G.K. Israni, Judicial Member -
(1.) THESE two appeals by the assessee are directed against the consolidated order of the learned CIT (Appeals) dated 16-1-1992 in relation to the assessment years 1986-87 and 1987-88.
(2.) The common grounds raised in the appeals are as under:
(1) The learned CIT (Appeals) erred in holding that the appellant was not entitled to claim exemption under Section 10(22). The facts and circumstances of the case which he considered were neither relevant nor decisive for the conclusion that he arrived at. As the appellant's claim of the exemption under Section 10(22) had been accepted in the past, and as thereafter there was no change in the objects and working of the appellant, it may kindly be held that the appellant is entitled to exemption under Section 10(22).
(2) The learned CIT (Appeals) failed to appreciate that the exemption under Section 10(22) was not made dependent, like Section 10(21) or Section 11, on the mode and manner of application of the income and the application of non-application of the income had no relevance in determining the question of exemption under Section 10(22). He therefore erred in holding that the appellant was not entitled to exemption under Section 10(22) because it had not applied its income towards educational purpose.
(3) The learned CIT (Appeals), without appreciating the actual working of the appellant in the field of education and research in Mathematics, erred in holding that the appellant did not exist for the purpose of education and that Section 10(22) did not apply.
(4) The learned CIT (Appeals) erred in holding that the appellant was not entitled to exemption under Section 10(21) because (0 it had paid an amount of Rs. 30 lakhs and above to the contractor when it was not necessary, and (ii) the appellant did not spend any money for carrying out scientific research. These findings of the CIT (Appeals) are factually and legally not tenable.
(5) The learned CIT (Appeals) erred in holding that the appellant was not entitled to exemption under Section 11 because it had contravened the provisions of Section 11(5) read with Section 13(1)(d) and because it was not running any educational institution.
(6) The learned CIT (Appeals) erred in rejecting the contention of the appellant that if the appellant was to be treated as scientific research institution referred to in Section 10(27), then as per law then existing the voluntary contributions could not be treated as its income, and that in deciding whether the income of the appellant was applied towards charitable purpose, such voluntary contributions had to be left out. The CIT (Appeals) in deciding this issue wrongly mixed up another contention of the appellant that part of its donations were towards corpus.
(7) The learned CIT (Appeals) erred in rejecting the contention and evidence produced which showed that the donations of Rs. 52,00,000 (assessment year 1986-87) and Rs. 44,00,000 (assessment year 1987-88) were towards corpus and they could not be considered as income. The reasons given for not admitting additional evidence in this behalf are not tenable. In deciding this issue, the actual utilisation of the contribution also was a clear indicator that these donations were towards corpus.
(8) The learned CIT (Appeals) erred in holding that in order to earn exemption under Section 10(22), the appellant should have fulfilled conditions under Section 11(5). In the concerned years under appeal this was not the requirement of law.
(9) The CIT (Appeals) erred in not considering the alternative contention of the appellant that if it could not be considered to be entitled to exemption under Section 10(21), 10(22) or 11, its income should have been calculated like any ordinary association at ordinary rates applicable, and that there was no reason or justification to penalise the appellant by taxing voluntary contributions and by levying maximum marginal rate.
(10) The CIT (Appeals) erred in rejecting the contention of the appellant, that interest under Section 139 or 217 was not leviable.
(11) The appellant craves leave to add, alter, omit or substitute any of the grounds at the time of hearing of the appeal.
(12) Considering the substantial hardship that is caused to the appellant which is a public organisation that it may be allowed to adduce such additional evidence as would establish its claim of exemption, which evidence was not admitted for technical reasons by lower authorities.
Before discussing the issues in dispute, it would be convenient to give the necessary factual background of the case. The assessee is a society registered under the Societies Registration Act. The Memorandum lists out the following as its objects :
(i) to encourage arid facilitate the pursuit of Mathematics;
(ii) to promote and encourage the fundamental research in Mathematics;
(iii) to support exchange of ideas and propagation of development in Mathematics;
(iv) to endeavour in numerous ways to spread and cultivate appreciation and studies in Mathematics at various levels and in various aspects;
(v) to encourage and facilitate the pursuit of other branches of knowledge and supportive activities in suitable ways;
(vi) to provide facilities in fulfilment of these objects.
The assessee has been recognised by the Prescribed Authority as a Scientific Research Association for the purposes of Section 35(1)(ii) of the Income-tax Act. The assessee was also registered as a public trust by the Charity Commissioner, Pune, vide certificate dated 5-1-1975. The Director of Education, Maharashtra vide his letter dated 31-5-1979 had also granted recognition to the Pratishthana as a research and cultural institute for a period of 3 years in the first instance. The CIT, Pune I & II, Pune, vide his letter dated 7-4-1980 in reply to the assessee's application for registration of trust under Section 12A of the Income-tax Act had stated as follows :
Please refer to your application dated 15-3-1980 for registration of your trust under Section 12A(a) of the IT Act, 1961.
2. On going through the objects of your institution it is seen that the income of your institution is exempt from income-tax under Section 10(22) of the IT Act, 1961, being an educational institution. Registration under Section 12A(a) of IT Act, 1961 is, therefore, not necessary in your case and your income is even otherwise exempt from income-tax.
This recognition, however, was withdrawn by the CIT by his detailed order dated 28-3-1989 after giving a hearing to the assessee. The assessee was not subjected to any tax in the years earlier to the assessment year 1986-87 which is the subject-matter of the first appeal. According to the assessee, the Pratishthana was an institution existing solely for educational purposes and that scientific research was only an incidental activity and, therefore, whole of its income was exempt under Section 10(22), irrespective of the application of its income. The assessee further claimed that it is an association for the time being approved by the Prescribed Authority for the purposes of Section 35(1)(ii) and hence its income is exempt as per the provisions of Section 10(22) of the Act. Yet, one more plea of the assessee was that the Pratishthana is only a charitable trust and that the provisions of Section 11 are applicable. The Assessing Officer, who investigated into the affairs of the Pratishthana and examined its claims of exemption, came to the following conclusions :
(a) that the Pratishthana could not be considered as an institution as envisaged under Section 10(22) existing solely for educational purposes;
(b) that the income of the Pratishthana was not exempt under Section 10(21) of the Income-tax Act. During the course of the investigation, the Assessing Officer found that no scholarship, as alleged by the assessee, was given nor any expenditure was incurred on the travelling allowance and subsistence allowance nor any books were purchased. Payments claimed running into millions of rupees on these heads were all bogus. The assessee had also not fulfilled the conditions as laid down under the proviso to Section 10(21) as regards the depositing or investing of its contributions in the modes and manners provided in Section 11(5) of the IT Act;
(c) as regards the assessee's claim of exemption under Section 11, the Assessing Officer came to the conclusion that the amounts which the assessee -had claimed to have spent on alleged scholarships, travelling and subsistence allowance and purchase of books could not be considered as application of income on the objects of the trust. He accordingly held that the entire amounts would have to be assessed under Section 164(3) at the maximum marginal rate.
(3.) THE above findings of the Assessing Officer were challenged in the first appeals. THE learned CIT (Appeals) in his detailed order running into about 70 pages made a detailed discussion of the facts, the contentions of the assessee and the department and the findings of the Assessing Officer. After full consideration of all the relevant aspects and hearing the authorised representative(s) of the assessee and the Assessing Officer Shri S.P. Joshi, the learned CIT recorded his findings rejecting the assessee's claims of exemption under all the three sections, namely, Sections 10(22), 10(2.1) and 11 of the Income-tax Act. On the question of claim under Section 10(22), he has held that the assessee is not an educational institution; rather, it is only a scientific research association. He has further held that it cannot be said that the Pratishthana solely existed for the purposes of education and that the provisions of Section 10(22) are applicable. As regards the claim of exemption under Section 10(21), he has held that the main object of the Pratishthana was to carry out fundamental research in pure mathematics. Moreover, the enquiries and investigation carried out by the Assessing Officer showed that the expenditure had not been incurred on the objects of the Association. THE assessee had further contravened the provisions of Section 11(5) of the Act and, as such, was not entitled to exemption under Section 10(21). One of the requirement of Section 10(21) was that the assessee must not deposit/invest any sum by way of contributions received but in any mode or form otherwise than as specified in Section 11(5). In the instant case, it was clearly proved that the amount exceeding Rs. 30 lakhs was given to the contractor as deposit/investment and that could not merely be considered as an advance. So far as the assessee's role as a Scientific Research Association is concerned, the learned CIT (Appeals) in para 43 of his impugned order has observed that the assessee had not spent any amount or money for carrying out any scientific research. In other words, the assessee had not applied its income for the purposes of the objects of the Association. He has endorsed the finding of the Assessing Officer to the effect that no scholarship had actually been given, nor any travelling allowance or subsistence allowance was actually paid, nor any expenditure on purchase of books was actually made. THE fact that the expenditure had not been incurred on the objects of the Association was clear from the implied conduct of the assessee, i.e., to say that the assessee did not clearly challenge this, nor the assessee showed any interest in cross-examining the concerned persons in spite of the fact that proper opportunity for the same was given to the assessee. Even before him the assessee had not contested this issue and had almost accepted that the expenditure had not been incurred on the objects of the Association. Thus, the assessee did not qualify for exemption under Section 10(21) of the Act. As regards the claim of exemption under Section 11. the learned CIT (Appeals) has again endorsed the finding of the Assessing Officer to the effect that the assessee had contravened the provisions of Section 11 (5) and therefore fell within the purview of Section 13(1)(a). In this view of the matter, the assessee was not entitled to any exemption under Section 11 of the Act. In view of these findings, the assessee's appeals were dismissed by the learned first appellate authority and it was held that the action of the Assessing Officer to tax the entire income of Rs. 75,98,970 for the assessment year 1986-87 and at Rs. 45,79,300 for the assessment year 1987-88 at the maximum marginal rate was proper and correct.;