DCIT (E), New Delhi V. M/s. Shri Ram Scientific and Industrial Reserach Foundation, New Delhi

ITA 2681/DEL/2015

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 2850 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 10 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-03-2018
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2009-2010
• Appeal Filed On: 05-05-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RAVIKANT GUPTA
• Assessee Lawyers: R K KAPOOR
• Keywords: Business income; Depreciation; Charitable institution; Opportunity of being heard; Principle of natural justice; Additional evidence
• Section: 12A; 12AA; 28; 11

Judgement Text

1 , INCOME-TAX APPELLATE TRIBUNAL F BENCH DELHI. , , BEFORE S/SH. RAJENDRA, ACCOUNTANT MEMBER & BEENA PILLAI,JUDICIAL MEMBER . / I.T.A. NOS. 2681 & 2682/DEL/2015 / ASSESSMENT YEARS: 2009-10 & 2010-11. DY. COMMISSIONER OF INCOME TAX, (EXEMPTION) CIRCLE : 2 (1), NEW DELHI VS. SHRI RAM SCIENTIFIC AND INDUSTRIAL RESEARCH FOUNDATION, DIAMOND PRESS BUILDING, 8-E, RANI JHANSI ROAD, JHANDEWALAN EXTN. NEW DELHI-110 055. PAN : AAATS 0867 K APPELLANT( ) RESPONDENT( ) REVENUE BY: SHRI RAVI KANT GUPTA, SR. D.R.; ASSESSEE BY: SHRI PRADEEP DINODIA, C.A.; & SHRI R.K. KAPOOR, C.A. / DATE OF HEARING: 07.03.2018 / DATE OF PRONOUNCEMENT: 07/03/2018 ,1961 254(1) ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) , / PER RAJENDRA, AM - CHALLENGING THE ORDERS OF THE COMMISSIONER OF INCOME TAX (APPEALS)40 [CIT(A)], NEW DELHI, THE ASSESSING OFFICER(AO)HAS FILED THE APPEALS FOR ABOVE-MENTIONED TWO YEARS.ASSESSEE - FOUNDATION WAS FORMED IN THE YEAR 1940 AS A SOCIETY TO CARRY OUT SCIENTIFIC RESEARCH IN THE FIELD OF APPLIED SCIENCES.IT IS REGISTERED UNDER SECTION 12AA OF THE ACT,VIDE ORDER DATED 23.02.2015. THE DETAILS OF FILING OF RETURNS, DATES OF RETURNS, DATES OF ASSESSMENT ORDERS, ASSESSED INCOME AND DATES OF CIT (APPEALS)S ORDER CAN BE SUMMARISED AS UNDER :- A. Y. ROI FILED ON RETURNED INCOME ASSESSMENT DATE ASSESSED INCOME CIT(A) ORDER 2009-10 31.07.2009 NIL 30.12.2011 13,17,07,400 23.02.2015 2010-11 30.07.2010 NIL 26.03.2013 24,35,75,655 23.02.2015 ITA. NO. 2681/DEL/2015 [A.Y.: 2009-10 : 2 . FIRST GROUND OF APPEAL IS ABOUT ALLOWING THE EXEMPTION TO THE ASSESSEE UNDER SECTION 10(21)OF THE ACT.BEFORE US,REPRESENTATIVES OF BOTH THE SIDES AGREED THAT THE IDENTICAL ISSUE STANDS DECIDED ITA. NOS. 2681 & 2682/DEL/2015. SHRI RAM SCIENTIFIC & INDUSTRIAL RES. FOUNDATION. 2 IN FAVOUR OF THE ASSESSEE BY THE ORDER OF THE TRIBUNAL,DELIVERED FOR THE A.YS. 1996-97 TO 1998- 99.IT WAS ALSO AGREED BY THE AUTHORISED REPRESENTATIVE (AR) AND THE DEPARTMENTAL REPRESENTATIVE (DR) HAT SECOND GROUND OF APPEAL ABOUT TREATMENT TO BE GIVEN TO THE PAYMENT OF LOAN WAS DECIDED AGAINST THE ASSESSEE BY THE TRIBUNAL,WHILE DECIDING THE APPEAL FOR THE ASSESSMENT YEAR 2008-09. WE ARE REPRODUCING THE RELEVANT PORTION OF THE ORDER OF THE TRIBUNAL DATED 16.11.2004,(ITA/ 3907/DEL/2001,ITA/3069/2002 AND ITA/3070/2002,DEALING WITH GROUND NO.1 AND IT READS AS UNDER :- 2. THE FIRST COMMON GRIEVANCE OF THE ASSESSEE IN ALL THE THREE APPEALS IS AGAINST THE DENIAL OF EXEMPTION UNDER SECTION 10(21) OF THE INCOME TAX ACT, 1961 (THE ACT). 3. THE ASSESSEE IS A SOCIETY REGISTERED UNDER THE SOCIETIES REGISTRATION ACT, 1860 AND IS ENGAGED IN THE FIELD OF INDUSTRIAL RESEARCH IN APPLIED SCIENCES, IT HAD RETURNED NIL INCOME TOR ASSESSMENT YEAR 1996-97. IN THE COURSE OF ASSESSMENT PROCEEDINGS FOR ASSESSMENT YEAR 1996-97, THE AO NOTED THAT THE ASSESSEE WAS APPROVED BY THE PRESCRIBED AUTHORITY IN THE CATEGORY OF INSTITUTION 5 FOR THE PURPOSE OF SECTION 35(L)(II) OF THE ACT. THE AO FURTHER OBSERVED THAT HITHERTO, THE ASSESSEE HAD BEEN CLAIMING EXEMPTION U/S 10(21) READ WITH SECTION 35(1)(II) AND THIS CLAIM HAD BEEN ACCEPTED TILL ASSESSMENT YEAR 1995-96. HOWEVER, ACCORDING TO THE AO, THIS CLAIM OF THE ASSESSEE WAS NOT IN ORDER AS EXEMPTION U/S 10(21) WAS AVAILABLE ONLY TO A SCIENTIFIC RESEARCH ASSOCIATION SUBJECT TO IS APPROVAL U/S 35(1)(II) AND OTHER PRESCRIBED CONDITIONS. THE ARGUMENT OF THE ASSESSEE THAT THE CLAIM SHOULD BE ACCEPTED SINCE IT HAD ALWAYS BEEN ACCEPTED IN THE PAST WAS ALSO REJECTED ON THE GROUND THAT A WRONG COMMITTED IN THE PAST CANNOT BE ALLOWED TO BE PERPETUATED. ACCORDINGLY, THE CLAIM OF DIE ASSESSEE FOR EXEMPTION U/S 10(21) OF THE ACT WAS REJECTED ON THE GROUND THAT IT WAS CATEGORIZED AS AN INSTITUTION AND NOT AS AN ASSOCIATIONS THE ASSESSEE MADE A CLAIM FOR EXEMPTION U/S 11 BUT THE SAME WAS DENIED AS THERE WAS NO REGISTRATION U/S 12A OF THE ACT. ALTERNATIVELY, THE ASSESSEE CONTENDED THAT IF THE INCOME IS TO BE COMPUTED U/S 28 OF THE ACT, THEN DEDUCTION UNDER SECTION 35(1)(IV) MAY BE GIVEN. HOWEVER, THIS CLAIM OF THE ASSESSEE WAS ALSO NEGATIVED ON THE GROUND THAT DEDUCTION U/S 35(1)(IV) WAS AVAILABLE ONLY TO PERSONS HAVING BUSINESS INCOME AND THE CASE OF THE PRESENT ASSESSEE ALTHOUGH HAS BEEN THAT IT IS NOT ENGAGED IN ANY BUSINESS ACTIVITY. ACCORDINGLY THE ASSESSEE WAS ASSESSED AT A NET LOSS OF RS.56,89,140/- FOR ASSESSMENT YEAR 1996-97. FOR ASSESSMENT YEAR 1997-98 ALSO RETURN SHOWING NIL INCOME WAS FILED BY CLAIMING EXEMPTION U/S 10(21). HOWEVER, FOR THIS YEAR ALSO ALL THE THREE CLAIMS WERE DENIED AS IN ASSESSMENT YEAR 1996-97 AND THE TOTAL INCOME WAS ASSESSED AT RS.56,020/-. THE ASSESSMENT ORDER FOR ASSESSMENT YEAR 1998-99WAS FRAMED ON THE SAME LINES ASSESSING THE TOTAL INCOME AT A LOSS OF RS.10,41,104/-. XXXXX XXXXX XXXXX XXXXX 7. WE HAVE DULY CONSIDERED THE RIVAL CONTENTIONS AND THE MATERIAL ON RECORD. THE ISSUE BEFORE US IS WHETHER THE REVENUE AUTHORITIES ARE JUSTIFIED IN DENYING THE BENEFIT UNDER SECTION 10(21) TO THE ASSESSEE. THE MAIN PROVISION OF SECTION 10(21) OF THE ACT READS AS FOLLOWS: (21) ANY INCOME OF A SCIENTIFIC RESEARCH ASSOCIATION FOR THE TIME BEING APPROVED FOR THE PURPOSE OF CLAUSE(II) OF SUBSECTION (1) OF SECTION 35. ' THERE ARE CERTAIN PROVISOS TO THIS SECTION ALSO, BUT WE SHALL REFER TO THEM ONLY IF NEED BE. THUS, THE BENEFIT U/S 10(21) TO THE ASSESSEE FLOWSFROM THE APPROVAL IT HAS OBTAINED U/S ITA. NOS. 2681 & 2682/DEL/2015. SHRI RAM SCIENTIFIC & INDUSTRIAL RES. FOUNDATION. 3 35(1)(II) OF THE ACT. THE PROVISIONS OF SECTION 35(1)(II) AS THEY WERE FOR THE YEARS UNDER CONSIDERATION, ARE AS FOLLOWS :- SECTION 35. IN RESPECT OF EXPENDITURE ON SCIENTIFIC RESEARCH, THE FOLLOWING DEDUCTIONS SHALL BE ALLOWED:- (I) .. (II) ANY SUM PAID TO A SCIENTIFIC 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 INSTITUTION IS FOR THE TIME BEING APPROVED FOR THE PURPOSES OF THIS CLAUSE BY THE PRESCRIBED AUTHORITY BY NOTIFICATION IN THE OFFICIAL GAZETTE. A PLAIN READING OF THE ABOVE PROVISION, INDICATES THAT THE ORGANIZATIONS, THE PAYMENTS TO WHOM QUALIFY FOR DEDUCTION, ARE BROADLY CLASSIFIED INTO TWO CATEGORIES. THEY ARE, (A) A SCIENTIFIC RESEARCH ASSOCIATION WHICH HAS AS ITS OBJECT THE UNDERTAKING OF SCIENTIFIC RESEARCH, AND (B) UNIVERSITY, COLLEGE OR OTHER INSTITUTION, WHICH, USES THE MONEY FOR SCIENTIFIC RESEARCH. IT IS IMPORTANT TO NOTE THE DIFFERENCE IN WORDINGS USED FOR THE TWO CATEGORIES OF ORGANIZATIONS. FOR THE FIRST CATEGORY THE WORDINGS USED ARE ,,,,,,,,,,WHICH HAS AS ITS OBJECT THE UNDERTAKING OF SCIENTIFIC RESEARCH......... THESE WORDINGS INDICATE THAT AN ORGANIZATION WHICH HAS AS ITS SOLE OBJECT OF UNDERTAKING SCIENTIFIC RESEARCH, THE PAYMENT TO SUCH AN ORGANIZATION WILL QUALIFY FOR DEDUCTION ONCE IT IS APPROVED BY THE PRESCRIBED AUTHORITY AND NOTIFIED IN THE OFFICIAL GAZETTE. IT ALSO PRESUPPOSES THAT THE ENTIRE MONEY RECEIVED BY SUCH AN ORGANIZATION WILL BE UTILIZED TOWARDS THE OBJECT FOR WHICH IT IS ESTABLISHED AND THAT IT HAS NO OTHER ACTIVITY EXCEPT TO CARRY OUT SCIENTIFIC RESEARCH. ON THE OTHER HAND, THE WORDINGS USED FOR THE SECOND CATEGORY OF ORGANIZATIONS ARE TO BE USED FOR SCIENTIFIC RESEARCH. THIS INDICATES THAT THE SECOND CATEGORY OF ORGANIZATIONS ARE NOT SOLELY ESTABLISHED TO CARRY OUT SCIENTIFIC RESEARCH, BUT THEY MAY CARRY OUT SCIENTIFIC RESEARCH OVER AND ABOVE OTHER ACTIVITIES FOR WHICH THEY ARE ESTABLISHED. IN OTHER WORDS, THESE ARE MULTI-OBJECT ORGANIZATIONS AND BY VIRTUE OF THEIR BEING SO, IT HAS BEEN SPECIFICALLY PROVIDED THAT THE MONEY RECEIVED BY THEM FOR SCIENTIFIC RESEARCH SHALL BE USED FOR SCIENTIFIC RESEARCH ONLY AND NOT FOR ANY OTHER OBJECT. 8. NOW WHAT ARE THESE SECOND CATEGORY OF ORGANIZATIONS. SECTION 35(L)(II) REFERS TO THEM AS A UNIVERSITY, COLLEGE OR OTHER INSTITUTION,UNIVERSITY AND COLLEGE ARE UNDOUBTEDLY EDUCATIONAL INSTITUTIONS.FOLLOWING THE PRINCIPLE OF EJUSDEM GENERIS, THE EXPRESSION OTHER INSTITUTIONS WILL TAKE COLOUR FROM THE EXPRESSIONS PRECEDING IT. THUS, THE EXPRESSION OTHER INSTITUTION IS MEAN! TO BE AN INSTITUTION IMPARTING EDUCATION IN ANY DISCIPLINE WHICH MAY, IN ADDITION, CARRY OUT SCIENTIFIC RESEARCH. THIS, TO US, APPEARS TO BE THE BASIC DISTINCTION BETWEEN THE EXPRESSIONS ASSOCIATION AND ''INSTITUTION'' DRAWN BY THE GOVERNMENT WHILE ISSUING NOTIFICATIONS ACCORDING ITS APPROVAL TO VARIOUS ORGANIZATIONS IDS 35(1)(II) OF THE ACT. OTHERWISE NEITHER ANY RULE NOR ANY CIRCULAR/INSTRUCTION OF THE BOARD IS BROUGHT TO OUR NOTICE WHICH LAYS DOWN ANY CRITERIA TO DISTINGUISH BETWEEN THE TWO. VARIOUS DICTIONARIES AND LEXICONS HAVE GIVEN A VARIETY OF MEANINGS FOR THE TWO EXPRESSIONS. NONETHELESS, WE CAN ASCERTAIN A COMMON THEME RUNNING THROUGH THESE MEANINGS WHICH WE SHALL NOW SEE BRIEFLY. THE LAW LEXICON BY P. RAMANATHA AIYAR (1997 EDITION) DESCRIBES THE TERM ASSOCIATION AS A BODY OF PERSONS ASSOCIATED FOR A COMMON PURPOSE, OR JOINING IN ANY ACTION OR IN COMPANIONSHIP FOR A COMMON PURPOSE. BLACKS LAW DICTIONARY (5 TH EDITION) DESCRIBES IT AS AN ACT OF PERSONS IN UNITING TOGETHER FOR SOME SPECIAL PURPOSE OR BUSINESS. ON THE OTHER HAND, ONE OF THE MEANINGS OF THE TERM INSTITUTION AS PER THE LAW LEXICON REFERRED ABOVE IS AN UNDERTAKING FORMED ITA. NOS. 2681 & 2682/DEL/2015. SHRI RAM SCIENTIFIC & INDUSTRIAL RES. FOUNDATION. 4 TO PROMOTE SOME DEFINED 'PURPOSE HIVING IN VIEW GENERALLY THE INSTRUCTION OR EDUCATION OF THE PUBLIC. SIMILARLY, BLACK'S LAW DICTIONARY ALSO, AMONGST THE VARIOUS MEANINGS GIVEN BY IT, DESCRIBES IT AS AN ESTABLISHED OR ORGANIZED SOCIETY OR CORPORATION FOR EDUCATIONAL PURPOSE LIKE COLLEGE OR UNIVERSITY. THUS, THE TERM ASSOCIATION WILL NOT MEAN OR INCLUDE AN EDUCATIONAL INSTITUTION, WHEREAS THE TERM. INSTITUTION, WILL INCLUDE AS ONE OF ITS MEANINGS, AN EDUCATIONAL INSTITUTION. IT IS THIS DISTINCTION WHICH APPEARS TO HAVE BEEN INCORPORATED IN SECTION 35(I)(II) AND IN THE NOTIFICATIONS ISSUED UNDER THE SAID PROVISION. IN COMMON PARLANCE, THE TWO EXPRESSIONS MAY SEEM TO BE INTERCHANGEABLE, BUT AT LEAST, SO FAR AS THE PROVISIONS OF SECTION 35 (1}(H) ARE CONCERNED, THEY ARE NOT. FURTHER, SO FAR AS SECTION 35(1)(II) IS CONCERNED, THE EXPRESSION OTHER INSTITUTION WOULD NECESSARILY MEAN AN EDUCATIONAL INSTITUTION IMPARTING EDUCATION IN ANY DISCIPLINE, BE IT SCIENCE, COMMERCE, LAW, MEDICINE, ARTS, FINE ARTS ETC. FURTHER, THE NOTIFICATIONS ISSUED U/S 35(1)(II) APPROVING ORGANIZATIONS AS ASSOCIATION DO NOT REQUIRE THEM TO MAINTAIN SEPARATE ACCOUNTS. THIS STRENGTHENS THE VIEW EXPRESSED EARLIER THAT THE ASSOCIATIONS WILL HAVE A SOLE OBJECT OF SCIENTIFIC RESEARCH. IN CONTRAST, NOTIFICATIONS PLACING THE ORGANIZATIONS IN THE CATEGORY OF INSTITUTIONS MANDATES THEM TO MAINTAIN SEPARATE BOOKS OF ACCOUNT, MEANING THEREBY THAT THESE INSTITUTIONS WILL BE CARRYING OUT SCIENTIFIC RESEARCH OVER AND ABOVE THEIR MAIN OBJECT OF IMPARTING EDUCATION. 9. THE DISCUSSION IN PARAS 7 & 8 REVOLVED AROUND THE PROVISIONS OF SEC. 35(L)(II). NOW OUR ATTEMPT WOULD BE TO SEE HOW AND TO WHOM THE APPROVAL OBTAINED UNDER SEC, 35(1)(II) CULMINATES INTO THE BENEFIT ENVISAGED UNDER SEC. 10(21) OF THE ACT. SECTION 10(21) GIVES EXEMPTION ONLY TO A SCIENTIFIC RESEARCH ASSOCIATION. IT HAS CLEARLY LEFT OUT A UNIVERSITY, A COLLEGE OR OTHER INSTITUTION. IN PARA 7 ABOVE, WE HAVE NOTED THAT SEC. 35(1)(II) BROADLY CLASSIFIES THE ORGANIZATIONS INTO TWO CATEGORIES. SECTION 10(21) VERY CLEARLY ELIMINATES THE SECOND CATEGORY OF ORG -IONS, VIZ, UNIVERSITY, COLLEGE OR OTHER INSTITUTION. IT GRANTS EXEMPTION ONLY TO THE FIRST CATEGORY, I.E. A SCIENTIFIC RESEARCH ASSOCIATION, IN OTHER WORDS, EXEMPTION UNDER SEC, 10(21) IS GRANTED ONLY TO AN ORGANIZATION HAVING SCIENTIFIC RESEARCH AS ITS SOLE OBJECTIVE. MULTI-OBJECTIVE ORGANIZATIONS ARE LEFT OUT OF THE PURVIEW OF SECTION 10(21), THE REASON FOR THEIR EXCLUSION FROM SEC. 10(21) IS NOT FAR TO SEEK, , THE MULTI-OBJECTIVE ORGANIZATIONS ARE, AS MENTIONED EARLIER, EDUCATIONAL INSTITUTIONS, IT IS NOT THAT A PARTIAL TREATMENT IS METED OUT TO SCIENTIFIC RESEARCH ASSOCIATIONS AS COMPARED TO THE EDUCATIONAL INSTITUTIONS, TOTAL EXEMPTION HAD BEEN PROVIDED FOR EDUCATIONAL INSTITUTIONS IN SEC. 10(22) TILL ASSESSMENT YEAR 1998-99 AND IN SECTION 10(23-0) THEREAFTER, THE FACT THAT A UNIVERSITY, COLLEGE OR OTHER INSTITUTION ARE PROVIDED EXEMPTION SEPARATELY, IT EXPLAINS THEIR EXCLUSION FROM SEC. 10(21). THUS, WE HOLD THAT SECTION 10(21) PROVIDES EXEMPTION ONLY TO THOSE ORGANIZATIONS WHOSE SOLE OBJECT IS SCIENTIFIC RESEARCH AND WHO ARE CATEGORIZED AS ASSOCIATIONS UNDER SEC.35(L)(III) IN THE NOTIFICATION ISSUED FOR THE PURPOSE. WE FURTHER HOLD THAT OTHER INSTITUTION REFERRED TO IN SEE, 35(1 )(II) IMPLY EDUCATIONAL INSTITUTIONS AND THEY ARE NOT COVERED UNDER SEC, 10(21') OF THE ACT THEY WILL BE COVERED UNDER SEC. 10(22) OR 10(23C) AS THE CASE MAY BE. 10. LET US REVERT TO THE FACTS OF THE CASE. IT IS NOT IN DISPUTE THAT THE ASSESSEE WAS GRANTED APPROVAL UNDER SECTION 10(2)(XIIL) (AKIN TO SEC. 35(1)(II) OF THE 1961, ACT) OF THE INCOME-TAX ACT, 1922 UNDER THE CATEGORY OF AN ASSOCIATION UP TO 31.3,1987. IT WAS ONLY WHILE RENEWING THE APPROVAL FOR THE PERIOD 1.4.1987 TO 31.3.1989 THAT THE ASSESSEE WAS FOR THE FIRST TIME CATEGORIZED AS AN INSTITUTION VIDE NOTIFICATION DATED 27.10.87, THIS SUDDEN SHIFT FROM ONE CATEGORY TO THE OTHER IS QUITE INTRIGUING GIVEN THE FACT THAT THERE HAS BEEN NO CHANGE IN THE OBJECTS OF THE ASSESSEE-SOCIETY OR IN THE ACTIVITIES CARRIED OUT BY IT. THIS IS EVIDENT FROM THE CORRESPONDENCE THAT TOOK PLACE BETWEEN ITA. NOS. 2681 & 2682/DEL/2015. SHRI RAM SCIENTIFIC & INDUSTRIAL RES. FOUNDATION. 5 THE ASSESSES AND DG (EXEMPTIONS) IN 1997 WHEN CERTAIN OBJECTIONS WERE RAISED AGAINST THE ASSESSEE WHILE RENEWING ITS APPROVAL UNDER SEC. 35(1)(II) FOR THE PERIOD 1.4.1996 TO 31.3.1999. THE OBJECTIONS, RAISED BY THE ADIT (EXEMPTIONS) BY HIS LETTER DATED 10.9.1997 ARE SUMMARIZED AS FOLLOWS :- (A) ALL YOUR RESEARCH ACTIVITIES ARC SPONSORED BY VARIOUS PRIVATE SECTOR/PUBLIC ORGANIZATIONS. THUS, YOURS IS A PURELY COMMERCIAL RESEARCH, THE RESULTS OF WHICH ARE PASSED ON TO THE SPONSORS AND THE PUBLIC GETS NO BENEFIT; (B) YOURS IS A MULTI-OBJECT ORGANIZATION AND RESEARCH IS ONLY ONE OF THOSE OBJECTS. AS SUCH YOU HAVE BEEN PLACED UNDER THE CATEGORY OF INSTITUTION AND THE PREVIOUS APPROVALS WERE GIVEN SUBJECT TO THE CONDITION THAT YOU WILL MAINTAIN SEPARATE BOOKS OF ACCOUNT FOR YOUR RESEARCH ACTIVITIES. HEARING TOOK PLACE BEFORE THE DG (EXEMPTIONS). HIS FINDINGS VIDE HIS ORDER DATED 23.9.1997 ARE AS FOLLOWS: (A) FROM THE LIST OF VARIOUS RESEARCH PROJECTS SUBMITTED ALSO IT IS SEEN THAT MOST (UNDERLINE BY THE DG) OF THE RESEARCH PROJECTS ARE SPONSORED BY THE GOVERNMENT OR PUBLIC SECTOR BODIES, THE BENEFICIARIES OF WHICH ARE OBVIOUSLY THE GENERAL PUBLIC. (B) AS REGARDS SEPARATE RESEARCH ACCOUNT THE ORGANIZATION REPLIED THAT IT HAD BEEN CARRYING ON SCIENTIFIC RESEARCH ONLY AND AS SUCH, IT IS NOT REQUIRED TO MAINTAIN SEPARATE BOOKS OF ACCOUNT. THIS STATEMENT ALSO FINDS SUPPORT FROM THE ASSESSING OFFICERS REPORT (UNDERLINE OURS). DESPITE THE ABOVE FINDING OF THE DG (EXEMPTIONS), WE FAIL TO UNDERSTAND AS TO WHY THE ASSESSEE HAS BEEN PUT IN THE CATEGORY OF INSTITUTION 5 ' AND NOT IN THE CATEGORY OF ASSOCIATION. SINCE IT IS PUT IN THE CATEGORY OF INSTITUTION, ' THE ASSESSING OFFICER MAY PERHAPS BE BOUND TO DENY THE EXEMPTION UNDER SEC. 10(21), BUT AT LEAST THE CIT(A) SHOULD HAVE APPRECIATED THE ABOVE FACTS AND OUGHT TO HAVE GRANTED THE EXEMPTION. THE FOURTH PROVISO TO SEC. 10(21) PROVIDES FOR WITHDRAWAL OF EXEMPTION UNDER SEC. 10(21) BY CENTRAL GOVERNMENT IF CERTAIN CONDITIONS ARE NOT FULFILLED. IT ALSO PROVIDES THAT THE EXEMPTION CAN BE WITHDRAWN ONLY AFTER GIVING A REASONABLE OPPORTUNITY OF SHOWING CAUSE AGAINST THE PROPOSED WITHDRAWAL. OF COURSE, THIS PROVISION IS EFFECTIVE FROM 1.4.2003 ONLY BY VIRTUE OF FINANCE BILL, 2002. HOWEVER, THE MEMORANDUM EXPLAINING THE PROVISIONS OF THE FINANCE BILL, 2002 MENTIONED THE REASON FOR THIS AMENDMENT TO BE THAT UNDER THE EXISTING PROVISIONS, THERE WAS NO EXPLICIT POWER WITH THE CENTRAL GOVERNMENT OR THE PRESCRIBED AUTHORITY TO WITHDRAW APPROVAL OR RESCIND THE NOTIFICATION ISSUED IN CASES OF A SCIENTIFIC RESEARCH ASSOCIATION REFERRED TO IN SEC. 10(21). IT FOLLOWS, THEREFORE, THAT THE WITHDRAWAL OF EXEMPTION IN THE YEARS UNDER CONSIDERATION IS WITHOUT ANY AUTHORITY OF LAW. MOREOVER, THOUGH THE FOURTH PROVISO IS EFFECTIVE FROM 1.4.2003, THE ASSESSEE WAS AT LEAST ENTITLED TO AN OPPORTUNITY OF BEING HEARD BY THE PRESCRIBED AUTHORITY WHEN A MAJOR EXEMPTION WAS BEING WITHDRAWN. THE PRINCIPLE OF NATURAL JUSTICE WAS VIOLATED ONCE IN 1987 WHEN THE ASSESSEE WAS CATEGORIZED AS AN INSTITUTION', AND AGAIN IN 1997 WHEN DESPITE CLEAR FINDINGS BEING IN FAVOUR OF THE ASSESSEE, IT WAS NOTIFIED AS AN INSTITUTION. IN 1999 AND IN 2002, THE ASSESSEE DID MAKE A REPRESENTATION TO THE DG (EXEMPTIONS) AND TO THE BOARD, BUT IT APPEARS THAT THE REPRESENTATION HAS NOT BEEN, RESPONDED TO. 11. THUS, CONSIDERING ALL THE LEGAL AND FACTUAL ASPECTS OF THE MATTER, WE HOLD THAT THE ASSESSEE, THOUGH CATEGORIZED AS AN INSTITUTION UNDER SEC. 35(L)(II) OF THE ACT, IS ENTITLED TO EXEMPTION UNDER SEC, 10(21) OF THE ACT FOR ALL THE THREE YEARS AND THE ASSESSING OFFICER IS DIRECTED TO ALLOW THE SAME. RESPECTFULLY,FOLLOWING THE ABOVE, GROUND NO. 1 IS DECIDED AGAINST THE AO. 3. GROUND NO. 2 READS AS UNDER :- ITA. NOS. 2681 & 2682/DEL/2015. SHRI RAM SCIENTIFIC & INDUSTRIAL RES. FOUNDATION. 6 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT (APPEALS) HAS ERRED IN RELYING ON TRIBUNALS ORDER AND GRANTING ALLOWABILITY OF LOAN REPAYMENT AS APPLICATION IN CONTRADICTION OF THE FACT THAT THE ISSUE IS SUBJUDICE BEFORE THE HONBLE HIGH COURT. 3.1 .WE ARE REPRODUCING THE ORDER OF THE TRIBUNAL (I.T.A. NO. 920 (DEL) OF 2001) [ORDER DATED 30.09.2016] AS UNDER :- 2. ACCORDINGLY, THE ISSUES WHICH ARE REQUIRED TO BE EXAMINED ARE WHETHER THE ASSESSEE HAS CLAIMED DEPRECIATION IN ANY OF THE PREVIOUS YEARS AND WHETHER THE LOAN MONEY WAS SHOWN TO HAVE BEEN UTILIZED FOR ACQUISITION OF THE ASSETS. 5. ACCORDING TO THE ASSESSING OFFICER, ONE OF THE ITEMS OF THE EXPENDITURE CLAIMED BY THE ASSESSEE WAS AN APPLICATION OF INCOME TOWARDS LOAN REPAYMENT TO THE BANK AMOUNTING TO RS.1,70,00,000/- AND THIS CLAIM WAS NOT MADE IN THE AUDITED INCOME / EXPENDITURE ACCOUNT APPENDED WITH THE RETURN OF INCOME BUT THE CLAIM HAS BEEN MADE SEPARATELY BY WAY OF THE STATEMENT FURNISHED ALONGWITH THE RETURN OF INCOME. ON BEING ASKED BY THE ASSESSING OFFICER TO CLARIFY THE NATURE OF SAID LOAN,THE ASSESSEE SUBMITTED THAT THE FINANCIAL ASSISTANCE FOR AN AMOUNT OF RS.62.2 MILLION (US DOLLAR 3.57 MILLION) WAS ORIGINALLY SANCTIONED BY THE WORLD BANK IN 1990 BY THE AGREEMENT DATED 07/12/1994 STRENGTHENING THE ACTIVITIES IN THE FIELD OF MATERIAL SCIENCE, ANALYTICAL CHEMISTRY, ENVIRONMENTAL PROTECTION AND TOXICOLOGY AND NEW ACTIVITIES LIKE STANDARD REFERENCE MATERIALS IN MODERN INSTRUMENTAL ANALYSIS AND ELECTRONIC GRADE CHEMICAL FACILITIES FOR CARRYING OUT PURIFICATION AND CHARACTERIZATION OF VARIOUS SOLVENTS AND CLEANING AGENTS TO BE USED BY THE ELECTRONIC INDUSTRY UNDER TECHNOLOGY SERVICES REVOLVING FUND (TSRF) CONSTITUTED BY THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT (WORLD BANK), INTERNATIONAL DEVELOPMENT ASSOCIATION (IDA) AND THE GOVERNMENT OF INDIA AND FINAL DISBURSEMENT RECEIVED BY THE ASSESSEE IN MARCH 1996. THE FINAL AMOUNT DISBURSED WAS RS.125 MILLIONS DUE TO INCREASE IN EXCHANGE RATE OF DOLLAR. THE REPAYMENT MADE DURING THE YEAR UNDER CONSIDERATION OF RS.170 LAKHS WAS TOWARD THIS LOAN. THE SAID LOAN WAS INTEREST-FREE IN NATURE AND AMOUNT WAS PAID TOWARDS THE PRINCIPAL AMOUNT. IT WAS OBSERVED BY THE ASSESSING OFFICER THAT : (I) THE ASSETS PURCHASED OUT OF THE LOAN AMOUNT WERE ALREADY TREATED AS APPLICATION OF INCOME (II) THAT THE REPAYMENT OF LOAN, WHICH IS INTEREST FREE IS AGAIN BEING CLAIMED BY THE ASSESSEE SHOWING THE SAMEAS APPLICATION OF INCOME (III) THAT THE SAID LOAN HAS NOT BEEN CONSIDERED AS INCOME AND ACCORDINGLY NOT INCLUDED IN THE TOTAL INCOME OF THEPREVIOUS YEAR IN WHICH THE LOAN WAS RECEIVED. 9. BEFORE US, THE ASSESSEE FILED AN APPLICATION UNDER RULE 29 OF THE INCOME-TAX (APPELLATE TRIBUNAL) RULES, 1963 IN COMPLIANCE TO THE DIRECTION OF THE HONBLE HIGH COURT FOR ADMITTING DETAILED CHART OF TOTAL RECEIPTS AS PER AUDITED ACCOUNTS AND EXPENDITURE CLAIMED APPENDED WITH THE INCOME TAX RETURN FOR THE PERIOD FROM ASSESSMENT YEAR 1992-93 TO ASSESSMENT YEAR 2000-01. THE DETAILS OF ADDITION TO ASSETS WAS ALSO FILED ALONGWITH THE STATEMENT OF TOTAL INCOME FOR EACH OF THE AFORESAID ASSESSMENT YEARS. 10. FURTHER, THE LEARNED AUTHORIZED REPRESENTATIVE OF THE ASSESSEE CLAIMED THAT DEPRECIATION WAS NEVER BEEN CLAIMED AS AN EXPENDITURE OR AN APPLICATION OF INCOME IN ANY OF THE ASSESSMENT YEARS CONCERNED AND, THEREFORE, THE SUBMISSION OF THE LEARNED DEPARTMENTAL REPRESENTATIVE BEFORE THE HONBLE HIGH COURT AS CONTAINED IN PARA-3 WERE FACTUALLY INCORRECT BECAUSE THE ASSESSEE NEVER CLAIMED DEPRECIATION AS THE APPLICATION OF INCOME IN ALL THE YEARS CONCERNED DURING WHICH THE LOANS WERE UTILIZED FOR ACQUISITION OF ASSETS. FURTHER, HE REITERATED EARLIER SUBMISSION MADE BY THE ASSESSEE BEFORE THE TRIBUNAL. 11. IN THE COURSE OF HEARING BEFORE US, THE DETAILS OF RECEIPTS AND EXPENDITURE AS WELL AS STATEMENT OF INCOME FOR THE ASSESSMENT YEAR FROM 2001-02 TO 2008-09 WERE MADE AVAILABLE BY THE ASSESSEE FOR ADMISSION AS ADDITIONAL EVIDENCE UNDER RULE 29 OF THE ITAT RULES. ITA. NOS. 2681 & 2682/DEL/2015. SHRI RAM SCIENTIFIC & INDUSTRIAL RES. FOUNDATION. 7 12. THE LEARNED COMMISSIONER OF INCOME TAX (DEPARTMENTAL REPRESENTATIVE), RELIED ON THE FINDINGS OF THE LOWER AUTHORITIESAND REITERATED THE SUBMISSION MADE BEFORE THE HONBLE HIGH COURT BY THE DEPARTMENT. 13. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ADDITIONAL EVIDENCES HAVE BEEN FILED BY THE ASSESSEE IN COMPLIANCE TO THE DIRECTION OF THE HONBLE COURT, WHICH IS NECESSARY FOR DISPOSAL OF THIS APPEAL AND, THEREFORE, WE ADMIT THESE ADDITIONAL EVIDENCES UNDER RULE 29 OF THE INCOME-TAX (APPELLATE TRIBUNAL) RULES, 1963. WE ALSO FIND THAT THE LEARNED DEPARTMENTAL REPRESENTATIVE WAS ALLOWED SUFFICIENT TIME TO GO THROUGH THOSE EVIDENCES, HOWEVER, SHE DID NOT RAISE ANY OBJECTIONS IN RESPECT OF RELIABILITY OF THOSE EVIDENCES. 14. FROM THE FACTS OF THE CASE, WE FIND THAT LOAN UNDER REFERENCE WAS SANCTIONED IN THE YEAR 1990 AND FINAL AMOUNT OF DISBURSEMENT OF THE LOAN WAS RECEIVED BY THE ASSESSEE COMPANY IN MARCH, 1996. ON PERUSAL OF THE STATEMENT OF INCOME FILED FOR THE ASSESSMENT YEARS 1992-93 TO 1999-2000 DURING WHICH THE LOAN WAS RECEIVED BY THE ASSESSEE, WE FIND THAT APPARENTLY THE LOAN UNDER REFERENCE RECEIVED FROM WORLD BANK HAS NOT BEEN SHOWN AS INCOME IN ANY OF THE YEAR CONCERNED. FURTHER, WE FIND FROM THE STATEMENT OF TOTAL INCOME THAT THE COST OF FIXED ASSETS ACQUIRED DURING THE RELEVANT YEARS HAS BEEN CLAIMED AS APPLICATION OF INCOME. IN THE NOTE APPENDED TO DEPRECIATION CHART FOR THE ASSESSMENT YEAR 1992- 93 ENCLOSED ALONG WITH THE BALANCE SHEET AND PROFIT AND LOSS ACCOUNT, IT IS MENTIONED THAT ADDITIONS INCLUDE ASSETS AMOUNTING TO RS.91,31,124/- (PREVIOUS YEAR RS.75,50,597/-) PURCHASED UNDER THE INDUSTRIAL CREDIT AND INVESTMENT CORPORATION OF INDIA LTD. (TECHNOLOGY SERVICE REVOLVING FUND) SCHEME. SIMILAR NOTES HAVE BEEN PROVIDED IN CASE OF OTHER ASSESSMENT YEARS INVOLVED. THE ASSESSMENT YEAR WISE DEDUCTION CLAIMED FOR COST OF FIXED ASSET IS AS UNDER SL. NO. ASSESSMENT YEAR COST OF FIXED ASSET CLAIMED AS DEDUCTION (IN RS.) 1. 1992-93 1,73,58,448/- 2. 1993-94 1,08,17,964/- 3. 1994-95 1,10,97,687/- 4. 1995-96 1,86,70,264/- 5. 1996-97 3,30,21,268/- 6. 1997-98 2,01,21,185/- 7. 1998-99 2,72,73,985/- 15. FURTHER, ON PERUSAL OF THE STATEMENT OF COMPUTATION OF INCOME, WE FIND THAT IN THE ASSESSMENT YEARS FROM 1992-93 TO ASSESSMENT YEAR 1998-99, THE DEPRECIATION PROVIDED IN THE BOOKS OF ACCOUNTS HAS BEEN REDUCED FROM THE EXPENDITURE CLAIMED TOWARDS APPLICATION OF INCOME, WHICH MEANS THE DEPRECIATION HAS NOT BEEN CLAIMED AS APPLICATION OF INCOME. FROM THE ASSESSMENT YEAR 1999-2000 ONWARDS TILL THEASSESSMENT YEAR UNDER CONSIDERATION ALSO THE DEPRECIATION HAS NOT BEEN CLAIMED TOWARDS APPLICATION OF THE INCOME. 16. IN VIEW OF ABOVE OBSERVATIONS, IT IS CLEAR THAT THE ASSESSEE HAS NOT SHOWN THE LOANS RECEIVED AS ITS INCOME OR RECEIPT, IN THE YEAR IN WHICH SUCH LOAN WAS RECEIVED BY THE ASSESSEE AND, THEREFORE, THE REPAYMENT ALSO CANNOT BE ALLOWED AS AN EXPENDITURE OR APPLICATION OF INCOME. FURTHER, WE FIND THAT LOAN MONEY OBTAINED HAS BEEN SHOWN AS APPLICATION ON ACQUISITION OF FIXED ASSETS AND, THEREFORE, THE ASSESSEE HAS ALREADY CLAIMED LOAN AS DEDUCTION OR APPLICATION OF INCOME AND THEREFORE, IN OUR OPINION, ALLOWING APPLICATION OF REPAYMENT OF LOAN WILL AMOUNT TO DOUBLE DEDUCTION. 17. AS REGARD THE CBDT CIRCULAR, THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. RAJENDRA PODDAR CHARITABLE TRUST (1987)164 ITR 666 HAS HELD THAT CIRCULAR IN QUESTION CANNOT OVERRIDE THE LAW. THE RELEVANT FINDINGS OF THE APEX COURT ARE AS UNDER: 18. WE ARE ENTIRELY UNABLE TO UPHOLD THIS CONTENTION. WHEN THE INCOME OF A CHARITABLE TRUST IS SET APART OR ACCUMULATED, IT CAN ONLY BE WITH THE OBJECT OF APPLICATION OF THE AMOUNT FOR CHARITABLE PURPOSES. THE RELIEF GRANTED BY S. 11(1)(A) IS LIMITED ONLY TO CASES WHERE ACCUMULATION HAS BEEN MADE OF ONLY 25 PER CENT OF THE INCOME OF A PARTICULAR YEAR. THE MERE FACT THAT THE ITA. NOS. 2681 & 2682/DEL/2015. SHRI RAM SCIENTIFIC & INDUSTRIAL RES. FOUNDATION. 8 ASSESSEE HAD APPLIED ITS ACCUMULATED INCOME OF THE EARLIER YEARS FOR THE PURPOSE OF CHARITY WILL NOT ABSOLVE THE ASSESSEE OF ITS DUTY TO APPLY ITS INCOME FOR THE PURPOSE OF CHARITY IN THE CURRENT YEAR NOR WILL IT ENLARGE THE LIMIT OF THE AMOUNT WHICH IS PERMITTED TO BE ACCUMULATED BY S. 11(1)(A). AN ASSESSEE MAY BORROW MONEY AND SPEND IT FOR CHARITABLE OBJECT. THE CIRCULAR MERELY RECOGNISES THAT IN SUCH A CASE, APPLICATION OF INCOME FOR REPAYMENT OF A LOAN TAKEN FOR CHARITABLE PURPOSE WILL AMOUNT TO APPLICATION OF INCOME FOR CHARITABLE PURPOSE. THE CIRCULAR, HOWEVER, DOES NOT PERMIT AN ASSESSEE TO ACCUMULATE MORE THAN 25 PER CENT OF ITS INCOME OR RS. 10,000, WHICHEVER IS HIGHER (FOR THE PURPOSE OF CHARITY). THE WORDING OF S. 11 IS CLEAR AND UNAMBIGUOUS. THE RELIEF IS LIMITED TO THE AMOUNT OF INCOME OF A CHARITABLE TRUST ACTUALLY APPLIED FOR CHARITABLE PURPOSE. ACCUMULATION OF INCOME IS PERMITTED ONLY TO THE EXTENT AND SUBJECT TO THE CONDITIONS LAID DOWN IN THAT SECTION. AN ASSESSEE CAN ACCUMULATE OR SET APART ONLY 25 PER CENT OF THE INCOME OF THE TRUST OR RS. 10,000,WHICHEVER IS HIGHER, IN A GIVEN YEAR. THE CIRCULAR DOES NOT SEEK TO AND CANNOT ENLARGE THE SCOPE OF THE SECTION. (EMPHASIS SUPPLIED BY US) 18. IN VIEW OF DISCUSSION ABOVE, IN COMPLIANCE TO THE DIRECTIONS OF THE HONBLE HIGH COURT, WE HOLD THAT THE ASSESSEE HAS ALREADY BEEN ALLOWED COST OF ADDITION TO ASSET ACQUIRED OUT OF THE LOANS AS APPLICATION OF INCOME IN RELEVANT YEARS AND THEREFORE ASSESSEE CANNOT BE ALLOWED THE REPAYMENT OF LOAN AS APPLICATION OF THE INCOME, ACCORDINGLY WE UPHOLD THE ORDER OF THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ON THE ISSUE IN DISPUTE. RESPECTFULLY FOLLOWING THE ABOVE ORDER, WE DECIDE SECOND GROUND OF APPEAL IN FAVOUR OF THE AO. ITA. NO. 2682/DEL/2015 [A.Y.: 2010-11 : 4 .AS BOTH THE GROUNDS ARE IDENTICAL TO THE GROUNDS RAISED FOR THE EARLIER YEAR,SO WE DISMISS THE FIRST GROUND AND ALLOW THE NEXT GROUND OF APPEAL,RAISED BY THE AO FOR THE YEAR UNDER CONSIDERATION ALSO. AS A RESULT, APPEALS FILED BY THE AO FOR BOTH THE YEARS, STAND PARTLY ALLOWED. . ORDER PRONOUNCED IN THE OPEN COURT ON : 07 TH MARCH, 2018 . 07 , 2018 SD/- SD/- (BEENA PILLAI) (RAJENDRA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER DELHI; /DATED : 07.03.2018 . *MEHTA* SR. P.S. / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR F BENCH, ITAT, DELHI / , , . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , /ITAT, NEW DELHI. ITA. NOS. 2681 & 2682/DEL/2015. SHRI RAM SCIENTIFIC & INDUSTRIAL RES. FOUNDATION. 9 DATE INITIALS INITIAL 1. DRAFT DICTATED ON-DICTATION SHEETS ATTACHED/DIRECT ON PC 07.03.2018 2. DRAFT PLACED BEFORE AUTHOR 07.03.2018 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER 07.03.2018 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER 07.03.2018 5. APPROVED DRAFT COMES TO THE SR.PS 07.03.2018 6. KEPT FOR PRONOUNCEMENT 07.03.2018 7. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 07.03.2018 8. DATE ON WHICH FILE GOES TO THE A.R. FOR SIGNATURE OF THE ORDER 9. DATE OF DISPATCH OF THE ORDER