2019 (7) TMI 1377 - SC - Income Tax

Supreme Court affirms Revenue's win on Section 35AC; rejects retrospective application.

The Supreme Court upheld the High Court's decision, ruling in favor of the Revenue. The Court found the insertion of sub-section (7) in Section 35AC to be ... Constitutional validity of sub-section (7) of Section 35AC - principle of promissory estoppel - Whether once 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granted an approval to the appellant's hospital project for a period of three financial years, the same could not be withdrawn qua the appellant on the strength of insertion of subsection (7) in Section 35AC? - challenge was on the ground that subsection (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 - HELD THAT:- 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. As rightly argued by Revenue the real aggrieved parties, which should have felt aggrieved by insertion of subsection (7) in Section 35AC 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. 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. 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 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 2017-2018. Benefit of the deduction available u/s 35AC was duly availed of by all the assessee for two financial years, namely, 2015-2016 and 2016-2017. For third financial year, i.e., 2017-2018 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. Subsection (7) is prospective in its operation and, therefore, all the assessees were rightly allowed to claim deduction of the amount paid by them to eligible projects from their total income during two financial years, namely, 2015-2016 and 2016-2017. If subsection (7) had been retrospective in its operation then the deduction for 2015-2016 and 2016-2017 too would have been disallowed. Admittedly, such is not the case here. As rightly argued by 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. 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 Mills Co. Ltd. [1978 (12) TMI 45 - SUPREME COURT]. It is more so when we find that this subsection was made applicable uniformly to all alike the appellant prospectively. 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 2017-2018 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 2017-2018 or for any subsequent period. 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.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 u/s 35AC during the two financial years 2015-2016 and 2016-2017. It is for all these reasons, the matter must rest there. Issues Involved:1. Constitutional validity of sub-section (7) of Section 35AC of the Income Tax Act, 1961.2. Retrospective vs. prospective application of sub-section (7) of Section 35AC.3. Appellant's locus standi to challenge the insertion of sub-section (7).4. The plea of promissory estoppel against legislative power.5. Hardship and equity in tax statutes.6. Invocation of Article 142 of the Constitution.Issue-wise Detailed Analysis:1. Constitutional Validity of Sub-section (7) of Section 35AC:The appellant challenged the constitutional validity of sub-section (7) of Section 35AC, arguing that once the Committee granted approval to their hospital project for three financial years, this approval could not be withdrawn based on the new sub-section. The appellant contended that sub-section (7) should not apply to projects approved before its insertion.2. Retrospective vs. Prospective Application of Sub-section (7) of Section 35AC:The appellant argued that sub-section (7) is prospective and should not affect projects approved before its insertion. The Revenue countered that sub-section (7) is prospective and applies to all projects equally from the assessment year 2018-2019 onwards. The Court agreed with the Revenue, stating that the sub-section is prospective and does not affect deductions for the financial years 2015-2016 and 2016-2017.3. Appellant's Locus Standi to Challenge the Insertion of Sub-section (7):The Revenue argued that the appellant, not being an assessee, has no locus standi to challenge the insertion of sub-section (7). The Court noted that the real aggrieved parties would be the assessees (donors) who were denied deductions for donations made in the financial year 2017-2018. However, none of the assessees came forward to challenge the provision.4. The Plea of Promissory Estoppel Against Legislative Power:The appellant argued that the insertion of sub-section (7) violated the principle of promissory estoppel. The Court rejected this argument, citing precedents that promissory estoppel cannot be used against the exercise of legislative power, especially in tax matters.5. Hardship and Equity in Tax Statutes:The appellant claimed that the insertion of sub-section (7) caused hardship and inequity. The Court dismissed this argument, stating that equity and hardship are not valid grounds to challenge the constitutional validity of a taxing provision.6. Invocation of Article 142 of the Constitution:The appellant requested the Court to invoke Article 142 to allow donations for the third financial year. The Court declined, stating that equity and hardship do not apply in tax matters, and the action was in accordance with the law.Conclusion:The Supreme Court upheld the High Court's decision, agreeing with the Revenue's arguments. The Court found no merit in the appellant's submissions and dismissed the appeal. The insertion of sub-section (7) in Section 35AC was held to be prospective, and the plea of promissory estoppel was not applicable against legislative power. The Court also declined to invoke Article 142, emphasizing that equity and hardship do not influence tax statutes.