HIGH COURT OF BOMBAY
M. Visvesvaraya Industrial Research & Development Centre
Versus
Commissioner of Income-tax
IT REFERENCE NO. 78 OF 1998
October 25, 2012
JUDGMENT
S.J. Vazifdar, J.
This reference under section 256 (1) of the Income Tax Act, 1961 arises out of Reference Application Nos.306 and 307 filed by the assessee in respect of a common order of the Income Tax Appellate Tribunal dated 29th March, 1996 in ITA Nos.6351/B/93 and 1717/B/94 pertaining to assessment years 1989-90 and 1990-91.
(A) The Tribunal on the assessee’s application drew up a statement of case and referred the following eight questions and an additional question for the year 1990–91 for the opinion of this Court :-
“(1) Whether, on the facts and in the circumstances of the case, the Tribunal was right in its conclusion that the assessee was not entitled to exemption under section 11 of the Income Tax Act, 1961 ?
(2) Whether, on the facts and in the circumstances of the case, the Tribunal was right in its conclusion concerning clauses 2, 4, 5, 6, 7, 20 and 24 of the Memorandum of Association of the assessee are not objects of general public utility and thereby do not fall within the meaning of section 11 of the Income-Tax Act, 1961 ?
(3) Whether, on the facts and in the circumstances of the case, the Tribunal was right in its conclusion that the construction activity of World Trade Center, Centre 1 and IDBI Centre were activities of business ?
(4) Whether, on the facts and in the circumstances of the case, the Tribunal was right in its conclusion that the establishing of the World Trade Center cannot be object of public utility so as to be covered by the provisions of section 11 of the Income-Tax Act, 1961 ?
(5) Whether, on the facts and in the circumstances of the case, the Tribunal was right in coming to Its conclusion that the activity of the assessee would also be hit by the provisions of section 11 (4A) of the Income-Tax Act, 1961 ?
(6) Whether, on the facts and in the circumstances of the case, the Tribunal was right in its conclusion that the transaction was one of sale of lease-hold rights of use of space and not of leasing ?
(7) Whether, on the facts and in the circumstances of the case, the Tribunal was right in its conclusion that the primary basic rent and the parking rent were assessable as income from profits and gains of business or profession ?
(8) Whether, on the facts and in the circumstances of the case, the Tribunal was right in its conclusion that the amount appropriated towards a sinking fund was part of the rent received by the assessee and was in the nature of revenue receipt ?
Additional Question for A. Y. 1990-91.
(1) Whether, on the facts and in the circumstances of the case, the Tribunal was right in directing to adopt the standard rent fixed by the Municipal Authorities as the annual value instead of the actual rent realised by the assessee ?”
(B) By an order dated 21st March, 2003, in circumstances we will state later, Questions 1 and 6 were reframed as follows :–
“Question No. 1:- Whether on the facts and in the circumstances of the case, the applicant complied with the provisions of section 11 (Applicant of income, Accumulation), 11 (4A), 12 and 13 for the assessment year 1989-90 and 1990-91 and is therefore exempt from Tax ?
Question No. 6: Whether on the facts and or the circumstances of the case, the applicant was right that only 1/60th of the advance can be assessed as its income for the year as the tribunal had rightly held it as transaction of lease and not of sale ?”
2. The only questions that were pressed before us by Mr. Andhyarujina, the learned senior counsel appearing on behalf of the assessee, were questions 1, 6, 7 and 8 and the additional question for the A.Y. 1990-91.
3. By an order and judgment dated 15th March, 2001 (251 ITR 852), this Court remanded the matter to the Tribunal for its decision on two points. We will refer to the judgment in some detail later. Pursuant thereto the Tribunal on 29th November, 2001 made a remand report. The Reference is, therefore, now heard finally.
4. The questions referred to this court require a reference to the facts in some detail.
5. The All India Manufacturers Organisation and Industrial Foundation conceived the idea of establishing a World Trade Center in Mumbai. They convened a meeting of prominent industrialists in Mumbai on 14th April, 1969 under the presidentship of the then Finance Minister of the Government of Maharashtra.
This led to the formation of the assessee as a company under section 25 of the Companies Act, 1956. The Department of Company affairs granted the assessee a license under section 25 of the Companies Act on 12th June, 1970 and the certificate of incorporation was issued on 26th June, 1970.
6(A). The objects of the assessee are set out in Part III of its Memorandum of Association.
(i) The main object of the assessee as set out in clause A of Part III is as under :-
” III. A. THE MAIN OBJECTS OF THE CENTRE TO BE PURSUED BY THE CENTRE ON ITS INCORPORATION ARE :
1. To organise, sponsor, promote, establish, conduct or undertake scientific research in any way or by any means whatsoever and in any area or field.
“Scientific research” in the above clause shall mean any activities for the extension of knowledge in the fields of natural or applied science, including agriculture, animal husbandry or fisheries. If the definition of “scientific research” in section 43(4)(l) of the Income-Tax Act, 1961, or the corresponding provision of any new law, is hereafter amended, the amendment shall apply to the connotation of “scientific research” in this clause.”
(ii) Clause B of Part III of The Memorandum of Association also enumerates 28 incidental or ancillary objects. It is important to emphasise the very first clause which reads as under :-
“B. OBJECTS INCIDENTAL OR ANCILLARY TO THE ATTAINMENT OF MAIN OBJECTS:
To do generally all acts and undertake all activities which are conducive or incidental to the above-mentioned Main objects, and more particularly the following :”
The preface to the incidental or ancillary objects in clause 1 is followed by specific incidental or ancillary objects.
(B) It is also necessary to note some of the Articles in the Articles of Association of the assessee.
“1. Interpretation
In the interpretation of all these articles (that) the following words and expressions shall have the following meanings, unless repugnant to the subject or context: –
(iii) “the Council” shall mean the Council of Management of the Centre constituted in the manner prescribed in these Articles.
(xii) “Managing Committee” means the Committee appointed (by) the Council in the manner prescribed in these Articles.”
Article 18 provides for the Constitution of the Council of Management. The council comprises of 50 members elected from the members of the Centre and not more than 5 members co-opted by the elected members of the Council, presidents of certain chambers of commerce etc. nominees of the Government of Maharashtra, certain authorities/officers of the government etc. Article 19 reads as under :-
“19. The affairs of the Centre shall be managed by the Council who may exercise all such powers of the Centre and are not expressly directed by the constitution of the Centre or modification thereof for the time being in force or are not required by these articles to be exercised by the Centre in General Meeting.”
Article 30 which deals with various aspects relating to the Managing Committee constitution. It provides that The Council will delegate any or all of their powers to the Managing Committee and that the Managing Committee can constitute sub-committees for any specific purpose with such powers as it may delegate.
7. The Department of Revenue on 6th April 1970 notified the assessee as a Council of Scientific and Industrial Research for the purposes of section 35 (1) (ii) of the Act. The assessee had therefore been recognised as a scientific research institution by the CBDT from its inception. This recognition was however discontinued with effect from 31st March, 1981 in circumstances we will mention later.
8(A). By a resolution dated the 16th October, 1970 the Government of Maharashtra accorded sanction to lease an area of about 6 hectare and 96.49 ares of land to the assessee subject to the terms and conditions mentioned in an accompanying memorandum of terms and conditions. It is not necessary to set out the terms and conditions of this resolution as it was superseded by a resolution dated 18th November, 1974.
(B) However pursuant to this resolution the assessee was put in possession of the said land on 2nd May, 1972.
9. The Government of Maharashtra by a resolution dated 18th November, 1974 superseded the earlier resolution dated 16th October, 1970. By this resolution sanction was accorded to the grant of a lease to the assessee of the said land on the terms and conditions mentioned in Appendix “A” thereto, clauses 7 and 12 whereof read as under :-
“7 The lessees shall not assign underlet part with possession of the demise of land or transfer the lessees interest therein without the previous consent in writing of the Less or. The less or will be at liberty to refuse such consent granted subject to such condition including a condition requiring payment of premium as the Less or me in his discretion thinks it. The lessee will be at liberty to underlet any part or parts of the proposed buildings without such permission after the same are completed.
12 The land shall be used by the lessees only for electing or constructing their own buildings or structures to house or accommodate either for its own use or for letting out inter alia scientific research bodies, trade and/or industrial museums, research Centre and/or laboratories, libraries, bureaus, Shopping arcades exhibitions, a World Trade Center (inclusive of all the services provided by such a Centre), offices auditoria and/or halls for concerts or conferences or recreational or cultural activities, or residential quarters for the staff and visitors from upcountry or abroad, planetarium and cafeteria and/or restaurants but not a hotel.”
10. The assessee entered into agreements with various parties (referred to herein as lease agreements) on the terms and conditions contained therein. Our attention was invited to two samples of such lease agreements in respect of premises in Centre-1 and the Arcade. Most of the terms and conditions thereof are similar. We will refer to the relevant portions of the first sample extensively. Suffice it to note that whereas in the first sample, the rent for the premises has four components viz. primary basis rent, secondary basic rent, common outgoing rent and parking space rent in the second sample, the rent consists of three components viz. basic rent, common outgoing rent and parking space rent. We will refer to the relevant provisions of the lease agreements at the appropriate stages.
11. As stated earlier, the recognition granted on 6th April, 1970, under section 35(i)(ii) was withdrawn with effect from 31st March, 1981, in circumstances we will mention while answering Question 1.
12. On 8th February 1984 the Commissioner of Income Tax, Mumbai, issued a certificate in favour of the assessee under section 12A.
13. The assessee filed its return of income for the year 1989-90 showing a business loss of Rs. 9 14.42 lakhs.
14. The Assessing Officer held that the transaction between the assessee and the lessees was/constituted a sale of the premises and not a lease. He treated the difference between the “advance rent” received and the total cost of construction as income from the sale of the buildings under the head “profits and gains from business”; treated the sinking fund as taxable income and also treated the interest income from investments as the assessee’s income. He accordingly assessed the income under section 143 (3) at Rs. 10,71,18,176/-.
In the appeal before the Commissioner of Income Tax (Appeals) the assessee claimed exemption under section 11 on the ground that its activities constituted general public utility within the meaning of section 2 (15). The assessee challenged the finding that the transaction between itself and the lessees was a sale and not a lease. The CIT (Appeals) held the “advance rent” received by the assessee to be a premium and held it liable to tax as business income. Alternatively he held the “advance rent” as a capital receipt and the same was considered by him as short-term capital gain. The claim for exemption under section 11 was rejected.
By an order dated 29th March, 1996 the Tribunal held that the transactions between the assessee and the lessees were one of “sale of leasehold rights of use of space” and that the assessee retained only a right to charge monthly rent and transfer fees in respect of the right of space leased out. The Tribunal also rejected the claim for exemption under section 11 on the ground that the assessee had not obtained registration under section 12 A.
15. The above reference was made to this court in which the order dated 15th March, 2001 (MANU/MH//0504/01 = 251 ITR 852) was made remanding the matter on two questions. The court held that there was no concept in law of “sale of leasehold rights of use of space”. It was stated on behalf of the Department that it was unable to support such a proposition either. The court therefore remitted the matter to the Tribunal with a specific direction to reconsider this point in the light of the contentions of the parties in the assessment proceedings.
Secondly this court considered the issue of the certificate under section 12 A. As it would in any event be necessary for us to refer to the observations of the court in this regard in detail it would be convenient to set them out here.
They read as under :-
“The said certificate is on record. It has been issued by the competent authority. It states that the delay has been condoned. Under Section 12A of the Act, the certificate was required to be issued by the competent authority. In the present case the certificate has not been revoked. Further, in the present case, we do not know the basis on which the Tribunal has come to the conclusion that normally, a certificate granting recognition is issued for a specific period. In the case of New Life in Christ Evangelistic Association v. CIT MANU/TN/0568/1998 : [2000]246ITR532(Mad), the assessee made an application under Section 12A for registration. It was rejected. Being aggrieved by the rejection, the assessee filed a writ petition against the Commissioner of Income Tax directing it to register the assessee under Section 12A of the Act. The Madras High Court held that two conditions are provided for registration under Section 12A of the Act. Firstly, that the persons should have made an application for registration in the prescribed form and in the prescribed manner to the prescribed authority within the specified time and the second condition provides for the keeping of the accounts in a particular manner and further that such accounts were required to be audited. The court held that the section did not show that in order to get registration under Section 12A, there is necessity of first establishing as to how the assessee would be able to claim exemption under Section 11 or Section 12. That there is nothing in the section to suggest that an institution of a religious nature is precluded from getting registration under Section 12A. That, the question of exemptions under Section 11 and Section 12 would come only when the exemptions are claimed at the time when the assessee is assessed to tax. That at the stage of registration to consider whether the said assessee would be entitled to the benefits under Section 11 and Section 12 would be prejudging the issue before the grant of certificate. That, at the stage of grant of certificate under Section 12A the only enquiry which could be made would be whether the society has actually made an application in time and whether the accounts of the society are maintained in the manner as suggested by Section 12A and beyond that the scope of the enquiry would not go. That, the only purpose for which the registration was required was for establishing its identity as an institution for being able to claim the benefits under Section 11 and Section 12. Therefore, at the stage of enquiry under Section 12A, the Commissioner would not insist upon the assessee to show that its income was not going to be spent for the earmarked purpose. We agree with the ratio of the said judgment. In the present matter, as stated above, the assessee applied for registration on October 1, 1982. As stated above, the certificate was issued on February 8, 1984, after condoning the delay. That certificate has not been revoked. As stated above, the Department accepted the tax returns filed by the assessee and made the assessments thereafter under Section 143 read with Section 11 up to the assessment year 1988-89, although exemption under Section 35(1)(ii) was withdrawn on March 31, 1981. In the circumstances, it cannot be said that the certificate has not been issued in this case. However, as stated in the above judgment of the Madras High Court, issuance of the certificate does not prevent an Assessing Officer from considering whether in a given assessment year the assessee was entitled to claim benefits under Sections 11 and 12 or, as the case may be, under Section 80G of the Income Tax Act. In the present matter, this aspect has not been gone into by the Tribunal. In the circumstances, we remand the matter back to the Tribunal on this second point also, viz., whether the assessee has applied its income for earmarked purposes and whether the assessee was entitled to claim benefits under the aforestated sections during the assessment years 1989-90 and 1990-91. In the present matter, there are numerous other points on which the Tribunal has given its findings. We do not wish to disturb those findings at this stage.
6. In the case of Fifth Generation Education Society v. CIT MANU/UP/0244/ 1990 : [1990]185ITR634(All) , the Division Bench of the Allahabad High Court took the view that Section 11 provides for exemption of income which is applied for charitable purposes. That, Section 12 is in the nature of an Explanation to Section 11. That, before a person can claim the benefit of Section 11 or Section 12, he must obtain registration under Section 12A. That, the authority to decide grant of certificate is vested in the Commissioner. That, it is the Commissioner who has to examine whether the application is made in accordance with Section 12A. That, it is for the Commissioner to see whether the objects of the trust are charitable or not. That, at that stage, the Commissioner is not required to examine the application of income. Hence, in the present matter, the Tribunal was certainly entitled to ascertain whether there was a proper application of income for charitable purposes during the assessment years 1989-90 and 1990-91.
7. To sum up, we are of the view that the Tribunal should have considered the miscellaneous application filed by the assessee in the context of the contention raised by the assessee that there is no legal concept propounded by the Tribunal, viz., sale of leasehold rights of the use of space. We are also of the view that, in the present case, the Commissioner did grant registration under Section 12A of the Act. However, such registration will not prevent the Tribunal from ascertaining whether there was proper application of income during the assessment years 1989-90 and 1990-91 and whether the assessee was entitled to avail of the benefit under Sections 11, 12 and 12A of the Income Tax Act. We are keeping the contentions on both sides open on the above points. Writ Petition No. 2490 of 2000 disposed of accordingly with no order as to costs.
8. We are not disposing of the present reference. We are remitting the matter to the Tribunal for its decision only on the above two points. We will consider the reference after we receive the findings from the Tribunal on the above two points. Therefore, the reference is kept pending on the file of this court. The said reference is adjourned to December 3, 2001.”
16. The Tribunal accordingly heard the matter afresh on the two points indicated by this court and filed a Remand Report dated 29th November, 2001.
17. The matter was thereafter placed before this court. We have already referred to the order dated 21st March 2003 by which the Division Bench reframed Questions 1 and 6. In paragraph 5 the Division Bench noted that the controversy whether original questions 2 to 5 need to be deleted in view of the order of this court dated 15th March, 2001 and the reframing and recasting of question Nos. 1 and 6 would be decided at the time of the hearing of the reference. As we indicated earlier Mr. Andhyrujina did not press questions 2 to 5 in any event. We therefore proceed to answer the remaining questions.
Re- Question 1:-
18. As noted in the order of the CIT (Appeals) the assessee first constructed a building called The Trade Centre which included a shopping mall and a conference hall. In 1979-80 the assessee constructed a 32 story building called Commerce Centre or Centre 1. Thereafter the assessee constructed another multistory building called IDBI Centre. At the material time the assessee had planned several other constructions including a building to house a five-star hotel, a modern business executive centre with infrastructure for sophisticated accommodation-cum-facilities on a day-to-day basis. During the assessment year 1989-90 the assessee completed construction of Commerce Centre and handed over possession of the premises therein to the various lessees. It received a sum of Rs. 45,99,84,721/- as primary basic rent and accounted for the year l/60th of the primary basic rent as rent for the period 1st October, 1988 to 31st March, 1989 and offered for taxation under the head profits and gains of business or profession and claimed deduction by way of depreciation of the building. It was noted that what was offered for tax was the gross rent of Rs. 38,33,206/- under the head business, the amount having been arrived at as a l/60th portion of the primary basic rent plus secondary rent etc. and after accounting for the various expenses as per the profit and loss account. A net profit before depreciation was shown at Rs. 3,40,592/- on which depreciation of Rs. 11,14,37,637/- had been claimed. The AO disallowed the depreciation for the reason that the entire cost of building had been adjusted against the receipt of basic primary rent.
19. It is necessary first to analyze section 11(1)(a) under which the assessee claimed an exemption.
Sections 2(15), 11(1)(a), 12, 12A, 13(1)(i)(ii) and 13(3) read as under :-
“2(15) “charitable purpose” includes relief of the poor, eduction, medical relief, and the advancement of any other object of general public utility
…………………………
Section 11(1)(a):
Income from property held for charitable or religious purposes –
(1) Subject to the provisions of Sections 60 to 63, the following income shall not be included in the total income of the previous year of the person in receipt of the income –
(a) income derived from property held under trust wholly for charitable or religious purposes, to the extent to which such income is applied to such purposes in India; and, where any such income is accumulated or set apart for application to such purposes in India, to the extent to which the income so accumulated or set apart is not in excess of twenty-five per cent of the income from such property
Section 11(4A):
Sub-section (1) or sub-section (2) or sub-section (3) or sub-section (3A) shall not apply in relation to any income, being profits and gains of business, unless –
(a) the business is carried on by a trust wholly for public religious purposes and the business consists or printing and publication of books or publication of books or is of a kind notified by the Central Government in this behalf in the Official Gazette ;
(b) the business is carried on by an institution wholly for charitable purposes and the work in connection with the business is mainly carried on by the beneficiaries of the institution and separate books of account are maintained by the trust or institution in respect of such business.
Section 12 :
Income of trusts or institutions from contributions, – Any voluntary contributions received by a trust created wholly for charitable or religious purposes or by an institution established wholly for such purposes (not being contributions made with a specific direction that they shall form part of the corpus of the trust or institution) shall for the purposes of section 11 be deemed to be income derived from property held under trust wholly for charitable or religious purposes and the provisions of that section and section 13 shall apply accordingly.
Section 12 A:
Conditions as to registration of trust, etc. – The provisions of section 11 and section 12 shall not apply in relation to the income of any trust or institution unless the following conditions are fulfilled, namely –
(a) the person in receipt of the income has made an application for registration of the trust or institution in the prescribed form and in the prescribed manner to the Chief commissioner or Commissioner before the 1st day of July, 1973, or before the expiry of a period of one year from the date of the creation of the trust or the establishment of the institution, whichever is later :
Provided that the Chief Commissioner or Commissioner may, in his discretion, admit an application for the registration of any trust or institution after the expiry of the period aforesaid ;
(b) where the total income of the trust or institution as computed under this Act without giving effect to the provisions of section 11 and section 12 exceeds twenty-five thousand rupee in any previous year, the accounts of the trust institution for that year have been audited by an accountant as defined in the explanation below sub-section (20) of section 288 and the person in receipt of the income furnishes along with the return of income for the relevant assessment year the report of such audit in the prescribed form duly signed and verified by such accountant and setting for such particulars as may be prescribed.
Section 13(1)(c)(ii):
Section 11 not to apply in certain cases – (1) Nothing contained in section 11 or section 12 shall operate so as to exclude from the total income of the previous year of the person in receipt thereof –
(c) in the case of a trust for charitable or religious purposes or a charitable or religious institution, any income thereof –
(i) if such trust or institution has been created or established after the commencement of this Act and under the terms of the trust or the rules governing the institution any part of such income enures, or
(ii) if any part of such income or any property of the trust or institution (whenever created or established) is during the previous year used or applied, directly or indirectly for the benefit or any person referred to in sub-section (3).
Section 13(3) :
The persons referred to in clause (c) of subsection (1) and sub-section (2) are the following, namely –
(a) the author of the trust or the founder of the institution ;
(cc) any trustee of the trust or manager (by whatever name called) of the institution ;
(d) any relative of any such author, founder, person, member, trustee or manager as aforesaid ;
(e) any concern in which any of the persons referred to in clauses (a), (b), (c), (cc) and (d) has a substantial interest.”
20. The suggestion that nothing remains to be considered about the assessee’s activities as a charitable institution in view of the judgment of this Court in this reference remanding the matter to the Tribunal on the said two issues is not well founded. All that the judgment holds is that the provisions of section 12A were complied with and the registration thereof is valid and subsisting. The issue of compliance with section 12A was, in view of the judgment, not open to question before the Tribunal and is not open to question before us. That however, does not preclude this Court from considering all the other questions relevant for the purpose of answering the reference.
21. Compliance with the provisions of section 12A is not the only requirement for the applicability of section 11. It is only one of the requirements. Section 12A merely provides that the provisions of sections 11 and 12 would not apply in relation to the income of any trust or institution unless the person in receipt of the income has made an application for registration of the trust or institution in the prescribed form and manner to the relevant authority and within the time stipulated therein or any extension thereof as may be granted. There are other conditions in section 12A with which we are not concerned in this reference. Compliance with Section 12A does not entitle an assessee to the benefit of section 11, ipso facto. Non compliance with Section 12A bars an assessee from being granted the benefit of Sections 11 and 12. The compliance with the provisions of section 12A only indicates that the assessee is a trust or institution entitled to claim the benefit of sections 11 and 12. That however, is not the end of the matter. It would be entitled to be granted the benefit only if it complies with the other requirements of these sections. An assessee that has complied with the provisions of section 12A must also establish that the conditions of Sections 11 and 12 are satisfied before it is entitled to the exemption under sections 11 and 12.
22. A view to the contrary would lead to the most unusual consequences. A view to the contrary would mean the assessee can by merely complying with the provisions of section 12A claim an exemption under sections 11 and 12 even though the ingredients thereof are not satisfied. The fallacy of such a contention is obvious from the fact that an assessee may well acquire the properties even after it complies with section 12A. Such properties may not be held under trust wholly for charitable purposes. A view to the contrary would entitle the assessee to the benefit of sections 11 and 12 despite the same.
23. The question then is whether the assessee has satisfied the conditions stipulated in Section 11. Firstly, the exemption under section 11(1)(a) is in respect of the income derived from property held under trust wholly for charitable or religious purposes. Secondly the exemption is available only to the extent to which such income is applied to such purposes in India. Thirdly, where such income is accumulated or set apart for the application to such purposes in India, the exemption is applicable to the extent to which the income so accumulated or set apart is not in excess of 25% of the income from such property. The conditions are cumulative.
24. It is not the assessee’s case that it held the property for religious purposes. It is the assessee’s case that it held the property under the trust wholly for charitable purposes.
25. For section 11(1)(a) to apply, the assessee must therefore firstly hold the property under trust for a charitable or religious purposes. In other words, the exemption does not apply merely because the assessee is a trust. The property must be held under trust and such holding of the property under trust must be wholly for charitable or religious purposes. Thus even assuming that the assessee held the property under trust, it would not be entitled to exemption if such holding under trust was not wholly for charitable or religious purposes. The question then is whether the assessee held the property under trust wholly for charitable purposes. We think not.
26. The assessee never engaged itself in any activity related to the professed charitable purposes. The assessee neither derived the income from the property held under trust for the alleged charitable purposes nor applied the income therefrom to such purposes. There is nothing on record which even remotely suggests that the said property i.e. the assessee’s right, title or interest in the said land and the construction put up by it thereon was held under trust wholly for charitable or religious purposes.
27. As we noted earlier, the assessee claims to have been engaged in activities relating to the advancement of objects of general public utility, which fall within the definition of the words “charitable purposes” in Section 2(15). The activities of general public utility the assessee claims to have been engaged in relation to “scientific research in any way or by any means whatsoever and in any area or field” as stated in the main objects set out earlier. We find this claim to be unfounded as we will now demonstrate.
28. As we mentioned earlier on 6.4.1970, the Department of Revenue notified the assessee as a Council of Scientific and Industrial Research for the purposes of section 35(1)(ii) of the Act. Section 35(1)(ii) reads as under :-
“35. Exemption on scientific research
(1) In respect of expenditure on scientific research, the following deductions shall be allowed :-
…………………..
(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 or 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;”
However, in 1977, the Department of Science and Technology, the appropriate authority to monitor all the scientific research activities and to grant recognition to institutions as scientific research institutions, informed the assessee that before granting the extension of the said recognition, it would review the same. The recognition was extended till 31.3.1981. A three member team from the Department of Science and Technology thereafter assessed the assessee’s activities. They advised the assessee that its World Trade Centre Activities must be kept separate from its research activity by forming another organization to carry on the WTC activities, failing which the recognition would not be continued further. It also advised the assessee to carry out the research activities with laboratory facilities and academic research staff. As the assessee did not comply with these requirements, its recognition under section 35(1)(ii) was not continued with effect from 31.3.1981. It is only thereafter in February 1984 that the assessee made the application under section 12A.
29. This is the first indication that the assessee at least during the relevant assessment years viz. 1989-1990 and 1990- 1991 was not involved in the field of scientific research. The refusal to extend the recognition under section 35(1)(ii) was not challenged and attained finality. If indeed the assessee was involved in the field of scientific research at that time or at any time thereafter, it would have either challenged the decision or made a fresh application for recognition under section 35(1)(ii). It admittedly did not do so. The facts referred to in the order of the AO, CIT(A) and the Tribunal indicate that the assessee did not do so for it never carried out any scientific research and never intended carrying out scientific research.
30. There is not an iota of evidence to indicate that the assessee at any point of time since inception even had an intention of carrying out scientific research. The Department obviously cannot be required to prove the negative. It has however, we think, done so. It was for the assessee to establish the positive viz. that it had involved itself in the field of scientific research. Mr. Andhyarujina was unable to indicate any material to establish the same. On the contrary, the Department has discharged an onus not cast upon it by proving the negative.
31. For instance, the Department sought and received from the assessee particulars of the expenditure incurred by the assessee towards scientific research. The information was tabulated in the assessment order of the CIT(A), which reads as under :-
TABLE
