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2015 (8) TMI 482 - SC - Income TaxEntitlement exemption under Section 54G - appellant claimed exemption on the entire capital gain earned from the sale proceeds of its erstwhile industrial undertaking situate in Thane in view of the advances so made being more than the capital gain made by it - Held that - On a conjoint reading of the Budget Speech, notes on clauses and memorandum explaining the Finance Bill of 1987, it becomes clear that the idea of omitting Section 280ZA and introducing on the same date Section 54G was to do away with the tax credit certificate scheme together with the prior approval required by the Board and to substitute the repealed provision with the new scheme contained in Section 54G. It is true that Section 280Y(d) was only omitted by the Finance Act, 1990 and was not omitted together with Section 280ZA. However, we agree with learned counsel for the appellant that this would make no material difference inasmuch as Section 280Y(d) is a definition Section defining urban area for the purpose of Section 280ZA only and for no other purpose. It is clear that once Section 280ZA is omitted from the statute book, Section 280Y(d) having no independent existence would for all practical purposes also be dead . Quite apart from this, Section 54G(1) by its explanation introduces the very definition contained in Section 280Y(d) in the same terms. Obviously, both provisions are not expected to be applied simultaneously and it is clear that the explanation to Section 54G(1) repeals by implication Section 280Y(d). From a reading of the notes on clauses and the Memorandum of the Finance Bill, 1990, it is clear that Section 280Y(d) which was omitted with effect from 1.4.1990 was so omitted because it had become redundant . It was redundant because it had no independent existence, apart from providing a definition of urban area for the purpose of Section 280ZA which had been omitted with effect from the very date that Section 54G was inserted, namely, 1.4.1988. We are, therefore, of the view that the High Court in not referring to Section 24 of the General Clauses Act has fallen into error. On a reading of Section 24 it becomes difficult to accept Shri Arijit Prasad s contention that Section 24 would only apply to notifications which themselves gave rights to persons like the appellant. Unlike Section 6 of the General Clauses Act, which saves certain rights, Section 24 merely continues notifications, orders, schemes, rules etc. that are made under a Central Act which is repealed and re-enacted with or without modification. The idea of Section 24 of the General Clauses Act is, as its marginal note shows, to continue uninterrupted subordinate legislation that may be made under a Central Act that is repealed and re-enacted with or without modification. It being clear in the present case that Section 280ZA which was repealed by omission and re-enacted with modification in section 54G, the notification declaring Thane to be an urban area dated 22.9.1967 would continue under and for the purposes of Section 54G. It is clear, therefore, that the impugned judgment in not referring to section 24 of the General Clauses Act at all has thus fallen into error. We are therefore of the view that on omission of Section 280ZA and its re-enactment with modification in Section 54G, Section 24 of the General Clauses Act would apply, and the notification of 1967, declaring Thane to be an urban area, would be continued under and for the purposes of Section 54A. A reading of Section 54G makes it clear that the assessee is given a window of three years after the date on which transfer has taken place to purchase new machinery or plant or acquire building or land. We find that the High Court has completely missed the window of three years given to the assessee to purchase or acquire machinery and building or land. This is why the expression used in 54G(2) is which is not utilized by him for all or any of the purposes aforesaid . . It is clear that for the assessment year in question all that is required for the assessee to avail of the exemption contained in the Section is to utilize the amount of capital gains for purchase and acquisition of new machinery or plant and building or land. It is undisputed that the entire amount claimed in the assessment year in question has been so utilized for purchase and/or acquisition of new machinery or plant and land or building. Construction of Section 54G would render nugatory a vital part of the said Section so far as the assessee is concerned. Under sub-section (1), the assessee is given a period of three years after the date on which the transfer takes place to purchase new machinery or plant and acquire building or land or construct building for the purpose of his business in the said area. If the High Court is right, the assessee has to purchase and/or acquire machinery, plant, land and building within the same assessment year in which the transfer takes place. Further, the High Court has missed the key words not utilized in sub-section (2) which would show that it is enough that the capital gain made by the assessee should only be utilized by him in the assessment year in question for all or any of the purposes aforesaid, that is towards purchase and acquisition of plant and machinery, and land and building. Advances paid for the purpose of purchase and/or acquisition of the aforesaid assets would certainly amount to utilization by the assessee of the capital gains made by him for the purpose of purchasing and/or acquiring the aforesaid assets. We find therefore that on this ground also, the assessee is liable to succeed - Decided in favour of assessee.
Issues Involved:
1. Applicability of Section 54G of the Income Tax Act. 2. Interpretation of "urban area" and its notification status. 3. Utilization of capital gains for exemption under Section 54G. 4. Application of Section 24 of the General Clauses Act. 5. Validity of the High Court's interpretation of "purchase" under Section 54G. Detailed Analysis: 1. Applicability of Section 54G of the Income Tax Act: The assessee, a private limited company, shifted its industrial undertaking from an urban area (Thane) to a non-urban area (Kurukumbh Village, Pune District). The company sold its assets in Thane and claimed exemption under Section 54G of the Income Tax Act for the capital gains earned, arguing that the advances paid for purchasing new assets in the non-urban area qualified for the exemption. 2. Interpretation of "urban area" and its notification status: The Assessing Officer denied the exemption, stating that the area to which the undertaking was shifted had not been declared a non-urban area by the Central Government. The High Court supported this view, stating that the notification declaring Thane as an urban area was repealed with the repeal of the section under which it was made, thus invalidating the claim under Section 54G. However, the Supreme Court held that the notification dated 22.9.1967 declaring Thane as an urban area would continue to be valid under Section 54G due to the application of Section 24 of the General Clauses Act. 3. Utilization of capital gains for exemption under Section 54G: The Assessing Officer also argued that the advances paid by the assessee did not amount to utilization of capital gains as required by Section 54G. The High Court agreed, stating that mere payment of advances without actual purchase or acquisition did not qualify for exemption. The Supreme Court, however, disagreed, stating that the term "utilize" in Section 54G(2) includes advances paid towards the purchase or acquisition of new assets, thus qualifying for the exemption. 4. Application of Section 24 of the General Clauses Act: The Supreme Court emphasized the application of Section 24 of the General Clauses Act, which continues the validity of notifications, orders, and rules made under a repealed Act if the Act is re-enacted with or without modifications. The Court held that the notification declaring Thane as an urban area continued to be valid for the purposes of Section 54G, thus allowing the assessee to claim the exemption. 5. Validity of the High Court's interpretation of "purchase" under Section 54G: The High Court interpreted the term "purchase" narrowly, requiring actual acquisition and possession of the assets within the same assessment year. The Supreme Court found this interpretation incorrect, stating that the assessee is given a window of three years to purchase or acquire new assets. The term "utilize" in Section 54G(2) includes advances paid towards such purchases, thus allowing the exemption. Conclusion: The Supreme Court allowed the appeals, set aside the judgment of the High Court, and held that the assessee was entitled to exemption under Section 54G. The Court clarified that the notification declaring Thane as an urban area continued to be valid under Section 54G due to Section 24 of the General Clauses Act, and that advances paid towards the purchase or acquisition of new assets qualified as utilization of capital gains for the purposes of the exemption.
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