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2018 (10) TMI 2029 - HC - Income TaxRejection of grant of approval u/s 35(1)(ii) - Expenditure on scientific research - character of the Trust and its objectives questioned - reliance on reference in the agreement to question character of the Trust and its objectives - HELD THAT:- Rule 5D of the Rules prescribes procedure for approval. The condition of scientific research being the sole object contained in such Rule cannot be implemented with rigidity. This condition does not form part of the main section. The primary or the fundamental object of the Trust was to carry out research and development and extension work in the field of animal husbandry, livestock breeding and agriculture. Scientific research was thus the prime object of the Trust. Several objects enumerated in Clause 3 of the Memorandum were in furtherance of this main object. Some of the remaining objects noted above in second compartment, may not have the tinge of scientific research, nevertheless, have close connection and direct co-relation with primary object of scientific research. CBDT erred in rejecting the application of the Trust for approval for several reasons. Firstly, as noted, right from the year 1965 till about the year 1996, all successive applications of the petitioner Trust for approval were granted. It is not the case of the respondents that objects of the Trust underwent any material changes. In absence of any such change, there had to be strong reasons for the authorities to take a different view while entertaining the petitioner's fresh application for approval, particularly, when for years together, the authorities themselves had granted such approval. For close to 30 years based on the same objects the authorities granted the approval. Many years later they changed the opinion and believed that scientific research was not the sole object of the Trust. Further, the reasons, on which, the impugned order is passed are also not convincing. We are prepared to proceed on the basis that the requirement of the applicant having scientific research as a sole object as flowing from Rule 5D (1) of the Rules must be complied with. The question is, did the petitioner breach such Rule? We have noted the various objects contained in the Memorandum of Association and we also noted that the scientific research was the main and primary object of the Trust. The rest of the objects were only consequential to such main object or in furtherance thereof. Such subsidiary objects would not shift the focus of the petitioner's prime object of scientific research. The requirement of Rule 5D(1) of the Rules thus stood satisfied. CBDT had, however, raised two additional contentions viz.that in the agreement entered with DSM New Business Development, the petitioner had described itself as an entity engaged in business of dairy farming - Mere reference in the agreement would not change the very character of the Trust and its objectives. The agreement is placed for our perusal. The parties entered into research agreement regarding study of effect of vitamin/mineral feed supplement on fertility and milk yield in dairy cows. Under such agreement DSM would provide certain information of confidential nature to ARDA upon ARDA agreeing to the confidentiality terms thereof. This was thus an agreement for carrying out research in connection with the animal feed and its effect on milk animal. Likewise, the observations and conclusions that the material produced by ARDA did not suggest any scientific research was also based on summary discussion. As noted, the request of ARDA for approval under section 35(1)(ii) of the Act was granted for the first time in 1965 and was revised from time to time for close to 30 years. CBDT had to have strong reasons to deny such approval for the future period. Appeal of assessee allowed.
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