PRASHANTI MEDICAL SERVICES AND RESEARCH FOUNDATION vs. UNION OF INDIA

REPORTABLE IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION 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)                   J U D G M E N T Abhay Manohar Sapre, J. 1. Leave granted. 2. This appeal is filed against the final judgment and   order   dated   14.09.2017   passed   by   the   High Signature Not Verified 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:

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:

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   the appellant on the strength of insertion of qua 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 (2011) 1 SCC 640 and Enterprises Ltd. & Anr.,   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 ( )   the   notification   notifying   the   eligible b 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 ( ) a company has claimed deduction under ii 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,— ( )   "National   Committee"   means   the a 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 (see­ M/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 (supra),   Twine Mills (P) Ltd.     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