1997 (9) TMI 644 - AT - Income Tax

Summary

Issues Involved:
1. Exemption under Section 10(21) of the Income Tax Act.
2. Validity of reopening assessments for the assessment years 1987-88 to 1990-91.
3. Determination of whether the appellant is a scientific research association.
4. Application or accumulation of income for the objectives of the association.
5. Income derived from business activities and its relation to the objectives of the association.

Issue-wise Detailed Analysis:

1. Exemption under Section 10(21) of the Income Tax Act:
The primary issue in these appeals is the eligibility for exemption under Section 10(21) of the Income Tax Act. The appellant, a company registered under Section 25 of the Companies Act 1956, claimed exemption under Section 10(21) for the assessment years 1987-88 to 1991-92. The Assessing Officer (AO) denied the exemption for the assessment year 1991-92, concluding that the appellant's income was assessable as business income under Section 28(iii) of the Act. Consequently, the AO reopened the assessments for the years 1987-88 to 1990-91 and withdrew the previously granted exemptions. The CIT(A) upheld the AO's decision, leading to the present appeals.

2. Validity of Reopening Assessments for the Assessment Years 1987-88 to 1990-91:
The appellant challenged the validity of reopening the assessments for the years 1987-88 to 1990-91. The CIT(A) confirmed the AO's decision to reopen these assessments. The appellant's counsel argued that the reopening was invalid, but the Tribunal did not specifically address this issue in its detailed analysis, focusing instead on the substantive issue of exemption under Section 10(21).

3. Determination of Whether the Appellant is a Scientific Research Association:
The appellant's counsel contended that the appellant is a scientific research association approved by the prescribed authority, the Director General of Exemptions. The approval under Section 35(1)(ii) had not been withdrawn and was still in force. The counsel argued that the AO could not question this approval without referring the matter to the prescribed authority as per Section 35(1)(iii). The Tribunal agreed, stating that once the scientific research association is approved, the AO cannot question the approval. The Tribunal cited the Supreme Court's decision in Continental Construction Ltd. vs. CIT, which held that once approval is granted by the prescribed authority, the AO cannot go behind or question the maintainability of the claim.

4. Application or Accumulation of Income for the Objectives of the Association:
The Tribunal noted that one of the conditions for exemption under Section 10(21) is that the income must be applied or accumulated for the objectives for which the association is established. The Revenue had not investigated this aspect. The Tribunal directed the AO to examine whether the appellant's income was applied or accumulated for its objectives and to decide accordingly.

5. Income Derived from Business Activities and Its Relation to the Objectives of the Association:
The AO and CIT(A) found that the appellant derived income from business activities. The Tribunal acknowledged that under the proviso to Section 10(21), exemption is not available if the income is from business unless the business is incidental to the attainment of the association's objectives and separate books of account are maintained. The Tribunal directed the AO to investigate whether the appellant's business activities were incidental to its objectives and whether separate books of account were maintained.

Conclusion:
The Tribunal set aside the orders of the CIT(A) and AO and remitted the matter back to the AO for fresh consideration. The AO was directed to examine whether the appellant's income was applied or accumulated for its objectives and whether its business activities were incidental to its objectives with separate books of account maintained. The appeals were partly allowed for statistical purposes, with no other grounds pressed before the Tribunal.