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2013 (9) TMI 1090 - AT - Income TaxDeduction u/s 54G - Held that - Explanation to Section 54G(1) of the Act has to be harmoniously interpreted so that it is in consonance with the needs of a developing city. Notification dated 26.12.2009 of Tamil Nadu Government, read along with the definition of urban area given in Section 6 A of Tamil Nadu Urban Land Tax Act, 1966 will clearly show that Chemmenchery was indeed within city limits. Assessee here was paying urban land tax for its Chemmenchery property right from 1998, based on determination of such urban land tax by Asst. Commissioner of Urban Land Tax. Thus, in our opinion, the first question has to be answered in favour of assessee. Chemmenchery Village in which the land sold by the assessee was located, fell within the scope of urban area mentioned in Section 54G of the Act. Assessing Officer himself has noted at para A(viii) of his order that assessee had indeed purchased a land at Venkateshpuram Village, Tiruvallur District in January, 2010 and claimed deduction under Section 54G on this purchase. Further, ld. CIT(Appeals) had in his order at para 6 clearly stated that claim of the assessee under Section 54G was with regard to shifting from Chemmenchery to Koppur Village, Tiruvallur District. This being so, we are unable to accept the argument of the learned D.R. that assessee had never put the claim before the Assessing Officer. We cannot say assessee s claim was for shifting its Chemmenchery unit to Puzal unit. Circumstantial evidence clearly show that assessee had established an industrial undertaking in Koppur Village. There can be no dispute that the object of enacting Section 54G was to de-urbanise and remove industries from populated area and promote industrialization in underdeveloped areas. Section 54G is a provision intended for promoting inclusive growth of the country. In such a situation, giving a very narrow interpretation to the said Section will defeat the very purpose thereof. We are thus of the opinion that the assessee was eligible for claiming exemption under Section 54G of the Act. Claim for expenditure incurred on construction of road - Held that - When assessee adopted an unfair means to create evidence for the outgo, there is every possibility that it would have preferred an exaggerated claim. Obvious course in such a situation will be to send the matter back to the Assessing Officer for estimating the expenditure on roads based on a valuation report of an approved valuer. But, here the project had started in April, 2008 and would have significantly progressed by now. Temporary roads earlier laid, would no more be there and would have been replaced by pucca approaches and buildings. In such a situation, a remand for ascertaining the actual outgo may not serve any purpose. Hence to give a quietus to the issue, we are of the opinion that a disallowance of 25% on the total claim of ₹ 22,10,07,155/- will serve the ends of justice. We, therefore, set aside the orders of the authorities below on the issue and direct the A.O. to disallow ₹ 5,52,51,790/- out of the total claim of ₹ 22,10,07,155/- on roads, and allow the balance. Disallowance under Section 40(a)(i) - Held that - When the assessee never effected any payment to M/s Gulf Spic Engineering (LLC), Dubai and had under their instruction given work orders to two Indian companies, and made payments directly to such Indian concerns, after deducting tax at source, we cannot say that assessee had failed to deduct tax at source. Assessee had effected deduction of tax as stipulated under Section 194C and remitted it to Government Account. This has not been disputed. There is no finding by any of the lower authorities that M/s Gulf Spic Engineering (LLC), Dubai had done any work for the assessee, for which assessee was obliged to make any payments. In any case, in such circumstances, assessee had reasonable grounds to have a bonafide belief that the payments effected to M/s Fairline Shipping Services Ltd. and M/s AMS Enterprises did not attract Section 195 of the Act. It could not be faulted for failure to deduct tax at source as mentioned in Section 195 of the Act, since the work was done only by M/s Fairline Shipping Services Ltd. and M/s AMS Enterprises and not by M/s Gulf Spic Engineering (LLC), Dubai. We are, therefore, of the opinion that assessee could not be held liable for any failure for non-deduction of tax at source. Disallowance under Section 40(a)(i) of the Act therefore stands deleted
Issues Involved:
1. Denial of deduction under Section 54G of the Income-tax Act, 1961. 2. Disallowance of expenditure incurred on road construction. 3. Disallowance under Section 40(a)(i) for non-deduction of tax at source. Issue-Wise Detailed Analysis: 1. Denial of Deduction under Section 54G: The assessee, engaged in infrastructural development, claimed a deduction under Section 54G on capital gains from selling land in Chemmenchery Village, asserting it was an urban area. The Assessing Officer (A.O.) disagreed, stating Chemmenchery was included in Chennai City Corporation only from 2011 via a Government Order dated 26.12.2009. Payments of urban land tax to Village Panchayats and not to Chennai City Corporation, and the Master Plan of Chennai Metropolitan Development Authority classifying Chemmenchery as an industrial zone, were not accepted by the A.O. as evidence. The A.O. concluded that Chemmenchery was not an urban area at the time of sale, and the assessee's shifting was from one non-urban area to another, thus disqualifying for Section 54G benefits. The CIT(A) upheld this view, emphasizing the lack of authentic material supporting the urban nature of Chemmenchery. The Tribunal analyzed the definition of "urban area" under Section 54G and the Central Government's Notification No.10056 dated 2nd April 1996, which included Madras within urban areas. It was concluded that Chemmenchery, part of the Madras city belt area, was indeed an urban area, supported by the Tamil Nadu Urban Land Tax Act and legal opinions presented. The Tribunal found that the assessee had established an industrial undertaking at Koppur and satisfied the requirements of "shifting" under Section 54G. The deduction under Section 54G was thus allowed. 2. Disallowance of Expenditure on Road Construction: The assessee claimed Rs. 22,10,07,155/- for road construction at contract sites in Ratnagiri and Bellary. The A.O. found the sub-contractors, Shri N. Erulappan and Shri S. Kesavan, unqualified and their statements denying any work done. The A.O. disallowed the claim, finding the evidence unreliable. The CIT(A) upheld the disallowance, noting the lack of credible proof and rejecting new evidence submitted by the assessee. The Tribunal acknowledged the necessity of road construction for the project but noted the unreliability of the evidence provided. Given the substantial contract work done, the Tribunal deemed it unfair to deny the entire claim. To resolve the issue, the Tribunal allowed 75% of the claimed expenditure, disallowing 25%, amounting to Rs. 5,52,51,790/-. 3. Disallowance under Section 40(a)(i): The assessee contracted M/s Gulf Spic Engineering (LLC), Dubai, for work sub-contracted to two Indian companies. Payments were made directly to these sub-contractors with tax deducted at source. The A.O. disallowed Rs. 3,84,96,230/- under Section 40(a)(i), stating the assessee failed to deduct tax on payments to the non-resident company. The CIT(A) upheld the disallowance, emphasizing the non-resident company's income accrued in India. The Tribunal found that the assessee had not directly paid M/s Gulf Spic Engineering (LLC), Dubai, but to the Indian sub-contractors with tax duly deducted under Section 194C. Since no payments were made to the non-resident company, Section 195 was not applicable. The Tribunal concluded that the assessee had a bona fide belief that Section 195 was not attracted and deleted the disallowance under Section 40(a)(i). Conclusion: The Tribunal allowed the appeal on the deduction under Section 54G and the disallowance under Section 40(a)(i), while partially allowing the claim for road construction expenditure.
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