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Facts
The revenue filed an appeal against the CIT(A)'s order allowing exemption under section 10(21) to the assessee. The assessee, a research association, had given a loan of Rs. 15,84,91,998 to its subsidiary. The Assessing Officer disallowed this exemption, treating it as a non-specified investment.
Held
The Tribunal noted that the assessee was approved under section 35(1)(ii) and its investment in its subsidiary was for carrying out similar objectives. However, it also observed that the assessee's approval was as an 'other institution' partly engaged in research activities, not specifically as a 'research association' as required by section 10(21). The Tribunal restored the matter to the AO for fresh computation.
Key Issues
Whether the loan given by the assessee to its subsidiary qualifies for exemption under section 10(21) as application of income for scientific research, or if it's a non-specified investment under section 11(5)?
Sections Cited
10(21), 11(5), 35(1)(ii)
AI-generated summary — verify with the full judgment below
Before: SHRI AMIT SHUKLA & SMT. RENU JAUHRI
IN THE INCOME-TAX APPELLATE TRIBUNAL “C” BENCH, MUMBAI BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER & SMT. RENU JAUHRI, ACCOUNTANT MEMBER ITA No. 4084/Mum/2023 (A.Y.2018-19) DCIT(E)1(1) v/s Indian Register of Room No. 607, 6th Floor, बनाम Shipping, MTNL Building, Cumballa 52A, ADI Shankaracharya Hill, Marg, Apposite Powai Mumbai-400026 Lake, Mumbai-400072 स्थायी लेखा सं./जीआइआर सं./PAN/GIR No: AAACI2381M Appellant/अपीलार्थी .. Respondent/प्रतिवादी
Appellant by : Shri Vijay Mehta Respondent by : Ms. Madhu Malati Ghosh Date of Hearing 14.06.2024 Date of Pronouncement 26.07.2024 आदेश / O R D E R PER RENU JAUHRI [A.M.] :- This appeal is filed by the revenue against the order of the Learned Commissioner of Income-tax (Appeals), Mumbai/National Faceless Appeal Centre, Delhi [hereinafter referred to as “CIT(A)”] dated 22.09.2021 passed u/s. 250 of the Income-tax Act, 1961 [hereinafter referred to as “Act”] for Assessment Year [A.Y.] 2018-19.
The revenue has raised following grounds of appeal: “(i) "Whether, on the facts and circumstances of the case and in law, the Ld. CIT (A) erred in allowing exemption u/s 10(21) to the assessee by allowing the claim as application towards a commercial loan granted with interest by the assessee to its subsidiary?"
ITA No. 4084/Mum/2023 A.Y. 2018-19 Indian Register of Shiping (ii) "Whether, on the facts and circumstances of the case and in law, the Ld. CIT(A) erred in allowing loan granted to M/s. IRS Global Core Investment Co. Pvt. Ltd. during the year to the tune of Rs. 15,84,91,998/- being a commercial loan as an application of the income and thereby allowing a claim which is not qualified for exemption u/s. 10(21)for not being an investment in mode as specified u/s. 11(5) of the IT Act. 1961?" 3. Brief facts of the case are that the assessee is a section 25 Company under the Companies Act, 1956 and an internationally recognized Ship Classification Society. It has been approved by DSIR as a ‘Scientific Research Organization” under the scheme on Recognition of Scientific and Industrial Organization (SIROs) vide notification dated 05.05.2009. It has also been approved u/s 35(1)(ii) of the Act and the approval was last renewed vide notification No. 273/2007 dated 13.11.2007 w.e.f. 01.04.2003. Return declaring nil income was filed for the year under consideration on 04.10.2018 along with report in Form 10. The case was selected for complete scrutiny for verification on various grounds which included, interalia, Business Income of the Trust, Expenditure for Charitable or Religious Purposes and Approval u/s 35. The assessment was framed after making disallowance of exemption u/s 10(21) of the Act to the extent of Rs. 15,84,91,998/- in respect of loan granted to its foreign subsidiary M/s. IRS Global Core Investment Company Pvt. Ltd. The same was disallowed on the ground that it was not an investment in modes specified u/s 11(5) of the Act, hence not eligible for exemption u/s 10(21). 4. The CIT(A) vide his order dated 22.09.2023 deleted the additions with the following observations: “5.1.8 The appellant is a research association as per provisions of Section 35(1)(ii) of the Act recognized by the Department of Scientific
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ITA No. 4084/Mum/2023 A.Y. 2018-19 Indian Register of Shiping and Industrial Research (DSIR). The investment made by such body in its 100% subsidiary is towards carrying on and fulfillment of similar objects. The discussion mentioned as above gives a narrative wherein advancement of loans/advances given to subsidiary institute towards fulfillment of the main objectives of the organization is eligible for the benefit. Under similar circumstances, the status of the appellant whether he is a trust or scientific research association would not have any impact. Hence, the principle of mutatis mutandis can be applicable to the appellant. 5.1.9 It is pertinent to mention here that the appellant was compelled to set up a subsidiary internationally and not a branch due to legal requirements of the respective local laws, in order to render services to the ships of the appellant company. It is also noted that the subsidiary company carries the same activities of Survey and classification of Ships to that of its holding company i.e. appellant company. It is further noted that when the loan is returned to the institution it would be accounted as its income for the year of receipt. In view of the above observations and drawing essence of Board's circular and following the judicial precedents as brought out supra, the amount of Rs. 1584.92 lakhs given as loan by the appellant to its subsidiary company having similar objectives is considered as application of income for attaining its objectives. In view of the above, the disallowance made u/s. 10(21) holding that there is violation of provisions of sec 11(5) of the Act is not warranted and hence is deleted.” 5. Aggrieved with the decision of the Ld. CIT(A), the revenue is in appeal before us. We have heard the rival submissions. Since the assessee had not furnished copy of the notification u/s 35(1)(ii) of the CBDT based on which the claim for exemption of income u/s 10(21) was made, the same was requisitioned for perusal which has been filed. Section 35(1)(ii) allows weighted deduction to a donor in respect of sum paid to an organization for scientific research. The relevant portion is reproduced hereunder: “35. (1) In respect of expenditure on scientific research, the following deduction shall be allowed:- (i)………….
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ITA No. 4084/Mum/2023 A.Y. 2018-19 Indian Register of Shiping (ii) [an amount equal to one and one half times of any sum paid to a 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: 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: Provided further that where any sum is paid to such association, university, college or other institution in a previous year relevant to the assessment year beginning on or after the 1st day of April, 2021, the deduction under this clause shall be equal to the sum so paid; ….. ….. ….. ……” 6. It was noticed from the copy of CBDT notification dated 13.11.2007 filed by the assessee during the course of hearing that the approval granted to the assessee u/s 35(1)(ii) was in the category of ‘other institution’ partly engaged in research activities. As such the assessee is not covered under the provisions of section 10(21) which allows exemption of income only to a ‘research association’ and not to the other categories such as university, college or other institution mentioned in section 35(1)(ii) of the Act. Relevant portion of the Section 10(21) is reproduced as under: “10.(21) any income of a [research association] for the time being approved for the purpose of clause (ii) [or clause (iii)] of sub-section (1) of section 35: Provided that the research association— ……. ……. ……”
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ITA No. 4084/Mum/2023 A.Y. 2018-19 Indian Register of Shiping
In this case, the AO without referring to the notification u/s 35(1)(ii) of the Act, has proceeded to determine the income of the assessee u/s 10(21) by making disallowance of Rs. 15,84,91,998/- on account of loan given to its subsidiary M/s IRS Global Core Investment Company Pvt. Ltd on the ground that it is an investment in non-specified mode u/s 11(5) of the Act. 8. Along with a copy of the notification, the Ld. AR has also submitted a copy of the Memorandum & Articles of Association of the assessee company as well as its subsidiary. He has cited several decisions in support of its claim that the exemption u/s 10(21) having been allowed by the AO, the same cannot be questioned or disallowed at this stage and only the allowability of Rs. 15,84,91,998 may be decided by the Bench. 9. In the light of above facts, we deem it appropriate to restore the matter to the file of AO for fresh computation of income as per applicable provisions of the Act with directions to the assessee to make submissions regarding its claim before the AO. 10. In the result, the appeal of the revenue is allowed for statistical purpose. Order pronounced in the open court on 26.07.2024.
Sd/- Sd/- AMIT SHUKLA RENU JAUHRI (न्यातयक सदस्य/JUDICIAL MEMBER) (लेखाकार सदस्य/ACCOUNTANT MEMBER) Place: म ुंबई/Mumbai दिनाुंक /Date 26.07.2024
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ITA No. 4084/Mum/2023 A.Y. 2018-19 Indian Register of Shiping अननकेत स ुंह राजपूत/ स्टेनो आदेश की प्रतितलति अग्रेतिि/Copy of the Order forwarded to : 1. अपीलार्थी / The Appellant 2. प्रत्यर्थी / The Respondent. 3. आयकर आयुक्त / CIT 4. विभागीय प्रविविवि, आयकर अपीलीय अविकरण DR, ITAT, Mumbai 5. गार्ड फाईल / Guard file.
सत्यावपि प्रवि //True Copy// आदेशानुसार/ BY ORDER,
उि/सहायक िंजीकार (Dy./Asstt. Registrar) आयकर अिीलीय अतिकरण/ ITAT, Bench, Mumbai.
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