Facts
The appellant is a Charitable Trust registered under the provisions of the Bombay Public Trust Act, 1950. On 27.09.2014, the appellantfiled an application under
- 35AC of the Act to the National Committee for Promotion of Social and Economic Welfare, Department of Revenue, North Block, New Delhi for grant of approval to their hospital project as specified in S. 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
- 35AC of the Act, also made applications to the Committee for grant of approval to their hospital projects. 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 appeared at serial No. 10 in the notification dated 07.12.2015. The appellant, received amount by way of donation from several assessees. However, subsequently, due to insertion of S. 35AC(7) from the assessment year 2018-19 by the Finance Act, 2016 with effect from 01.04.2017 the benefit of the exemption was withdrawn. The appellant challenged the validity of the provision S. 35AC(7) with effect from 1.4.2017. High Court dismissed the petition holding that the provision is valid in law.
Issue
Whether withdrawal of deduction to the donors by the Finance Act, 2016 w.e.f. 01.04.2017 by introducing section 35AC(7) was valid in law?
View
Withdrawal of benefit to the approved project is within the sole domain of the Legislature. If the same is withdrawn with retrospective effect then the same
cannot be sustained because of the principle of promissory estoppel and on account of accrual of vested rights. However, where the same is withdrawn prospectively with adequate notice to the concerned parties, then the same cannot be challenged as unconstitutional on the ground of promissory estoppel and vested rights. It is within the sole discretion of the Legislature to extend or curtail any incentives or benefits.
Held
The Court held that a plea of promissory estoppel is not available to an assessee against the exercise of legislative power nor any vested right accrues to an assessee in the matter of grant of any tax concession to him. In a taxing statute, a plea based on equity or/and hardship is not legally sustainable and that the constitutional validity of any provision and especially taxing provision cannot be struck down on such reasoning. Accordingly, the Court held that the withdrawal of exemption was prospective and valid. (CA No 5849 of 2019 dt. 25-7-2019) (A.Y. 2017-18). The Court followed the decision in the case of Motilal Padampat Sugar Mills Co. Ltd. v. State of U.P. [1979] taxmann.com 210 (SC).
The Court further held that, as rightly argued by the learned counsel for the respondent (Revenue), the real aggrieved parties, which should have felt aggrieved by insertion of sub-section (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 2017-2018. (AY. 2015-16, 2016-17) (CA No. 5849 of 2019) (Arising out of SLP
(No. 34287 of 2017 dt. 25-7-2019)
Editorial : The Court held that the principles laid down in S.L. Srinivasa Jute Twine Mills (P) Ltd. v. UOI [2006] 2 SCC740, Sangam Spinners v. Regional Provident Fund Commissioner [2008] 1 SCC 391 and CIT v. Vatika Township (P.) Ltd. [2014] 49 taxmann.com 249/227 Taxman 121/367 ITR 466 (SC) have no application in the present case.
“It’s the action, not the fruit of the action, that’s important.”
– Mahatma Gandhi