Rules 5C to 5E* Guidelines, conditions, etc., in respect of approval under clauses (ii) and (iii) of section 35(1) The statutory background 5C.1 Under clauses (ii) and (iii) of section 35(1) of the Act, as amended with effect from 1-4-2006, an assessee is entitled to weighted deduction equal to 1.25 times of any sum paid to— (i) any scientific 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, or (ii) a university, college or other institution to be used for research in social science or statistical research. The deduction is however subject to the conditions— (i) that such association, university, college or other institution is for the time being approved, in accordance with the guidelines, in the manner and subject to such conditions as may be prescribed; and (ii) that such association, university, college or other institution is specified as such, by notification in the Official Gazette, by the Central Government. Under the first proviso to section 35(1) of the Act, the scientific research association, university, college or other institution is required to make an application in the prescribed form and manner to the Central Government for the purpose of grant of approval, or continuance thereof. Rules 5C, 5D and 5E, inserted with effect from 30-10-2006, prescribe the guidelines, conditions and Form of application and allied procedural aspects. Application for approval 5C.2 Rule 5C prescribes inter alia as follows : 5C.2-1 Form of application - The application must be made in the following Form, in duplicate : u By a scientific research association - Form 3CF-I u By a university, college or other institution - Form 3CF-II Annexure to application Form No. 3CFI shall be filled out if association claims exemption under section 10(21). 5C.2-2 When should the application be made - The application shall be made at any time during the financial year immediately preceding the assessment year for which approval is sought. 5C.2-3 To whom should the application be made - The application shall be made to the Commissioner of Income-tax or the Director of Income-tax having jurisdiction over the applicant. In addition, the application must send a copy of the application to Member (IT), CBDT accompanied by the acknowledgement receipt as evidence of having furnished the application form to the jurisdictional Commissioner/Director of Income-tax. Action by the Commissioner 5C.3 The Commissioner/Director of Income-tax shall take action as follows. 5C.3-1 Issue of deficiency letter - If any defect is noticed in the application in Form No. 3CF-I or Form No. 3CF-II or if any relevant document is not attached thereto, the Commissioner of Income-tax or, as the case may be, the Director of Income-tax shall serve a deficiency letter on the applicant before the expiry of one month from the date of receipt of the application Form in his office. 5C.3-2 Removing the deficiency - The applicant shall remove the deficiency within a period of fifteen days from the date of service of the deficiency letter or within such further period which, on an application made in this behalf may be extended, so however, that the total period for removal of deficiency does not exceed thirty days. If the applicant fails to remove the deficiency within the period of thirty days so allowed, the Commissioner of Income-tax or, as the case may be, the Director of Income-tax shall send his recommendation for treating the application as invalid to the Member (IT), Central Board of Direct Taxes. The Central Government, if satisfied, may pass an order treating the application as invalid. 5C.3-3 Scrutiny and recommendation - If the application Form is complete in all respects, the Commissioner of Income-tax or, as the case may be, the Director of Income-tax, may make such inquiry as he may consider necessary regarding the genuineness of the activity of the association or university or college or other institution and send his recommendation to the Member (IT) for grant of approval or rejection of the application before the expiry of the period of three months to be reckoned from the end of the month in which the application Form was received in his office. Action by the Central Government 5C.4 The Central Government shall take action on the following lines. 5C.4-1 Calling for documents/inquiry - The Central Government may before granting approval under clause (ii) or clause (iii) shall call for such documents or information from the applicant as it may consider necessary and may get any inquiry made for verification of the genuineness of the activity of the applicant. 5C.4-2 Issue of notification or rejection of application - The Central Government may, under sub-section (1) of section 35, issue the notification to be published in the Official Gazette granting approval to the association or university or college or other institution or for reasons to be recorded in writing reject the application. In respect of applications made on or after 13-7-2006, every notification shall be issued, or an order rejecting the application shall be passed, within period of 12 months from the end of the month in which such application was received by the Central Government. This period of 12 months shall be reckoned from the end of the month in which the application Form from the applicant for approval is received in the office of Member (IT), Central Board of Direct Taxes. With effect from 1-4-2006, the Taxation Laws (Amendment) Act, 2006 has amended the third proviso to section 35(1) to provide that there would be no requirement for renewal of approval where approval is granted on or after 13-7-2006. Such approvals shall remain in force indefinitely until they are revoked by the Central Government. Approvals issued before 13-7-2006 shall remain effective for the period (not exceeding three assessment years) for which the approval is granted. 5C.4-3 Withdrawal of approval - The Central Government may withdraw the approval granted under clause (ii) or clause (iii) of sub-section (1) of section 35 if it is satisfied that the scientific research association or university or college or other institution has ceased its activities or its activities are not genuine or are not being carried out in accordance with all or any of the conditions under rule 5D or rule 5E. No order treating the application as invalid or rejecting the application or withdrawing the approval, shall be passed without giving reasonable opportunity of being heard to the scientific research association or university or college or other institution. A copy of the order invalidating or rejecting the application or withdrawing the approval shall be communicated to the applicant, the Assessing Officer and the Commissioner of Income-tax or, as the case may be, the Director of Income-tax. Pre-requisite conditions for granting approval 5C.5 The conditions subject to which approval is to be granted are laid down in Rules 5D and 5E, as follows : 5C.5-1 Scientific research association - The conditions laid down are : (1) The sole object of the applicant scientific research association shall be to undertake scientific research. (2) The applicant scientific research association shall carry on the scientific research activity by itself. (3) The scientific research association shall maintain books of account and get such books audited by an accountant as defined in the Explanation to sub-section (2) of section 288 and furnish the report of such audit duly signed and verified by such accountant to the Commissioner of Income-tax or the Director of Income-tax having jurisdiction over the case, by the due date of furnishing the return of income under sub-section (1) of section 139. (4) The scientific research association shall maintain a separate statement of donations received and amount applied for scientific research and a copy of such statement duly certified by the auditor shall accompany the report of audit referred to in (3) above. 5C.5-2 University, college or other institution - The conditions laid down are : (1) The sum paid to a university, college or other institution shall be used for scientific research and research in social science or statistical research. (2) The applicant university, college or other institution shall carry out scientific research, research in social science or statistical research through its faculty members or its enrolled students. (3) A university or college or other institution approved under clause (ii) or clause (iii) of sub-section (1) of section 35 shall maintain separate books of account in respect of the sums received by it for scientific research or, as the case may be, for research in social science or statistical research, reflect therein the amount used for carrying out research, get such books of account audited by an accountant, as defined in the Explanation to sub-section (2) of section 288 and furnish the report of such audit duly signed and verified by such accountant to the Commissioner of Income-tax or the Director of Income-tax having jurisdiction over the case, by the due date of furnishing the return of income under sub-section (1) of section 139. (4) The university or college or other institution shall maintain a separate statement of donations received and the amount used for research and a copy of such statement duly certified by the auditor shall accompany the report of audit referred to in (3) above. Post-approval report by Commissioner 5C.6 If the Commissioner of Income-tax or the Director of Income-tax is satisfied (i) that the scientific research association,— (a) is not maintaining books of account, or (b) has failed to furnish its audit report, or (c) has not furnished its statement of the sums received and the sums applied for scientific research, or (d) has ceased to carry on its research activities, or its activities are not genuine, or (e) is not fulfilling the conditions subject to which approval was granted to it or (ii) that the university or college or other institution,— (a) is not maintaining separate books of account for research activities, or (b) has failed to furnish its audit report, or (c) has not furnished its statement of the sums received and the sums used for research, or (d) has ceased to carry on its research activities, or its activities are not genuine, or (e) is not fulfilling the conditions subject to which approval was granted to it, he may after making appropriate enquiries furnish a report on the circumstances referred to in clauses (a) to (e) above to the Central Government within six months from the date of furnishing the return of income under section 139(1). Exemption not to be denied 5C.7 With effect from 1-4-2006, the deduction to which the assessee is entitled in cases falling under para 5C.1 shall not be denied merely on the ground that, subsequent to the payment of such sum by the assessee, the approval granted to the association, university, college or other institution has been withdrawn. Filing of return of income 5C.8 With effect from 1-4-2006, under section 139(4D), every university, college or institution referred to in clauses (ii) and (iii) of section 35(1), which is not required to furnish return of income or loss under any other provision of section 139, shall furnish the return in respect of its income or loss in every previous year, and all the provisions of the Act shall so far as may be, apply as if it were a return required to be furnished under section 139(1) of the Act. The return is to be furnished in Form No. 3A.
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