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Income Tax Appellate Tribunal, KOLKATA BENCH ‘B’, KOLKATA
Before: Shri P. M. Jagtap, A.M. & Shri S.S.Viswanethra Ravi, J.M.)
Per Shri S.S.Viswanethra Ravi, J.M.
This is an appeal by the Revenue against the order dated 07.02.2013 passed by the CIT(A), Jalpaiguri for the assessment year 2009-10.
The Revenue has raised the following grounds: “1. That on the facts and in circumstances of the case, The Ld. CIT (A)/Jalpaiguri had erred in accepting the assessee's contention that the exemption has been claimed u/s 10(23C)(iiiab) of the IT Act which has been allowed to the assessee all through. 2. That on the facts and in the circumstances of the case, The Ld. CIT (A)/Jalpaiguri had erred in allowing exemption u/s 10(23C)(iiiab) of The IT. Act in disregard of the fact that the assessee had been filing return as scientific research association/ organization with the approval u/ s 35(1)(ii) up to A.Y.-2004-05 only. 3. That on the facts and in circumstances of the case, The Ld. CIT (A)/Jalpaiguri had erred in linking the issue of exemption to the concept of surplus only.
ITA No.760/Kol/2013 National Council of Science Museum 4. That Ld. CIT(A) had erred in not taking cognizance of the provision of section 10(21) of the IT Act where by the income of a scientific research association/ organization is exempt only if it is approved u/s 35(1)(ii) of the IT Act for the relevant previous year. 5. That Ld. CIT(A) had erred in taking decision on fresh plea of claiming exemption u/s 10(23C) (iiiab) of the IT Act without affording opportunity to the Assessing Officer in violation of the provision of Rule 46A of the I T Rules 1962. 6. That the appellant craves leave to add to and/or alter, amend, rescind or modify the grounds here in above before or at the hearing of this appeal.”
The brief facts of the case are that the assessee filed its original return for the assessment year on 19.09.2009 declaring total income at Rs. Nil. Again revised return was filed on 10.03.2010 in order to claim refund which was not claimed in the original return. Under scrutiny, notice under section 143(2) was issued. Subsequently, the jurisdiction was assigned to I.T.O.(E) vide order passed by ld. DIT(E), Kolkata dated 30/8/01.09.2011 to complete the assessment. Thereafter notices u/s. 143(2) and 142(1) were issued. In response to such notices, Finance Officer/A.R. and S.O.(F&A) appeared and explained. It was submitted that the assessee is an institution for non-formal education in science and is a non-profit autonomous organization fully funded by Govt. of India under the Ministry of culture. It was stated that the assessee is registered under the W.B. Societies Registration Act XXVI of 1961 vide no. S/21927 of 1978-79. It was approved for the purpose of section 35(1)(ii) of the Act read with Rule 6 of Income Tax Rules1962 for the period from 01.04.2001 to 31.03.2004. The assessee submitted an application dated 02.12.2011 in Revised Form 3CF.1 to CBDT for approval u/s. 35(1)(ii) for the period from 01.04.2004 to 31.03.2013 and it was pending before CBDT. Thus, the AO was of the view that the assessee was not approved under section 35(1)(ii) for the assessment year 2009-10.
ITA No.760/Kol/2013 National Council of Science Museum 4. During the assessment proceedings, the AO found that the assessee claimed exemption u/s 10(23C) in the original return and was not claimed in the Revised return. The Finance Officer submitted on 16.12.2011 that there is no approval for claiming exemption u/s 10(23C) was available with the assessee. The AO found that the assessee is not registered u/s 12A of the Act, but however, noticed that the assessee got renewal of recognition of Scientific and Industrial Research Organizations (SIROS) from Deptt. of Science and Ind. Research for short DSIR for the period from 01.04.2007 to 31.03.2010 vide No.11/80/88-TV dt.08.06.2007. AO of the view that such recognition of DSIR is not an approval u/s 35(1)(ii) of the Act to claim exemption and denied exemption of Rs.23,14,53,686/- as claimed by the assessee by observing that the said amount is liable to be assessed under the head Income from other sources and COMPUTATED the TOTAL INCOME of the assesse as under: Gross receipts (taking into consideration the Receipt & Payments Account and Income & Expenditure Account.)
Grants received from Govt. of India. Rs.45,41,05,000/- Grants received from State Govt. Rs.13,05,15,000/- Revenue received. Rs. 2,00,00,000/- Rs. 80,05,53,122/- Expenses allowed.
Less: Establishment expenses (receipt & payment statement) Rs.30,40,52,565/-
Other administrative expenses (receipt payment statement) Rs.16,48,00,201/-
Depreciation allowed as per Income & Expenditure A/c (Depreciation claimed to be as per IT. Act.) Rs.10,02.46,670/- Rs.56,90,99.436/- Total income Rs.23,14,53,686/-
ITA No.760/Kol/2013 National Council of Science Museum 5. The CIT-A was of the view that the assessee receives funds from Government of India and Government of West Bengal to maintain and manage all science museums in the country which are under the control of the Government of India and no element of income in the hands of the assessee as it functions like a government department and the exemption was claimed u/s 10(23C)(iiiab) and was allowed to assessee for the past years and deleted said addition of Rs.23,14,53,686/-made by the AO.
The Revenue in this appeal contends that the assessee is not a university and the approval u/s 35(1)(ii) of the Act is necessary to claim exemption under section 10(23C)(iiiab) of the Act and failed to appreciate section 10(21) of the Act as the AO rightly added the said amount of Rs.23,14,53,686/- taking into consideration section 10(21) of the Act and relied on the AO’s order. The Ld.AR submits that the assessee is fully funded by the Government of India and said claim has been allowed for all the previous years and drew our attention to the Page no 119 and 121 of paper book to show that the assessee is a educational institution and fresh approval has been granted to assessee and relied on case law reported in 306 ITR 1 and orders of Mumbai and Delhi Benches of ITAT.
Heard both sides and perused the relevant material on record. It is noticed that the assessee was granted approval u/s 35(1)(ii) of the Act by the CBDT valid upto 31.03.2004 and the assessee claimed exemption under the provisions 10(23C) of the Act but however got renewal from SIROS. The AO denied such exemption as there was no such approval granted to the assessee for the year under consideration, but however, found that the approval u/s 35(1)(i) granted by CBDT is valid only upto 31-03-2004 and fresh application for approval is pending with
ITA No.760/Kol/2013 National Council of Science Museum the CBDT and treated the receipts by way of grants from the Government of India and Government of West Bengal as income and put to tax as computed therein to the income of assessee.
Therefore, it is clear that the assessee has been claiming exemption under section 10(23C) (iiiab) of the Act. Though the approval was not received as it was pending with CBDT, the assessee got recognition from Scientific and Industrial Research Organisation which functions under Department of Science & Industrial Research from 01.04.2007 to 31.03.2010. Thus, the assessee is entitled to claim exemption. In this regard, we may refer to the Chapter-III wherein the incomes not included in total income provided under section 10 and clause (iiiab) to sub section (23C) therewith where the assessee has been claiming exemption for through past years and said provision reproduced here under for better understanding:
CHAPTER III INCOMES WHICH DO NOT FORM PART OF TOTAL INCOME Incomes not included in total income. 10. In computing the total income of a previous year of any person, any income falling within any of the following clauses shall not be included— (23C) any income received by any person on behalf of— (i) the Prime Minister's National Relief Fund; or (ii) the Prime Minister's Fund (Promotion of Folk Art); or (iii) the Prime Minister's Aid to Students Fund; or (iiia) the National Foundation for Communal Harmony; or 47[(iiiaa) the Swachh Bharat Kosh, set up by the Central Government; or (iiiaaa) the Clean Ganga Fund, set up by the Central Government; or] (iiiab) any university or other educational institution existing solely for educational purposes and not for purposes of profit, and which is wholly or substantially financed by the Government48; or (iiiac) any hospital or other institution for the reception and treatment of persons suffering from illness or mental defectiveness or for the reception and treatment of persons during convalescence or of persons requiring
ITA No.760/Kol/2013 National Council of Science Museum medical attention or rehabilitation, existing solely for philanthropic purposes and not for purposes of profit, and which is wholly or substantially financed by the Government48. 49[Explanation.—For the purposes of sub-clauses (iiiab) and (iiiac), any university or other educational institution, hospital or other institution referred therein, shall be considered as being substantially financed by the Government for any previous year, if the Government grant to such university or other educational institution, hospital or other institution exceeds such percentage of the total receipts including any voluntary contributions, as may be prescribed48, of such university or other educational institution, hospital or other institution, as the case may be, during the relevant previous year]; or
A plain reading of the above speaks the financial grants by the Government to any University or other educational institution existing solely for educational purposes without any element of profit does not include in total income. In the present case, the ld. AR drew our attention to page 119 of paper book. It clearly shows that the assessee is an autonomous society registered on 4.4.1978 and Union Minister of Education as its President. The assessee has taken over the three science museums/ centres situated in Kolkata, Bangalore and Bombay vide gazette notification dated 6.4.1978 and thereafter it established many such science museums all over the country and the assessee has been maintaining them through the funds granted by the Government of India. As discussed above, the assessee is fully funded by the Government of India and registered under West Bengal Registration of Societies Act, 1961 and a non-profit autonomous society carrying non-formal education existing solely for education purposes. Therefore, we are of the view, that the funds granted by the Government of India does not come under the definition of income and thus, it cannot be included in total income in terms of the section 10(23C) of the Act. Therefore, we hold that section 10(23C) is application to the case of the assessee.
ITA No.760/Kol/2013 National Council of Science Museum
On the other hand, the AO disallowed the claim of exemption on the ground that no approval under section 35(1)(ii) from CBDT was not available for the year under consideration. The finding of the CIT(A) that the section 35(1)(ii) does not deal with exemption, though the approval under said was expired and exemption is available to assessee under section 10(23C)(iiiab) of the Act. For better understanding, the relevant provision is reproduced as under:
Expenditure on scientific research 35. (1) In respect of expenditure on scientific research, the following deductions shall be allowed— (i) any expenditure (not being in the nature of capital expenditure) laid out or expended on scientific research related to the business. Explanation.—Where any such expenditure has been laid out or expended before the commencement of the business (not being expenditure laid out or expended before the 1st day of April, 1973) on payment of any salary [as defined in Explanation 2 below sub-section (5) of section 40A] to an employee engaged in such scientific research or on the purchase of materials used in such scientific research, the aggregate of the expenditure so laid out or expended within the three years immediately preceding the commencement of the business shall, to the extent it is certified by the prescribed authority23 to have been laid out or expended on such scientific research, be deemed to have been laid out or expended in the previous year in which the business is commenced ; 24(ii) an amount equal to one and three-fourth 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; (iia) an amount equal to one and one-fourth times of any sum paid to a company to be used by it for scientific research: 7
ITA No.760/Kol/2013 National Council of Science Museum Provided that such company— (A) is registered in India, (B) has as its main object the scientific research and development, (C) is, for the purposes of this clause, for the time being approved by the prescribed authority in the prescribed manner, and (D) fulfils such other conditions as may be prescribed25; (iii) an amount equal to one and one-fourth times of any sum paid to a research association which has as its object the undertaking of research in social science or statistical research or to a university, college or other institution to be used for research in social science or statistical 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. Explanation.—The deduction, to which the assessee is entitled in respect of any sum paid to a research association, university, college or other institution to which clause (ii) or clause (iii) applies, shall not be denied merely on the ground that, subsequent to the payment of such sum by the assessee, the approval granted to the association, university, college or other institution referred to in clause (ii) or clause (iii) has been withdrawn; (iv) in respect of any expenditure of a capital nature on scientific research related to the business carried on by the assessee, such deduction as may be admissible under the provisions of sub-section (2) : 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 Central 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 8
ITA No.760/Kol/2013 National Council of Science Museum 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 specified in the notification: Provided also that where an application under the first proviso is made on or after the date on which the Taxation Laws (Amendment) Bill, 2006 receives the assent of the President†, every notification under clause (ii) or clause (iii) shall be issued or an order rejecting the application shall be passed within the period of twelve months from the end of the month in which such application was received by the Central Government.
A thorough reading of the above provision explains about the deductions shall be allowed on expenditure incurred on scientific research subject to the condition contained therein, specifically clause (i) of (1) of 35 said expenditure shall not be in the nature of capital expenditure, but the incurred expenditure on scientific research should be relatable to the business. Whereas clause (ii) of sub- section (1) of section 35 of the Act, any amount paid to put in use for scientific research to a university, college or other institution, deduction is available to an extent of one and three-fourth times of above-said amount. In the present case, the assessee is not an institution incurring expenditure for scientific research. It is an educational institution formed and registered in the year 1978 for the purpose of managing science museums in the country under the control of Department of culture. The ld. AR submitted that it is an institution established to portray the growth of science and technology and their application in industry and human welfare with a view to develop scientific attitude and temper and to create, inculcate and sustain a general awareness amongst the people and took us to page 121 of paper book drew our attention to the point no.3(iv) and (vii) of objects of the assessee as provided in memorandum of association of assessee. So point for consideration for us to decide whether an approval is required under section
ITA No.760/Kol/2013 National Council of Science Museum 35(1)(ii) of the Act for the assessee to claim exemption under section 10(23C) of the Act or not. As discussed above, the assessee is not a university or college or any other institution incurring expenditure for any scientific research to claim exemption under section 10(23C)(iiiab) of the Act. It is only an educational institution established for the purpose of managing science museums and drawing funds from Government of India and Government of West Bengal for maintenance and achieve its objects as provided in the memorandum at page 121 of paper book. Therefore, in our opinion, an approval is not necessary under section 35(1)(ii) of the Act to claim exemption under section 10(23C)(iiiab) of the Act. The CIT(A) has rightly dealt with the issue involving approval under section 35(1)(ii) and finding thereon, stating in other words, pending approval, the assessee is entitled to claim exemption under section 10(23C) (iiiab) of the Act. Accordingly, we hold that in order to claim exemption under section 10(23C)(iiiab) of the Act, the approval under section 35(1)(ii) of the Act is not necessary in the present case. Therefore, ground nos. 1 to 3 raised by the Revenue dismissed.
In this regard, we may refer to the Judgment of The Hon’ble HIGH COURT OF DELHI DIRECTOR OF INCOME TAX vs. INDIAN NATIONAL SCIENCE ACADEMY reported in (2010) 78 CCH 0083 where a similar issue came up before the Hon’ble High Court, wherein the case on hand was remanded to Tribunal, but, however, the Hon’ble Court observed, the relevant portion which is applicable is reproduced hereunder:
Before we part with, we would like to make certain comments. As noted above, the NISA had been allowed approval under s. 35(1)(ii) of the Act for the last twenty five years, i.e., till 31st March, 2003 as of "Scientific Research Association". Reason why the approval is now granted as "other institution", is not discernible. It was stated by the learned counsel for the assessee that application for reconsideration and put the NISA under the category of "Scientific Research Association" is pending. We hope and 10
ITA No.760/Kol/2013 National Council of Science Museum expect that CBDT shall decide such an application as expeditiously as possible. It is also necessary to point out that in case representation of the INSA is rejected, it would be open to the INSA to file suitable appeal against such an order. Furthermore, from the perusal of the order of the CIT(A) shows that it was argued before him that the INSA is a non-profit organization fully funded by Department of Science and Technology, Ministry of Science and Technology, Government of India. If it is correct, it would be open to the INSA to press this fact before the Tribunal to support its plea that being an institution 100 per cent financed by the Central Government, it is not liable to pay any tax. The party shall appear before the Tribunal on 11th Feb., 2010.
Therefore, we find support from the Judgment supra, where the Hon’ble HIGH COURT observed that when the assessee therein is a non-profit organization fully funded by Department of Science and Technology, Ministry of Science and Technology, Government of India and that being an institution 100 per cent financed by the Central Government and need not liable to pay any tax and even directed assessee therein to press the same before the Tribunal. In the present case also, as discussed above, the assessee receiving funds from Government of India and Government of West Bengal to maintain and manage all science museums in the country which are under the control of the Government of India and no element of income in the hands of the assessee as it functions like a government department. By applying the observation of Hon’ble HIGH COURT to the facts of the case on hand, we hold that the assessee is not liable to pay any tax.
Ground No-4 raised by the Revenue that the CIT-A allowed exemption for assessee without there being approval Under Section 35(1)(ii) of the Act with out taking into consideration the provision contemplated in Section 10(21) of the Act. In our opinion, the adjudication of ground no-4 is not necessary in view of the discussion in foregoing paras where we expressed that approval Under Section 11
ITA No.760/Kol/2013 National Council of Science Museum 35(1)(ii) of the Act is not required to claim exemption U/Sec 10(23C)(iiiab) of the Act. Therefore, ground No-4 is dismissed.
Ground No-5 involving Rule 46A of the Rules where the Revenue raised that the CIT-A allowed exemption without there being a specific claim U/Sec 10(23C)(iiiab) of the Act by the assessee. During the course of assessment proceedings the AO found that the assessee claimed exemption under the said provision, but however, not claimed said exemption in the revised return. As seen from the record that the assessee did not produce any other evidence or additional evidence before the CIT-A in support of its claim. The CIT-A found only that the approval Under Section 35(1)(ii) of the Act is not required to claim exemption U/Sec 10(23C)(iiiab) of the Act and granted relief basing on the assessments where the Revenue kept on allowing for all the past years. Thus, in our opinion, there was no new material of evidence produced before the CIT-A to claim the said exemption. Therefore, we hold that there was no violation of Rule 46A of the Rules, accordingly, Ground No-5 is dismissed.
In the result, the appeal of the Revenue is dismissed.
Order Pronounced in the Open Court on 13.05.2016
Sd/- Sd/- (P. M. Jagtap) (S.S.Viswanethra Ravi) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 13.05.2016 Talukdar (Sr.PS)
ITA No.760/Kol/2013 National Council of Science Museum
Copy of the order forwarded to: 1. National Council of Science Museums, Sector-V, Block-GN, Bidhan Nagar, Kolkata – 700 091 I.T.O.(E)-I, Kolkata, 5th floor, 10B, Middleton Row, Kolkata- 700 2 071 3. The CIT-I, 4. The CIT(A)-I, 5. DR, Kolkata Benches, Kolkata