Prashanti Medical Services & Research Foundation vs Union of India

CIVIL APPEAL No. 5849 OF 2019 (Arising out of S.L.P.(C) No.34287 of 2017)

Prashanti Medical Services & Research Foundation ….Appellant(s)

VERSUS

Union of India & Ors. ….Respondent(s)

JUDGMENT

Abhay Manohar Sapre, J.

1. Leave granted.

2. This appeal is filed against the final judgment

Signature Not Verified and order dated 14.09.2017 passed by the High Digitally signed by ANITA MALHOTRA Date: 2019.07.25 17:04:58 IST Reason: Court of Gujarat at Ahmedabad in SCA No.7558 of

1 2017 whereby the High Court dismissed the petition

filed by the appellant herein.

3. A few facts need mention hereinbelow for the

disposal of this appeal, which involves a short point.

4. The appellant herein is the petitioner and the

respondents herein are the respondents in the

petition out of which this appeal arises.

5. The appellant is a Charitable Trust registered

under the provisions of the Bombay Public Trust

Act, 1950. The appellant has set up a Heart

Hospital in Ahmadabad. The commencement of the

project of the appellant's hospital began in the year

2014 (05.05.2014).

6. On 27.09.2014, the appellant filed an

application under Section 35AC of the Income Tax

Act, 1961 (hereinafter referred to as "the Act) to the

National Committee for Promotion of Social and

Economic Welfare, Department of Revenue, North

2 Block, New Delhi (hereinafter referred to as “the

Committee") for grant of approval to their hospital

project as specified in Section 35AC of the Act so as

to enable any "assessee" to incur expenditure by

way of making payment of any amount to the

appellant for construction of their approved hospital

project and accordingly claim appropriate deduction

of such payment from his total income during the

previous year. Like the appellant, several persons,

as specified in Section 35AC of the Act, also made

applications to the Committee for grant of approval

to their hospital projects.

7. A notification was issued by the Government of

India on 07.12.2015 mentioning therein that the

Committee has approved 28 projects as "eligible

projects" under Section 35AC of the Act. The name

of the appellant appears at serial No. 10 in the

3 notification dated 07.12.2015. It reads as under:

S.No. Name of the Project or Maximum Institution scheme and amount of estimated cost to be cost thereof allowed as deduction under Section 35AC and period of approval

10. Prashanti Prashanti The Medical Medical Committee Research Services & recommended Foundation, Reasearch approval for Sri Satya Sai Foundation, the project at Heart Ahmedabad the estimated Hospital, RS.250.00 cost of Kashindra Crore Rs.250.00 Village, crore for Ahmedabad­ three financial Dholka years Road(Gujarat) commencing with financial year, 2015­ 16,i.e., 2015­ 16, 2016­17 and 2017­18

8. According to the appellant, they received

amount by way of donation from several assesses

during the years 2015­2016 and 2016­2017. These

assesses then claimed deduction of the amount,

which they had donated to the appellant for their

hospital project, from their total income. As per the

4 appellant, they received donations in three financial

years from several assesses for their hospital project

as detailed below:

Financial Rs. year 2015­16 10.97 crores 2016­17 20.55 crores 2017­18 3.84 crores

9. The benefit of claiming deduction was,

however, discontinued from the assessment year

2018­2019 by insertion of sub­section(7) in Section

35AC of the Act by the Finance Act, 2016 with effect

from 01.04.2017.

10. It is this insertion of sub­section(7) in Section

35AC of the Act, which gave rise to filing of the

petition by the appellant in the Gujarat High Court.

The appellant in the petition questioned the

constitutional validity of sub­section(7) of Section

35AC of the Act inter alia on the ground that once

5 the Committee granted an approval to the

appellant's hospital project for a period of three

financial years, the same could not be withdrawn

qua the appellant on the strength of insertion of

sub­section (7) in Section 35AC of the Act. In other

words, the challenge was on the ground that sub­

section (7) of Section 35AC is essentially prospective

in nature and, therefore, it will have no application

to those projects which were approved by the

Committee prior to insertion of sub­section(7), i.e.,

01.04.2017. The challenge was also on the ground

that the Revenue cannot apply sub­section (7)

retrospectively and withdraw the benefits, whether

fully or partially, which were approved to the

appellant. It was, therefore, contended that the

appellant and the assessees should be held entitled

to avail of the full benefit for the three financial

years in terms of the notification dated 07.12.2015.

6

11. The respondent (Revenue) supported insertion

of sub­section (7) in Section 35AC and inter alia

contended that, firstly, insertion of sub­section (7) is

prospective in nature; secondly, it operates qua

every person alike the appellant irrespective of the

approval granted by the Committee; Thirdly, sub­

section (7), in clear terms, provides discontinuance

of deduction only from the assessment year 2018­

2019 onwards; Fourthly, this intention of the

legislature is clear from the perusal of the budget

speech of the Minister of Finance, notes on clauses

and memorandum explaining the amended

provisions in the Finance Bill, 2016; Fifthly, the

appellant not being an assessee under Section 35AC

of the Act has no locus to raise the issue in question

and nor they are, in any way, affected due to

insertion of sub­section (7); Sixthly, the appellant

neither has any vested right in such matters nor

7 has any right to set up a plea of promissory estoppel

against the exercise of any legislative power such as

the one exercised by the Parliament while inserting

sub­section(7); and lastly, the appellant has already

received substantial donations from several

assessees for their hospital project during the two

financial years (2015­2016 and 2016­2017) and,

therefore, there is neither any hardship nor any

prejudice caused to the appellant due to insertion of

sub­section (7) in Section 35AC of the Act.

12. The High Court, in the impugned order,

repelled the challenge and while upholding the pleas

raised by the respondent(Revenue) dismissed the

appellant's petition, which has given rise to filing of

this appeal by the appellant after obtaining special

leave from this Court.

13. Heard Mr. Arvind Datar, learned senior

counsel for the appellant and Mr. K.

8 Radhakrishnan, learned senior counsel for the

respondents.

14. Mr. Arvind Datar, learned senior counsel

appearing for the appellant reiterated the

aforementioned submissions, which were urged in

High Court, and while elaborating contended that

the appellant so also the assesses, who made

payment to the appellant in the financial year 2017­

2018 should have been allowed to claim deduction

during the financial year 2017­2018 (Assessment

Year 2018­2019) also notwithstanding insertion of

sub­section (7) in Section 35AC of the Act with

effect from 01.04.2017.

15. In support of his submissions, learned counsel

placed reliance on the decisions of this Court in S.L.

Srinivasa Jute Twine Mills (P) Ltd. vs. Union of

India & Anr., (2006) 2 SCC 740, Sangam Spinners

9 vs. Regional Provident Fund Commissioner I,

(2008) 1 SCC 391 and Commissioner of Income

Tax(Central)­I, New Delhi vs. Vatika Township

Pvt. Ltd., (2015) 1 SCC 1.

16. In reply, learned counsel for the respondent

(Revenue) supported the reasoning and the

conclusion arrived at by the High Court and prayed

for dismissal of the appeal. Learned counsel placed

reliance on the decisions in State of Kerala & Anr.

vs. Gwalior Rayon Silk Manufacturing (WVG.) Co.

Ltd. Etc., (1973) 2 SCC 713, Motilal Padampat

Sugar Mills Co. Ltd. vs. State of U.P. & Ors.,

(1979) 2 SCC 409, R.K. Garg vs. Union of India &

Ors., (1981) 4 SCC 675, Kasinka Trading & Anr.

vs. Union of India & Anr., (1995) 1 SCC 274,

Bannari Amman Sugars Ltd. vs. Commercial Tax

Officer & Ors., (2005) 1 SCC 625, Shree Sidhbali

10 Steels Ltd. & Ors. vs. State of U.P. & Ors., (2011)

3 SCC 193, Bajaj Hindustan Ltd. vs. Sir Shadi Lal

Enterprises Ltd. & Anr., (2011) 1 SCC 640 and

Kothari Industrial Corporation Ltd. vs. Tamil

Nadu Electricity Board & Anr., (2016) 4 SCC 134.

17. Having heard the learned counsel for the

parties and on perusal of the record of the case, we

are not inclined to interfere with the impugned

order of the High Court.

18. Section 35AC was inserted in the Act with

effect from 01.04.1992 whereas sub­section (7),

which is subject matter of this appeal, was inserted

in Section 35AC with effect from 01.04.2017, which

reads as under:

“35AC. (1) Where an assessee incurs any expenditure by way of payment of any sum to a public sector company or a local authority or to an association or institution approved by the National Committee for carrying out any eligible project or scheme, the assessee

11 shall, subject to the provisions of this section, be allowed a deduction of the amount of such expenditure incurred during the previous year :

Provided that a company may, for claiming the deduction under this sub­ section, incur expenditure either by way of payment of any sum as aforesaid or directly

on the eligible project or scheme.

(2) The deduction under sub­section (1) shall not be allowed unless the assessee furnishes along with his return of income a certificate —

(a) where the payment is to a public sector company or a local authority or an association or institution referred to in sub­ section (1), from such public sector company or local authority or, as the case may be, association or institution;

(b) in any other case, from an accountant, as defined in the Explanation below sub­section (2) of section 288, in such form, manner and containing such particulars (including particulars relating to the progress in the work relating to the eligible project or scheme during the previous year) as may be prescribed.

Explanation.—The deduction, to which the assessee is entitled in respect of any sum paid to a public sector company or a local authority or to an association or institution for carrying out the eligible project or scheme referred to in this section applies, shall not be denied merely on the ground

12 that subsequent to the payment of such sum by the assessee,—

(a) the approval granted to such association or institution has been withdrawn; or

(b) the notification notifying the eligible project or scheme carried out by the public sector company or local authority or association or institution has been withdrawn.

(3) Where a deduction under this section is claimed and allowed for any assessment year in respect of any expenditure referred to in sub­section (1), deduction shall not be allowed in respect of such expenditure under any other provision of this Act for the same or any other assessment year.

(4) Where an association or institution is approved by the National Committee under sub­section (1), and subsequently—

(i) that Committee is satisfied that the project or the scheme is not being carried on in accordance with all or any of the conditions subject to which approval was granted; or

(ii) such association or institution, to which approval has been granted, has not furnished to the National Committee, after the end of each financial year, a report in such form and setting forth such particulars and within such time as may be prescribed, the National Committee may, at any time, after giving a reasonable opportunity of showing cause against the proposed withdrawal to the concerned association or institution, withdraw the approval:

13

Provided that a copy of the order withdrawing the approval shall be forwarded by the National Committee to the Assessing Officer having jurisdiction over the concerned association or institution. (5) Where any project or scheme has been notified as an eligible project or scheme under clause (b) of the Explanation, and subsequently—

(i) the National Committee is satisfied that the project or the scheme is not being carried on in accordance with all or any of the conditions subject to which such project or scheme was notified; or

(ii) a report in respect of such eligible project or scheme has not been furnished after the end of each financial year, in such form and setting forth such particulars and within such time as may be prescribed, such notification may be withdrawn in the same manner in which it was issued:

Provided that a reasonable opportunity of showing cause against the proposed withdrawal shall be given by the National Committee to the concerned association, institution, public sector company or local authority, as the case may be:

Provided further that a copy of the notification by which the notification of the eligible project or scheme is withdrawn shall be forwarded to the Assessing Officer having jurisdiction over the concerned association, institution, public sector company or local authority, as the case may be, carrying on such eligible project or scheme.

14 (6) Notwithstanding anything contained in any other provision of this Act, where—

(i) the approval of the National Committee, granted to an association or institution, is withdrawn under sub­section (4) or the notification in respect of eligible project or scheme is withdrawn in the case of a public sector company or local authority or an association or institution under sub­section (5); or

(ii) a company has claimed deduction under the proviso to sub­section (1) in respect of any expenditure incurred directly on the eligible project or scheme and the approval for such project or scheme is withdrawn by the National Committee under sub­section (5), the total amount of the payment received by the public sector company or the local authority or the association or the institution, as the case may be, in respect of which such company or authority or association or institution has furnished a certificate referred to in clause (a) of sub­ section (2) or the deduction claimed by a company under the proviso to sub­section (1) shall be deemed to be the income of such company or authority or association or institution, as the case may be, for the previous year in which such approval or notification is withdrawn and tax shall be charged on such income at the maximum marginal rate in force for that year. (7) No deduction under this section shall be allowed in respect of any assessment year

15 commencing on or after the 1st day of April, 2018.

Explanation.—For the purposes of this section,—

(a) "National Committee" means the Committee constituted by the Central Government, from amongst persons of eminence in public life, in accordance with the rules made under this Act;

(b) "eligible project or scheme" means such project or scheme for promoting the social and economic welfare of, or the uplift of, the public as the Central Government may, by notification in the Official Gazette, specify in this behalf on the recommendations of the National Committee.”

19. It is not in dispute that 28 projects were

approved by the Committee by notification dated

07.12.2015 but none of them (27) has come forward

to question the constitutional validity of sub­section

(7) except the appellant herein. In other words, out

of 28 projects owners whose projects were approved

by the Committee by notification dated 07.12.2015,

only the appellant herein has felt aggrieved and filed

the petition in the High Court.

16

20. Be that as it may, as rightly argued by the

learned counsel for the respondent (Revenue), the

real aggrieved parties, which should have felt

aggrieved by insertion of sub­section (7) in Section

35AC of the Act, were those assesses, i.e., Donors

who despite paying the donation to the appellant

were not allowed to claim deduction of the said

amount from their total income during the financial

year 2017­2018.

21. In other words, one of the main objects for

which Section 35AC was enacted was to allow the

assessees to claim deduction of the amount paid by

them to the appellant for their project.

22. As mentioned above, none of the assessees

(Donee), who claimed to have paid amount to any

eligible projects came forward complaining that

despite their donating the amount to the appellant

17 for their project, they were denied the benefit of

claiming deduction of such amount from their total

income by virtue of sub­section (7) of Section 35AC

of the Act during the financial year 2017­2018.

23. It is not in dispute that the benefit of the

deduction available under Section 35AC of the Act

was duly availed of by all the assessees for two

financial years, namely, 2015­2016 and 2016­2017.

24. The dispute is now confined only to third

financial year, i.e., 2017­2018 because for this

year, the assessees were not allowed to claim

deduction of the amount paid by them to the

appellant on account of insertion of sub­section(7)

in Section 35AC of the Act with effect from

01.04.2017.

25. We are of the view that sub­section (7) is

prospective in its operation and, therefore, all the

assessees were rightly allowed to claim deduction of

18 the amount paid by them to eligible projects from

their total income during two financial years,

namely, 2015­2016 and 2016­2017. If sub­section

(7) had been retrospective in its operation then the

deduction for 2015­2016 and 2016­2017 too would

have been disallowed. Admittedly, such is not the

case here.

26. As rightly argued by the learned counsel for

the respondent (Revenue), a plea of promissory

estoppel is not available to an assessee against the

exercise of legislative power and nor any vested

right accrues to an assessee in the matter of grant

of any tax concession to him. In other words,

neither the appellant nor the assessee has any right

to set up a plea of promissory estoppel against the

exercise of legislative power such as the one

exercised while inserting sub­section (7) in Section

35AC of the Act (see­M/s Motilal Padampat Sugar

19 Mills Co. Ltd.(supra) and other cases relied on by

the learned counsel for the respondent­Revenue). It

is more so when we find that this sub­section was

made applicable uniformly to all alike the appellant

prospectively.

27. It is not in dispute that now time to donate the

amount to eligible projects for claiming deduction

from the total income for the year 2017­2018 has

expired. It is now no longer available due to efflux of

time. In this view of the matter, even if the appellant

received any amount from any assessee for their

project, no deduction could be allowed to such

assessee either for the period 2017­2018 or for any

subsequent period.

28. It was, however, stated by the learned counsel

for the appellant that the appellant has received

3.84 crores during the year 2017­2018 from various

assessees. It was also stated that if sub­section(7)

20 had been held not applicable to the appellant's

project then the appellant would have received

much more amount than Rs.3.84 crores during the

financial year 2017­2018, which is clear from the

amount received by the appellant in earlier two

years prior to insertion of sub­section(7), i.e., Rs.

10.97 crores during the financial year 2015­2016

and Rs. 20.55 crores during the financial year

2016­2017.

29. We find no merit in this submission. In a

taxing statute, a plea based on equity or/and

hardship is not legally sustainable. The

constitutional validity of any provision and

especially taxing provision cannot be struck down

on such reasoning.

30. Learned counsel for the appellant then urged

that having regard to the fact that the appellant has

set up a charitable hospital and that they were not

21 able to receive more amount by way of donation for

their project in the third financial year 2017­2018,

this Court may consider appropriate to invoke

powers under Article 142 of the Constitution and

allow the appellant to receive donation even for the

third financial year in terms of the notification dated

07.12.2015 from their donors.

31. We are afraid, we cannot accept this

submission for more than one reason. First, as held

above, in tax matter, neither any equity nor

hardship has any role to play while deciding the

rights of any taxpayer qua the Revenue; Second,

once the action is held in accordance with law and

especially in tax matters, the question of invoking

powers under Article 142 of the Constitution does

not arise; and third, the appellant's Donors were

admittedly allowed to claim deduction of the

amount paid by them to the appellant under

22 Section 35AC during the two financial years 2015­

2016 and 2016­2017. It is for all these reasons, the

matter must rest there.

32. Learned counsel for the appellant placed

reliance on the decision of S.L. Srinivasa Jute

Twine Mills (P) Ltd. (supra), Sangam Spinners

(supra) and CIT vs. Vatika Township Pvt. Ltd.,

(supra). In our view, in the light of the foregoing

discussion and the findings recorded, the

arguments based on the principle laid down in

these decisions cannot be accepted. We, therefore,

need not deal with this issue any more. 23

33. In view of the foregoing discussion, we find no

merit in the appeal. It is accordingly dismissed.

.………...................................J. [ABHAY MANOHAR SAPRE]

…...……..................................J. [INDU MALHOTRA]

New Delhi;

July 25, 2019

24