcoming year and the financial allocation for such programme. (6) If the Commissioner of Income-tax or the Director of Income-tax is satisfied that the research association,- (a) is not maintain books of account, or (b) has failed to furnish its audit report, or (c) has not furnished its statement of the sums received and the sums applied for scientific research or research in social science or statistical research or a statement referred to in sub-rule (5), or (d) has ceased to carry on its research activities, or its activities are not genuine, or (e) is not fulfilling the conditions subject to which approval was granted to it, he may after making appropriate enquiries furnish a report on the circumstances referred to in clauses (a) to (e) above to the Central Government within six months from the date of furnishing the return of income under sub-section (1) of section 139.] Conditions subject to which approval is to be granted to a University, College or other Institution under clause (ii) and clause (iii) of sub-section (1) of section 35. 5E. (1) The sum paid to a ....
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....he sums received and the sums used for research [or a statement referred to in sub-Rule(4A)], or (d) has ceased to carry on its research activities, or its activities are not genuine, or (e) is not fulfilling the conditions subject to which approval was granted to it, he may after making appropriate enquiries furnish a report on the circumstances referred to in clauses (a) to (e) above to the Central Government within six months from the date of furnishing the return of income under section 139(1).]" Submissions 7. Mr.Ajay Vohra, learned Senior Counsel for the petitioner, submitted that the petitioner has been granted the status of a "deemed university" on 03.07.1993 and satisfies the condition contained in the first proviso to Section 35 (1) (ii). He submitted that the petitioner had placed details and documents before the respondents to demonstrate the significant scientific research activity undertaken by the concerned institutions. He also argued that, as far as a university is concerned, in contrast to a research association, the statutory provisions do not require an exclusive focus on scientific research, as long as the sums in question are u....
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....ce with requirements in the provisos would arise. We find merit in the contention advanced on behalf of the appellant that the third proviso contains monitoring conditions/requirements like application, accumulation, deployment of income in specified assets whose compliance depends on events that have not taken place on the date of the application for initial approval. 45. To make the section with the proviso workable we are of the view that the monitoring conditions in the third proviso like application/utilisation of income, pattern of investments to be made, etc. could be stipulated as conditions by the PA subject to which approval could be granted. For example, in marginal cases like the present case, where appellant Institute was given exemption up to financial year ending 31-3-1998 (Assessment Year 1998-1999) and where an application is made on 7-4-1999, within seven days of the new dispensation coming into force, the PA can grant approval subject to such terms and conditions as it deems fit provided they are not in conflict with the provisions of the 1961 Act (including the abovementioned monitoring conditions). While imposing stipulations subject to which approval ....
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....hose formed with the objective of scientific research, but instead emphasizes the purpose for which the money is spent. This distinction is also brought out by a comparison of Rule 5D (1) of the Rules (applicable to research associations) and Rule 5E (1) (applicable to universities, colleges or other institutions). Although Rule 5E (4A) requires a statement regarding research work undertaken by the applicant university during the previous year, the assessment of the materials provided would have to be made keeping in mind the conditions laid down in the statute and reflected in Rule 5E (1). 11. The information submitted by the petitioner about activities carried out in sectors like nursing, business management and arts have been discounted in the impugned order (paragraph VI.2), on the grounds that they were not part of the research facilities mentioned in the petitioner'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 petitioner's claim that it is doing broad based scientific research in all institutions/departmen....
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....herein the Court held as follows: "24. The terms 'research' and 'scientific research' respectively thus have a wide scope. It does not necessarily mean only invention. The term 'invention' on the other hand has somewhat narrower meaning and is explained as: "An invention is the finding out; the contriving; the creating of something which did not exist and was not known before and which can be made useful and advantageous in the pursuance of business, or can add to the enjoyment of mankind." In common parlance, thus, the terms 'research' and 'scientific research' respectively are understood to include wide variety of activities relatable to scientific study. We do not even need to fall back on such general principles since the term 'scientific research' has been defined under section 43(4) to mean any activities for the extension of knowledge in the fields of natural or applied science including agriculture, animal husbandry or fisheries. Thus, scientific research need not be equated with a scientific invention. Even the term 'invention' as defined in the Patent Act is wider than understood in pure science where distinction is made between invention and discovery. The Paten....