Discontinuance of Deduction for Eligible Projects: SC grants Exemption to Persons Donating Money for Construction of Specified Hospital [Read Order]

While hearing a special leave petition challenging the constitutional validity of Section 35AC(7) of the Income Tax Act, 1961, the Supreme Court held that persons who want to donate money for construction of the specified hospital by the petitioner, Prashanti Medical Services And Research Foundation, can claim tax exemption.

Section 35AC of the Income Tax Act, 1961, provides for a deduction in computing the business income of an assessee, of the amount paid by him to a PSU or a local authority or to an association or institution approved by the National Committee for carrying-out any eligible project or scheme.

The amendment to the said provision, inserted w.e.f. 1st April, 2017 provided that the benefit of the said section would not get

Before the Apex Court, the counsel for the petitioner, Senior Advocate Arvind Datar submitted that the effect of the amendment is that no donors are coming forward to donate the amount which is required for construction of the specified hospital etc. Therefore, even if the petitioner succeeds in the matter, the petitioner is left with no donors in the Financial Year 2017-18 i.e. Assessment Year 2018-19.

After hearing the submissions, Justice R K Agarwal and Justice Abhay Manohar Sapre held that “the donors who want to donate some money to the petitioner for construction of the specified hospital by the petitioner may claim exemption under Section 35AC of the Income Tax Act. However, in case the petitioner does not succeed here, the petitioner will be liable to pay the amount of tax and applicable interest so claimed by the donors as per the undertaking given by Shri Arvind Datar, learned senior counsel on behalf of the petitioner.”