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TMI Blog2012 (8) TMI 552X X X X Extracts X X X X X X X X Extracts X X X X ..... nd in law the learned CIT (A) further failed to appreciate the fact that the land acquired by assessee in the non urban area was not put to use for the purpose of its business but had been put to use for its business of development of property, which by no stretch of imagination could be termed as the business of the industrial undertaking of assessee". 2. Briefly stated, assessee filed return of income declaring total income at Rs. 1,57,02,407/- mainly consisting of capital gains. Assessee surrendered its tenancy rights and received an amount of Rs. 4,12,00,000/-. Out of this amount assessee has invested an amount of Rs. 1,40,00,000/- in capital gain Account Scheme and an amount of Rs. 1,14,21,000/- was claimed to have been invested in land and building. It claimed deduction under section 54G of the amount of Rs. 2,54,21,000/- and offered the balance amount as taxable income. It was AO's contention that assessee sold its entire Plant & Machinery in financial year 1999-2000 and since there is no existence of an undertaking, having sold the entire Plant & Machinery, the claim under section 54G, which provides for exemption for shifting of industrial undertaking from urban area to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... than 45 years to a non-urban area; consequently, it started the process of disposing off the assets of the industrial undertaking. The plant and machinery being movable owned assets could be disposed off quickly; the disposal of rights in leasehold premises took some time. However, it cannot therefore 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. Hence surrender of leasehold premises was effected in the course of shifting of the industrial undertaking and therefore, the capital gains thereon are eligible for deduction under section 54G. Circular No.495 cited by AO clearly supports the case of the appellant, as it has transferred its assets to shift its industrial undertaking to non-urban areas, which is the avowed intention of the statute and thereby assist in balanced regional growth. Apart from operating the shifted industrial undertaking as mentioned by AO in the assessment order, the appellant has also undertaken the business of development o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tracted negotiations, the leased premises on which the industrial undertaking operated was finally surrendered on 1.10.2003 and compensation was received. These aspects were examined by the CIT (A) whose findings are to be upheld. They are in accordance with facts and provisions of law. 8. Provisions of section 54 are as under: "Section 54G. (1) Subject to the provisions of sub-section (2), where the capital gain arises from the transfer of a capital asset, being machinery or plant or building or land or any rights in building or land used for the purposes of the business of an industrial undertaking situate in an urban area, effected in the course of, or in consequence of, the shifting of such industrial undertaking (hereafter in this section referred to as the original asset) to any area (other than an urban area) and the assessee has within a period of one year before or three years after the date on which the transfer took place,- (a) purchased new machinery or plant for the purposes of business of the industrial undertaking in the area to which the said undertaking is shifted ; (b) acquired building or land or constructed building for the purposes of his business in the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her words, the phrase "of the industrial undertaking", which is there in clause 1(a) is conspicuously missing in clause 1(b). Hence, the law clearly makes a distinction between the eligible purposes for utilization of the amount of capital gains. 11. The said section exempts capital gains on compulsory acquisition of land or building or any rights in land or building forming part of the industrial undertaking and used for the purposes of the business of the industrial undertaking, provided the amount of capital gains are used for acquiring any other land or building or any rights therein or constructing any building for the purposes of shifting or re-establishing the said undertaking or setting up another industrial undertaking. Section 54D mandates that, for the capital gains to exempt, the new land or building or rights therein acquired, have to be used only for either shifting or reestablishing or establishing an industrial undertaking (and no other purpose). In contrast, section 54G of the Act 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. 12. "For the purpose of business" was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 's industrial undertaking ceased to exist in 1999-2000 as held by AO is not correct as assessee is in the process of shifting and even the section itself provides that shifting was 'in course of or in consequence of' of such industrial undertaking". The surrender of tenancy rights has certainly occurred 'in consequence of' shifting of such industrial undertaking and due to protracted negotiations, there was some delay but the surrender of tenancy rights can be held to be in consequence of shifting of such undertaking which was in the business. Therefore, AO's observation that no industrial undertaking was in existence at the time of surrender of tenancy rights cannot be accepted. 15. It is also seen that in his anxiety to disallow the claim AO has not even considered the amount of Rs. 1.40 crores deposited in capital gains scheme. This amount was eligible for deduction even under other provisions of the act, if not under section 54G. Be that as it may, there is no dispute with reference to the fact that assessee has utilized the funds as per the provisions of section 54G and accordingly the CIT (A) was correct in allowing the claim. We, therefore, uphold the order of the CIT (A) a ..... 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