TaxTMI 
TaxTMI 
2019 (4) TMI 715
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....e 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presently, one time approval u/s 35(1)(ii) of the Act is granted which is available in perpetuity unless specifically withdrawn.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 the context of the present application, the proviso ap....
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....g, 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 materialized in a significant way either in form of new theories/models, new hypothesis which ha....
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....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 &n....
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....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 requisite approval. Accordingly, I am directed to communicate that the aforesaid application in Form 3CF-II dated 23.06.2014 has been rejected." Provisions of the Income Tax Act and Rules 4. The relevan....
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....red 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) Bill, 2006 receives the assent of the President, shall, at any one time, have effect for such assessment year or years, not exceeding three assessment years] (including an assessment year or years commencing before the date on which such notification is issued) as may be specif....
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....d 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 having jurisdiction over the applicant. (2) Annexure to the application [in] Form No. 3CF-I shall be filled out if the association claims exemption under clause (21) of section 10 of the Income-tax Act. (3) The applicant shall send a copy of the application in Form No. 3CF-I or, as the case may be, Form No. 3CF-II to Member (IT), Central Board of Direct Ta....
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....icant 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 conditions under rule 5D or rule 5E. (12) No order treating the application as invalid or rejecting the application or withdrawing the approval, shall be passed without giving a reasonable opportunity of being heard to the research association or university or college or other institution. (13) A copy of the order invalidating or rejecting the application or withdrawing the approval shall be communicated to the applican....
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....n 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 university, college or other institution shall be used for scientific research and research in social science or statistical research. (2) The applicant university, college or other institution shall carry out scientific research, research in social science or statistical research through its faculty members or its enrolled students. (3) A university or college or other institution approved under clause (ii) or clause (iii) of sub-section (1) of section 35 shall maintain separate books of account in respect of the sums received by it f....
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....r 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 used for that purpose. 8. Mr. Vikram Jetley, learned Standing Counsel for the Central Government submitted that the impugned order has appropriately analyzed the materials placed by the petitioner and come to conclusion that there is no significant scientific research activity to which the sums received by it can be attributed. He emphasized that the petitioner manages a number of institutions including some which do not carry out scientific research such as those specializing in nursing, management, arts and a hospital. He urged that, in these circumstances, the respondent was justified in declining the approval sought by the petit....
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....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 is granted, the PA may insist on certain percentage of accounting income to be utilised/applied for imparting education in India. While making such stipulations, the PA has to examine the activities in India which the applicant has undertaken in (sic terms of) its constitution, MoUs and agreement with the Government of India/National Council." This has been followed in Queen's Educational Society v. CIT (2015) 8 SCC 47, wherein the Court has added a further caveat regarding the importance of the monitoring process: "25.... We reiterate that the correct tests which have been culled out in the three Supreme Court judgments stated above, namely, Sur....
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....ried 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/departments has, therefore, been rejected on the basis that these schools are involved in teaching activities only. 12. The reasons assigned by the respondents are, in our view, not in keeping with the statutory regime. The respondents seem to have proceeded on the basis that every department of the applicant university must undertake scientific research. However, as stated above, 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 re....
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....ot 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 Patent Act thus recognises not only the product pattern where a new product has been invented through scientific research, but also recognises a process pattern where an existing product may be manufactured through an innovative process which was hitherto unknown. 25. It can thus be seen that the term scientific research in the context of the deduction allowable under section 35(1) of the Act would include wide variety of activities. It can also be appreciated that every scientific research need not necessarily result into the ultimate goal with which it may have been undertaken. Often times in the field of research and invention, the efforts undertaken may or may not yield f....