TMI Blog1997 (9) TMI 644X X X X Extracts X X X X X X X X Extracts X X X X ..... nder s. 10(21) and for the asst. yrs. 1987-88 and 1990-91 the exemption claimed was originally allowed. However, for the asst. yr. 1991-92, the AO observed that the appellant-company was receiving survey fee for rendering technical and special services to ship-owners in the matter of classification and relationships, machinery, equipment, design, etc. The AO has accordingly come to the conclusion that the income of the appellant was assessable as business income under s. 28(iii) of the Act. He accordingly denied the exemption claimed under s. 10(21) for the asst. yr. 1991-92. On the basis of the decision of the AO for the asst. yr. 1991-92, the assessments for the asst. yr. 1987-88 to 1990-91 were reopened and the exemption granted earlier withdrawn. The assessee appealed to the CIT(A) challenging the validity of reopening of assessments for the asst. yrs. 1987-88 to 1990-91 as also the denial of exemption under s. 10(21) for all the assessment years under appeal. However, the CIT(A) confirmed the view of the AO and dismissed the appeals of the appellant. The assessee is in appeal before us against the decision of the CIT(A). For the asst. yr. 1991-92, the decision of the CI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accordingly contended that exemption under s. 10(21) may be granted to the assessee. 5. The learned Departmental Representative sought to support the orders of the Revenue authorities. The learned Departmental Representative further contended that the assessee had not raised the ground before the CIT(A) against the decision of the AO in not making a reference to the Board in regard to the approval to the institution and as such, the appellant was precluded in raising the objection relating to the jurisdiction at this stage. It was further contended that s. 10(21) relates to exemption of income and as such, assessee was duty-bound to establish that the conditions for grant of exemption are satisfied. According to the learned counsel the onus is on the assessee to establish that it is a scientific research authority and the conditions for granting exemption are fully satisfied. 6. The learned Departmental Representative relied upon the decision of the Delhi High Court in the case of Continental Construction Ltd. (supra) in support of the contention that the approval granted to any assessee is not a unqualified one. Whether the assessee is entitled to exemption and wheth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 : (21) any income of a scientific research association for the time being approved for the purpose of cl. (ii) of sub-s. (1) of s. 35 : Provided that the scientific research association : (a) applies its income, or accumulates it for application, wholly and exclusively to the objects for which it is established, and the provisions of sub-s. (2) and sub-s. (3) of s. 11 shall apply in relation to such accumulation subject to the following modifications, namely : (i) in sub-s. (2) : (1) the words brackets, letters and figure referred to in cl. (a) or cl. (b) of sub-s. (1) read with the Explanation to that sub-section. shall be omitted; (2) for the words to charitable or religious , the words for the purposes of scientific research shall be substituted; (3) the reference to AO in cl. (a) thereof shall be construed as a reference to the prescribed authority referred to in cl. (ii) of sub-s. (1) of s. 35; (ii) in sub-s. (3), in cl. (a), for the words charita ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The provisions of s. 11 sub-s. (2) and sub-s. (3) also apply with certain modifications referred to above. 10. As per the proviso exemption shall not be available even if all the conditions referred to above are satisfied if the scientific research association derives income from profits and gains of business. The proviso is however not applicable in such cases where the scientific research association has carried on the business which is incidental to the attainment of its objectives and separate books of account are maintained by it in respect of such business. 11. In this case, the finding of the Revenue is as under : (i) The activities of the appellant are not relating to any research work and, therefore, the association is not a scientific research association; and (ii) The assessee has derived income from carrying on of business. 12. We have reproduced s. 10(21) in para 8 of this order and it is observed that one of the conditions for grant of exemption is that the scientific research association is for the time being approved for the purpose of cl. (ii) of sub-s. (1) to s. 35. Whereas we agree with the contentions raised on behalf of the R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pen to the AO to question the approval granted to the scientific research association. Sec. 35(3) provides the procedure to be followed by the AO in the event of any question arising as to whether the activities of the association constitute the activities of scientific research. The AO has to refer the question to the prescribed authority whose decision shall be final. This section, however, is relevant for purposes of s. 35(1), which provides for a deduction for any expenditure laid out or expended on scientific research related to the business, barring the expenditure of capital nature. Whereas the assessee claims that the AO is bound to make a reference to the prescribed authority in the event of any doubt being raised about the activities of the association not being of scientific research, the claim of the Revenue is that sub-s. (3) of s. 35 has got limited application for the purposes of sub-s. (1) of s. 35. In our view, this controversy is unnecessary, in view of the decision of the Bombay High Court in the case of Seksaria Biswan Sugar Factory Ltd. Anr. vs. IAC Ors. (supra). In this case, approval granted to the assessee under s. 35(1)(ii), was sought to be withdrawn w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income or does not accumulate it for the application wholly and exclusively to the objectives for which it is established, it will lose right of exemption and the AO shall be within his powers to deny the same. Since this issue has not been looked into, we consider it reasonable to direct the AO to decide the same also in accordance with law after giving an opportunity of being heard to the appellant. 18. The next area which has been discussed in detail by the AO as well as by the CIT(A) is that the assessee has in fact engaged itself in the business. We have reproduced s. 10(21) in para 8 of this order and as per the proviso to the said section, the exemption will not be available to the scientific research association in respect of the income derived from profits and gains of business unless the business is incidental to the attainment of its objective and separate books of account are maintained by it in respect of such business. Whereas the Revenue has recorded a finding, as already pointed out, relating to the appellant, having derived income from profits and gains of business, no finding has been recorded relating to the very important aspect as to whether the busines ..... X X X X Extracts X X X X X X X X Extracts X X X X
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