2012 (8) TMI 552 - AT - Income Tax

Disallowance of deduction u/s 54G - CIT(A) deleted it - Held that - As the plant and machinery was very old, assessee sold them immediately but, for surrendering the tenancy rights it took sometime as it was engaged in negotiations with the lessor and after protracted negotiations, it cannot be said that the industrial undertaking ceased to exist on sale of the plant and machinery. The process of shifting commenced with the sale of plant ad machinery and continued till the rights in the leasehold premises were surrendered on which capital gains accrued to the appellant. The requirement of section 54G is that where u/s 54G(1)(a), the requirement is that the new machinery or plant has to be purchased for the purposes of the business of the industrial undertaking, section 54G(1)(b) merely requires that the acquisition of building or land or construction of building should be for the purposes of its business in such non urban area - thus section 54G permits the use of capital gains for acquiring land or building or constructing building for the purposes of (any) business in the non-urban area therefore, it can be interpreted that assessee should carry on any business in non urban area and if the amounts are utilized for acquisition of assets for the purpose of its business, this should qualify for the purpose of exemption u/s 54G as there is no requirement that the land and building should be used for the purpose of the business of industrial undertaking - in favour of assessee.

Summary

Issues Involved:
1. Eligibility for deduction under section 54G of the Income Tax Act.
2. Existence of the industrial undertaking at the time of transfer.
3. Utilization of land acquired in a non-urban area for business purposes.

Detailed Analysis:

1. Eligibility for Deduction under Section 54G:
The core issue revolves around whether the assessee is eligible for a deduction under section 54G of the Income Tax Act. The Revenue contended that the assessee did not fulfill the cumulative conditions laid down in section 54G(1) and hence was not eligible for the deduction. The assessee argued that it had shifted its industrial undertaking from an urban to a non-urban area, fulfilling the conditions for the deduction. The CIT (A) allowed the claim, stating that the surrender of leasehold premises was part of the process of shifting the industrial undertaking, and hence, the capital gains were eligible for deduction under section 54G.

2. Existence of the Industrial Undertaking at the Time of Transfer:
The Revenue argued that the assessee had closed its business in the financial year 1999-2000, and hence, there was no industrial undertaking in existence at the time of the transfer. The assessee countered that although the plant and machinery were sold in 1999-2000, the industrial undertaking continued to exist as the process of surrendering the leasehold premises took time. The CIT (A) agreed with the assessee, noting that the process of shifting commenced with the sale of plant and machinery and continued until the surrender of the leasehold premises. The Tribunal upheld this view, stating that the surrender of tenancy rights occurred "in consequence of" the shifting of the industrial undertaking.

3. Utilization of Land Acquired in a Non-Urban Area for Business Purposes:
The Revenue contended that the land acquired by the assessee in the non-urban area was not used for the purpose of its industrial undertaking but for property development, which could not be termed as the business of the industrial undertaking. The CIT (A) found merit in the assessee's argument that the capital gains were used for acquiring land and constructing buildings in the non-urban area for business purposes, which qualifies for deduction under section 54G. The Tribunal noted that section 54G(1)(b) does not specifically require the land and building to be used for the industrial undertaking's business, but rather for any business in the non-urban area. Hence, the Tribunal upheld the CIT (A)'s decision, allowing the deduction.

Conclusion:
The Tribunal dismissed the Revenue's appeal, upholding the CIT (A)'s order that allowed the assessee's claim for deduction under section 54G. The Tribunal concluded that the assessee fulfilled the conditions for deduction under section 54G, the industrial undertaking continued to exist during the process of shifting, and the utilization of land in the non-urban area for business purposes qualified for the deduction. The order was pronounced in the open court on 27th June, 2012.