Central Power Research Institute vs Central Board of Direct Taxes

H.G. Ramesh, J.—The petitioner is a Research Institute established under the Central Government in the field of power. The 1st respondent-Central Board of Direct Taxes directed the Director General of income Tax Exemption to deny the benefit of exemption under Section 10(21) of the Income Tax Act (hereinafter referred to as the Act'' for short) extended to the petitioner on the ground that petitioner is recognized only as an "Institution" and not Scientific Research Association in terms of Section 35(1)(ii) of the Act and further directed the Assessing Officer concerned to take appropriate action. Pursuant to the directions, the Assessing Officer concluded the assessment denying the exemption from the Assessment year 2005-06. The application filed by the petitioner under Section 35 of the Act came to be rejected. As against which, petitioner preferred appeal before the Appellate Authority. The Appellate Authority having opined that petitioner is a power research institute, set aside the order of the Assessing Officer. However, now once again the Appellate Tribunal referring to Section 10(21) of the Income Tax Act, reversed the finding of the Appellate Authority opining that it is a case of collection of fees from the outsiders who have been utilizing the services in the research institute, as such, petitioner is liable to be assessed to tax. Hence, petitioner is before this Court.

Heard the learned counsel for respective parties.

The learned counsel appearing for the petitioner submitted that petitioner is a Central Government organization established for the purse of research in the field of power. Incidentally, some activities have been carried out for making use of the object of the research by some outsiders, but that does not necessarily mean that it is a profit making unit and they are earning profit so as to be accessible for tax. Although the Appellate Authority opined that the nature of the work being carried out by the petitioner is by way of research, the same falls under Section 35 of the Act, and is exempted from tax, but, the Appellate Tribunal set aside the order passed by the Appellate Authority. As such, the Assessing Officer tried to assess the income tax from 2005-06 as on date which is in clear violation of Section 35 of the Act.

Per contra, learned counsel appearing for respondents submitted that petitioner is not a research centre as it is allowing the outsiders to participate and make use of the system by collecting the fees. Accordingly, sought to contend that there is no illegality in initiation of the proceedings against the petitioner by invoking the assessment clause and re-assessment has been done, which is in order.

Section 35 of the Income Tax Act provides for exemption to certain of the categories by way of research being carried out either in University colleges or in the case on hand, which is a Central Government Research Institute. It appears, as opined by the Appellate Authority as against the order of the Assessing Officer, it is purely a research activity and is not taxable. As per Section 10(21) r/w Section 35 of the Act, exemption is provided for research activities. The approach of the respondent is that as some outsiders are making use of this research and they have been charged for such benefit petitioner is liable to pay the tax. However, the fee that is being charged cannot be treated as profit making. Fees may be collected by the petitioner as a matter of extending services to the outsiders who have access to research centre for their further use or benefit to spread over the same for public use. In this context, it is neither a profit making business nor it is being exploited by the Institute for making profits. Fees if any collected is only for the purpose of assistance rendered in research centre. In that view of the matter, it appears, as argued by the learned counsel for the petitioner, it is purely a research related activity and not a profit making business so as to make it liable to pay the tax. Further more, as per Rule 5(12) of the Income Tax Rules, an opportunity has to be provided before assessment is done. In the present case, there appears to be no such hearing given to the petitioner.

In view of the above, the impugned order is set aside. It is for the petitioner to appear before the 1st respondent - Central Board of Direct Taxes and explain the situation and nature of activities being carried out by the petitioner, which shall be taken into consideration by the authority while considering the case of the petitioner for exemption of payment of tax. Ordered accordingly.

Writ Petitions are disposed of.