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I-T dept cant tax research work
July, 25th 2009

The Bombay High Court, in a recent order, came down heavily on the Income-Tax Department, which unilaterally injected an application for exemption for scientific and industrial research, without seeking guidance of experts on the matter. Tax authorities do not have the jurisdiction to decide on the issues pertaining to scientific research, according to a division bench of the HC comprising FI Rebello and JH Bhatia.

The observation was made while deciding on an appeal filed by Mumbai-based Indian Planetary Society (IPS), which claims to carry out planetary research, astrophysics, solar physics etc. IPS moved the HC, after the I-T Department declined to approve the body even after being accorded the status of Scientific and Industrial Research Organisation (SIRO), by the Department of Scientific & Industrial Research of the ministry of science & technology.

The division bench pointed out that since the tax authorities do not have the required expertise to evaluate scientific research activities, it should have sought the advise of experts in the field before coming to a conclusion that a particular body has been genuinely carrying out the research activity. Any decision on such matters, taken without the guidance of experts in the filed, would be vitiated, the HC observed.

The tax authorities did not furnish any reasons for rejecting the application. It merely said IPS did not meet the requirements under Section 35 (1) (11) of the I-T Act, which deals with deductions for expenditure incurred on scientific and industrial research. The communication from CBDT to the IPS reads, The basic requirement under Section 35 (1) (11) of the I-T Act undertaking adequate scientific research activity is not fulfilled.

The division bench held that CBDT, which has the officers of the Income-Tax Department, is hardly an authority to decide whether an organisation is actually doing the scientific research or not. The HC pointed out that it is the central government which has the authority on such matters. The court also pointed out that recognition by the ministry of science and technology entails IPS to customs & excise deduction.

The HC further held that the authority to grant permission to such an organisation is of the Government of India and not CBDT. Nothing has been shown before us to show that, CBDT under the business rules of the Government of India, has been allowed to discharge functions of the government under Section 35 (1) (11).

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