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Prashanti Medical Services And Reserch Foundation Versus Union Of India & 2

2017 (9) TMI 1237 - GUJARAT HIGH COURT

Expenditure on eligible projects or schemes - withdrawal of the deduction u/s 35AC - principle of promissory estoppel - Vires of sub-section (7) of Section 35AC as introduced by the Finance Act 2016 with effect from 01.04.2017 challenged - Held that:- Section 35AC recognizes the deduction in case of expenditure by an assessee by way of payment to the approved institutions carrying out eligible project or the scheme or payment made directly on such eligible project or scheme. As per Explanation c .....

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r granting such benefit. After 01.04.2017 the legislature desired to withdraw such deduction. Any expenditure after such date would no longer be an eligible deduction. The provision applies prospectively. The Union legislature was competent to introduce such amendment. We do not find merits in the petition. - Special Civil Application No. 7558 of 2017 - Dated:- 14-9-2017 - MR. AKIL KURESHI, MR. BIREN VAISHNAV, JJ. For The Petitioner : BHARGAV KARIA & ASSO, ADVOCATE For The Respondent : MR DE .....

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er the Bombay Public Trust Act. The trust was constituted with the object of establishing an institution for rendering medical services to the poor and needy persons irrespective of caste, creed or colour and for undertaking medical research. According to the petitioner, the petitioner set up its first operation at Rajkot providing free medical service to the poor which included operations for by-pass and valve replacement etc. at no costs. The petitioner survives entirely on donations. The peti .....

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, North Block, New Delhi ('the Committee' for short) for approval of the project which would qualify the donors to claim exemption under section 35AC of the Act. As per the application, the date of commencement of the project would be 05.05.2014 and the likely date of completion was 23.11.2015 with estimated capital cost of ₹ 52 crores and estimated revenue costs of ₹ 198 crores. By an order dated 08.12.2015, the Committee had approved the petitioner trust s project for exemp .....

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uld advert to the provisions of this section more minutely later. The case of the petitioner is that with the existing and anticipated donations the petitioner started implementing the project of construction of a hospital. 50% of the capital expenditure was already undertaken and the remaining project would be completed by September 2018. In the meantime, however, sub-section (7) was inserted in section 35AC with effect from 01.04.2017 providing that no deduction under the said section would be .....

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fecting the pipeline projects. The case of the petitioner projected before us, therefore, was that though the legislature would have the competence to withdraw a deduction already granted, the same cannot have adverse effect on pending projects. The provision therefore should be read down as not applicable to the projects which are already approved by the authority under sub-section (1) of Section 35AC of the Act. 3. Mr. Bhargav Karia, learned counsel for the petitioner drew our attention to the .....

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pproved by the Central Government for the purpose of Section 35AC of the Act. Midway through the implementation of the project the deduction came to be withdrawn. Counsel submitted that the petitioner has been providing free medical aid to large number of poor and needy patients at various hospitals already set up by the trust. Sudden withdrawal of the benefit would make the project in question unviable. The benefit is withdrawn by the legislature without citing any reason. The provision is ther .....

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er renders the Permanent Account Number void ab initio with the deeming provision that the PAN allotted would be invalid as if the person had not applied for allotment of the same, this would have rippling effect of unsettling settled rights of the parties and would have the effect of undoing all the acts done by a person on the basis of such Permanent Account Number. (2) In case of Avani Exports and Others vs. Commissioner of Income-Tax and Others reported in [2012] 348 ITR 391 (Guj), the Divis .....

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nd Others reported in [1986] 159 ITR 856, the Supreme Court in the context of the challenge to levy of customs duty on import of newsprint at different rates depending on the importer being small, medium and big newspapers depending on the circulation, made certain observations regarding the power of the delegated legislation to frame the law within its sphere. (4) Reliance was also placed on a decision of Karnataka High Court in case of Commissioner of Income Tax and Another vs. Asea Brown Bove .....

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so be claimed as deduction by the donor assessee. 4. On the other hand, learned counsel Shri Manish Bhatt for the department opposed the petition contending that the Parliament had the power to grant deduction and also power to withdraw the same. In the present case, there is nothing unconstitutional about the said provision. In economic sphere, the courts recognize a greater degree of latitude to the legislature. There is no promise held out that the deduction shall continue for all times to co .....

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ed on experimentation. The court must adjudge the constitutionality of such legislation by the generality of its provisions. Laws relating to economic activities should be viewed with greater latitude than other laws. It was also observed that there is always a presumption in favour of the constitutionality of the statute and the burden is upon one who attacks it to show that there has been a clear transgression of the constitutional principles. (II) Case of M/s. Seema Silk and Sarees and Anothe .....

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of the Union legislature to grant as well as withdraw a resolution. He relied on the decision in case of Kasinka Trading and Another vs. Union of India and Another reported in (1995) 1 SCC 274 and recent judgement in case of Kothari Industrial Corporation Limited vs. Tamil Nadu Electricity Board and Another reported in (2016) 4 SCC 134 where similar principles have been reiterated. Reliance was also placed on the decision in case of Director General of Foreign Trade and Another vs. Kanak Exports .....

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at 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 sub-section (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 .....

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ocal 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 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) Wh .....

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ordance 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 .....

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he 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 con .....

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this Act, where- (i) the approval of the National Committee, granted to an association or institution, is withdrawn under sub-section (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 sub-section (5); or (ii) a company has claimed deduction under the proviso to sub-section (1) in respect of any expenditure incurred directly on the eligible project or scheme and the approva .....

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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.] 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) "e .....

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incurred for eligible projects or schemes. Such project or scheme would be for promoting social and economic welfare and upliftment of the public as specified by the Central Government. Brief analysis of the section would be necessary. Sub-section (1) of Section 35AC provides that 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 eligibl .....

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tution by the National Committee could be withdrawn. Likewise, under sub-section (5) of section 35AC the notification making a project or scheme could be withdrawn under certain circumstances. Sub-section (6) of section 35AC however provides that the deduction available on the expenditure incurred by the assessee would not be disturbed even if the approval granted to the association or institution was subsequently withdrawn under sub-section (4) or the notification approving the project or schem .....

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roadly the scheme of deduction under section 35AC of the Act. Sub-section (7) which was inserted with effect from 01.04.2017 withdrew the exemption by providing that no deduction under this section shall be allowed in respect of any assessment year commencing on or after the 1st day of April, 2018. 8. In plain terms, thus, this provision discontinued the deduction available under section 35AC from the assessment year commencing on or after 01.04.2018. In other words, any expenditure incurred aft .....

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nt for the full amount to tax. In order to encourage donations for or direct expenditure in certain approved projects or schemes meant for promoting social and economic welfare or the uplift of the public, the said provision was introduced by the legislature. If at a later point of time, the Union legislature in its wisdom was of the opinion that such benefit should no longer be granted, it is always open for the parliament to withdraw the deduction by framing necessary legislation. This provisi .....

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sion. 9. The courts always recognize a greater degree of latitude while examining the laws concerning economic matters. Even otherwise the wisdom of the parliament for framing a law would not be subject matter of judicial review. The Constitution of India while undoubtedly authorizes the constitutional courts to test the validity of a legislation including one framed by the Union or the State legislature, the courts have however recognized that the law framed by the Parliament or State legislatu .....

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d as under: 7. Now while considering the constitutional validity of a statute said to be violative of Article 14, it is necessary to bear in mind certain well established principles which have been evolved by the courts as rules of guidance in discharge of its constitutional function of judicial review. The first rule is that there is always a presumption in favour of the constitutionality of a statute and the burden is upon him who attacks it to show that there has been a clear transgression of .....

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of the times and may assume every state of facts which can be conceived existing at the time of legislation. 8. Another rule of equal importance is that laws relating to economic activities should be viewed with greater latitude than laws touching civil rights such as freedom of speech, religion etc. …. ... The court must always remember that "legislation is directed to practical problems, that the economic mechanism is highly sensitive and complex, that many problems are singular a .....

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r all possible situations or anticipate all possible abuses. There, may be crudities and inequities in complicated experimental economic legislation but on that account alone it cannot be struck down as invalid. The courts cannot, as pointed out by the United States Supreme Court in Secretary of Agriculture v. Central Roig Refining Company be converted into tribunals for relief from such crudities and inequities. There may even be possibilities of abuse, but that too cannot of itself be a ground .....

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onality of such legislation by the generality of its provisions and not by its crudities or inequities or by the possibilities of abuse of any of its provisions. If any crudities, inequities or possibilities of abuse come to light, the legislature can always step in and enact suitable amendatory legislation. That is the essence of pragmatic approach which must guide and inspire the legislature in dealing with complex economic issues. 10. In case of Kasinka Trading (supra), the Union Government h .....

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rate of 4% ad valorem. This was done with a view to equalising the sale prices of indigenous and imported materials. The notification was challenged by the importers interalia on the ground that it breached the principle of promissory estoppel. Rejecting the challenge, the Supreme Court observed that the doctrine of promissory estoppel is part of the administrative law and is applicable against the Government also to prevent fraud and injustice and such doctrine must yield when the equity so dem .....

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