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TMI Blog2019 (4) TMI 715X X X X Extracts X X X X X X X X Extracts X X X X ..... nificant 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. These have been discarded by the respondent 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 research papers and patents referred to by the petitioner have also been characterized as the work of particular faculty members rather than attributable to the contribution to the petitioner's university. The respondent s focus on the impact and/or commercial success of the petitioner s research activities is not relatable to any statutory or prescribed criteria for grant of approval under Section 35(1)(ii). Section 43(4) of the Act contains a much broader definition which has been entirely overlooked in the impugned order. Scientific research is no less so because the researcher has not discovered a new theory or invented a patentable product. These results may be achieved only after years of research, or not at all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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presently, one time approval u/s 35(1)(ii) of the Act is granted which is available in perpetuity unless specifically withdrawn.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 appended to clauses (ii) and clauses (iii) in section 35(1) of the Act is relevant which states that the Central Government before granting approval may 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 organization and that Government may also make such inquiries as it may deem necessary in this behalf. Further, certain pre-conditions have been stated in relevant IT Rules as mentioned ab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ificant way either in form of new theories/models, new hypothesis which has wide acceptance, copyrights, earnings from patents etc.. Applicant has filed details regarding Patents in Institute of Pharmaceutical Sciences. However, the same is attributable to a large extent to one individual only namely Dr. Nayanabhirama Udupa. Besides work of Dr. Udupa, applicant does not seems to have W.P.(C) 9996/2015 Page 4 of 22 achieved much in the field of Patents/Copyrights etc in other institutions being run by it. It is also seen that in many industry sponsored projects, the applicant is merely providing its infrastructural support while the research related activities are being handled by the sponsoring organization. Therefore, credit for activities being undertaken in these projects cannot be totally attributed to the applicant for purposes of section 35(1)(ii) of the Act. VIII. On perusal of Income Expenditure statement of MAHE for various years and clause 9(i) of Form 3CF-II, it is seen that its main sources of income are from tuition and fees, hospital income, other services and interest income. While the receipts and corresponding expenses on account of these activities are sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xxxx xxxx xxxx Inference: The above analysis brings out following observations w.r.t. claimed research activities of the applicant organization: o It is seen that various research articles as submitted have been written in collaboration with other institutions by faculty member of MAHE with hardly any tangible contribution from the applicant organization. This suggests that these research articles are an outcome of personal competence and professional experience of these scholars rather than being attributable to contribution of the applicant entity as such in any significant manner. o In research projects, being funded by the multilateral organizations, MAHE is only one of the participatory institutions having specific and limited role in these projects. X. From the note on Papers presented in National/International conferences and number of publications during the F.Yr. 2013-2014, it is seen that around 75% of the Papers presented/Publications are related to Manipal Institute of Technology, Manipal, Kasturba Medical College, Manipal and Kasturba Medical College, Mangalore while remaining institutio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns of the Income Tax Act and Rules 4. The relevant provisions of Section 35(1) are reproduced below: 35. Expenditure on scientific research.- (1) In respect of expenditure on scientific research, the following deductions shall be allowed- Xxxx xxxx xxxx xxxx (ii) [an amount equal to 1a[one and three-fourth] times of any sum paid] to a 1b[research association] which has as its object the undertaking of scientific research or to a University, college or other institution to be used for scientific research : 2 Provided that such association, university, college or other institution for the purposes of this clause- (A) is for the time being approved, in accordance with the guidelines, in the manner and subject to such conditions as may be prescribed; and (B) such association, university, college or other institution is specified as such, by notification in the Official Gazette, by the Central Government; xxxx xxxx xxxx ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agriculture, animal husbandry or fisheries;] (ii) references to expenditure incurred on scientific research include all expenditure incurred for the prosecution, or the provision of facilities for the prosecution, of scientific research, but do not include any expenditure incurred in the acquisition of rights in, or arising out of, scientific research; (iii) references to scientific research related to a business or class of business include- (a) any scientific research which may lead to or facilitate an 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 applicati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for treating the application as invalid to the Member (IT), Central Board of Direct Taxes. (7) The Central Government, if satisfied, may pass an order treating the application as invalid. (8) If the application form is complete in all respects, the Commissioner of Income-tax or, as the case may be, the Director of Income-tax, may make such inquiry as he may consider necessary regarding the genuineness of the activity of the association or university or college or other institution 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 as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... b-section (1) of section 139, furnish a statement to the Commissioner of Income-tax or Director of Income-tax containing- (i) a detailed note on the research work undertaken by it during the previous year; (ii) a summary of research articles published in national or international journals during the year; (iii) any patent or other similar rights applied for or registered during the year; (iv) programme of research projects 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 enqui ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hcoming year and the financial allocation for such programme.] (5) If the Commissioner of Income-tax or the Director of Income-tax is satisfied that the university or college or other institution,- (a) is not maintaining separate books of account for research activities, or (b) has failed to furnish its audit report, or (c) has not furnished its statement of the 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 p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and compliance therewith. The threshold conditions are actual existence of an educational institution and approval of the prescribed authority for which every applicant has to move an application in the standardised form in terms of the first proviso. It is only if the prerequisite condition of actual existence of the educational institution is fulfilled that the question of compliance 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 (Assessm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns is entitled to the benefit if the sum paid is to be used for scientific research. This distinction recognizes that universities, colleges, etc. may be undertaking multifarious activities in various disciplines including scientific and non-scientific areas of study. 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. 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 wer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tific research is no less so because the researcher has not discovered a new theory or invented a patentable product. These results may be achieved only after years of research, or not at all. We respectfully agree with the view expressed by a Division Bench of the Gujarat High Court in The Deputy CIT (Asstt) v. Mastek Limited (2013) 263 CTR (Guj) 671 : 2012 SCC OnLine 4846, wherein 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 activ ..... X X X X Extracts X X X X X X X X Extracts X X X X
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