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TMI Blog2013 (9) TMI 1090X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Appellant. M. Srinivasa Rao for the Respondent. ORDER Abraham P. George, Accountant Member - In this appeal filed by the assessee, it has raised five grounds of which, grounds 4 and 5 are general needing no adjudication. 2. Vide its ground No.1, assessee assails denial of its claim for deduction under Section 54G of Income-tax Act, 1961 (in short 'the Act'). 3. Facts apropos are that assessee, engaged in infrastructural development and construction work, including manufacturing and erection and commissioning of boilers for power plant, had filed its return for the impugned assessment year on 29.9.2009 declaring an income of ₹ 12,60,91,350/-. Assessee had claimed a deduction of ₹ 41,03,70,946/- under Section 54G of the Act, on capital gains arising out of sale of its land in Chemmenchery Village, Tambaram Taluk, effected by it on 23.4.2008 and 14.7.2008. Claim of the assessee was that the land was urban in nature coming within the meaning of Section 54G of the Act, sold in connection with shifting of its industrial undertaking from an urban area to a non-urban area, i.e. shifting of industrial undertaking from Chemmenchery to Koppur which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of assessee-company for financial year 2007-08, had mentioned that its work site was being shifted from Chemmenchery to Puzal. Both Chemmenchery and Puzal Village were included in Chennai City limits only by way of Notification No.256 of 26.12.2009 which was to take effect in 2011. Therefore, according to him, both the villages could not be considered as part of Chennai city. Hence, shifting of industrial undertaking, if at all done by the assessee, was from non-urban area to another non-urban area and therefore, capital gains arising in the course of such shifting, could not enjoy the deductions given under Section 54G of the Act. 7. Assessing Officer also made a verification of the items on which the claim of deduction under Section 54G was made by the assessee. He found that such claim was for machinery purchased during financial years 2007-08 and 2008-09 and for land purchased at Venkateshpuram Village in Koppur hamlet of Tiruvallur District, in 2010. As per the A.O., the claim for exemption were in respect of assets added in preceding previous years 2007-08 and 2008-09, and for assets purchased during 2009-10 and 2010-11. Out of the above, latter purchases alone were made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Tamil Nadu Government related back to the date, when expansion of city limits had actually taken place. Notification only declared the factum of expansion of city limits which had already taken place. It would never mean that such area was not a part of the city. Relying on Notification No.10056 dated 2nd April, 1996 of Central Government, learned A.R. submitted that Central Government had declared areas falling within the limits of Municipal Corporation or Municipality to be an urban area within the meaning of Section 54G of the Act. The question therefore, according to learned A.R., was whether the places mentioned in the said Notification would include Chemmenchery or not. According to him, Notification dated 26.12.2009 of Tamil Nadu Government had considered actual expansion of city limits which had happened after 1978, and this was clearly mentioned in the preamble thereof. Notification only recognized what had already happened. It would not mean that such areas were not part of Chennai city. 11. Continuing his arguments, ld. counsel for the assessee referred to Section 6-A of Tamil Nadu Urban Land Tax Act, 1966. According to him, urban area was defined therein as area ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ired for Koppur unit during financial years 2007-08 and 2008-09 costing in total ₹ 22,32,81,824/-. Relying on paper-book pages 159 to 187, learned A.R. submitted that the break-up of such plant and machinery clearly showed that these were not any earth moving or construction equipment. Items acquired were machinery used in a fabrication plant and such plant was established by the assessee at Koppur. According to him, Section 54G allowed an assessee to purchase new machinery or acquire building or land within a period of one year prior or three years after the date of transfer. Transfer of land at Chemmenchery having been effected during the period 23rd April, 2008 to 14th July, 2008, the assessee could claim exemption under Section 54G for investment made during the period 23rd April, 2007 to 22nd April, 2011. According to him, assessee's claim for exemption were on plant and machinery acquired from 23rd April, 2007 and not for any date prior to that. Total value of plant and machinery came to ₹ 22,32,81,824/- and the cost of the land acquired came to ₹ 18,70,89,122/-. According to him, authorities below gave a very narrow interpretation of Section 54G and den ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its of Chennai City Corporation was Tamil Nadu Government. Order D.No.256 dated 26.12.2009 of Tamil Nadu Government clearly mentioned that Chemmenchery would be added to the city limits with effect from 2011 only. Even otherwise, as per the learned D.R., this Notification itself had come on 26.12.2009 and even this date was well after the end of the relevant previous year. In any case, according to him, assessee could not say that even prior to 26.2.2009, Chemmenchery was a part of Chennai City Corporation limits. Just because Madras city as such was considered as urban area under Tamil Nadu Urban Land Tax Act, 1966, it could not be said that city limits stood expanded. 16. Further continuing his arguments, learned D.R. submitted that Assessing Officer had not taken a narrow view on the interpretation of Section 54G. Assessing Officer could not overstep the limits provided in the Act. If the land sold was situated in urban area, assessee could claim such exemption under Section 54G of the Act, but not otherwise. The land sold, on the other hand, at the time of sale, was not a part of Chennai city limits and therefore, not an urban area. 17. Ad libitum reply of the learned A.R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Income-tax Act, 1961(43 of 1961), the Central Government, having regard to the population, concentration of industries, need for proper planning of the area and other relevant factors, hereby declares the areas falling within the limits of Municipal Corporation or Municipality, as the case may be, mentioned and in column(3) of the Schedule hereto annexed and situated within the State shown in column(2) thereof, as urban areas for the purpose of sub-section(1) of section 54G of the Income-tax Act, 1961 (43 of 1961): S. No. Name of the State Name of the Municipal Corporation or Municipality situated in the State mentioned in Column (2) (1) (2) (3) 1. Tamil Nadu 1. Athur 2. Bhavani 3. Coimbatore 4. Coonoor 5. Dharmapuri 6. Erode ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be drafted to provide basic amenities like good roads, drinking water supply, street lamps, sewage disposal and proper solid waste management. There is a vast difference in the quality of services and amenities provided by various local Municipalities and Union s that are located in Chennai Metropolitan area. Moreover, it was found that the services have failed to meet the requirements. The need for and opportunities to unite these muncipalities and unions governing regions close to the metropolis and for the expansion of Chennai Metropolitan area has been felt. A close reading of the Notification, in our opinion, does show that it was only recognition of an existing situation, or more in the nature of a fait accompli. Places surrounding the perimeter fixed in 1978, had already widened over the period of time. In other words, for all practical purposes, Chennai city limit had expanded. Just because a notification in this regard was issued by the State Government on 26.12.2009, would not mean that Chennai city limits stood static after 1976, not moving an inch wider. Notification of the Government itself had come at a stage when actual ground realities could not be ignored. Thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eunder:- '11. Section 6-A of Tamil Nadu Urban Land Tax Act, 1966, defines Urban Area to include Madras City Belt Area. Section 1-A of Tamil Nadu Urban Land Tax Act, 1966, extends the applicability of the Tamil Nadu Urban Land Tax Act to Madras City Belt Area with effect from 01.07.1975 in the area comprised within 16 Kilometres of the outer limits of the City of Madras, as per Tamil Nadu Urban Land Tax (Amendment) Act, 1975, (Act 45 of 1975). 12. Section 3(o) of Tamil Nadu Urban Land (Ceiling Regulation) Act, 1978, defines Urban Land to include any land situated within the limits of an urban agglomeration and referred to as such in the master plan. Section 3(n) of Tamil Nadu Urban Land (Ceiling Regulation) Act, 1978, defines Urban Agglomeration to mean the area comprised in the urban agglomeration specified in Schedule I. Schedule I of Tamil Nadu Urban Land (Ceiling Regulation) Act, 1978, includes St. Thomas Mount-cum-Pallavaram Cantonment to be within the Madras Urban Agglomeration. Section 3(i) of Tamil Nadu Urban Land (Ceiling Regulation) Act, 1978, defines Master Plan to in relation to an area within an urban agglomeration or any part thereof, means th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sfer of the Chemmenchery land in a Capital Gains Account Scheme with State Bank of India, cannot be disputed since this has been certified by the bank vide its letter dated 31st October, 2011, copy of which has been placed at paper-book page 159. That assessee had acquired various plant and machinery during the financial year 2007-08 to 2009-10 also cannot be disputed. Break-up of such acquisition has been placed at paper-book pages 160 to 187. This gives an exhaustive list of different items of machinery purchased. The nature of such items does not show that these were earth moving or construction machines. What is to be seen is whether the plant and machinery purchased were used in Koppur for setting up an industrial unit. On this aspect, the certificate of Central Board of Excise Customs issued on 27.1.2011, placed at paper-book 44, is very relevant. This particular certificate is reproduced hereunder:- FORM RC Central Excise Registration Certificate [Under Rule 9 of the Central Excise Rules,2002] This is to certify, subject to conditions specified below, that M/s EDAC ENGINEERING LTD, MANUFACTURING OF EXCISABLE GOODS (name and style in which the Registrant is l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d D.R., Public Works Department of Boilers Directorate had addressed number of letters to its Puzal office regarding assessee's application for upgrading it to a Special Class Boiler Repairer. But, nevertheless, the final certificate with regard to such recognition as Special Class Boiler Repairer was addressed to its Koppur unit. One other contention taken by learned D.R. is that assessee had never mentioned before the lower authorities that shifting was from Chemmenchery to Koppur. However, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the cost shall be nil ; or (ii) if the amount of the capital gain is equal to, or less than, the cost of the new asset, the capital gain shall not be charged under section 45 ; and for the purpose of computing in respect of the new asset any capital gain arising from its transfer within a period of three years of its being purchased, acquired, constructed or transferred, as the case may be, the cost shall be reduced by the amount of the capital gain. A reading of above would show that the exemption available under it is on capital gains arising on transfer of a capital asset which can be in the nature of machinery or plant or building or land. Transfer giving rise to the capital gains need not be of machinery and plant and land and building together. The requirement is satisfied even if there is only a transfer of land. Second requirement is that such transfer has to be effected in the course of, or in consequence of, shifting of the industrial undertaking. That assessee had a unit at Chemmenchery is clear from the boiler erection renewal certificate dated 4.5.2007 issued by Director of Boilers, Tamil Nadu, which is addressed to the Chemmenchery unit. Once it is accepted th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ERL) and M/s JSW Energy (Vijayanagar) Limited, for engineering and construction of a 4 x 300 Megawatt thermal power plant at JSWERL, Ratnagiri District, Maharashtra and 2 x 300 Megawatt thermal power plant at Toranagallu, Bellary District, Karnataka State. Assessee had claimed temporary road construction expenditure at these sites, since it had to move heavy equipment to the work sites, which were situated in remote areas. As per the assessee, such road construction was entrusted to two persons, namely, one Shri N. Erulappan and one Shri S. Kesavan. Assessing Officer made enquiries with Shri N. Erulappan and Shri S. Kesavan, which revealed that Shri N. Erulappan was a petty cotton merchant and Shri S. Kesavan was the President of a village panchayat not proficient in any contract work. Shri S. Kesavan was not even assessed to tax. As per the A.O., these persons were residing in Pollachi and had no capacity to execute contracts of such magnitude, that too at unknown places like Bellary and Ratnagiri. Assessing Officer it seems recorded statements from these persons, who admitted that they had not done any work of the nature mentioned. According to them, one Shri M. Nandakumar, Vice- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee had constructed roads in both these sites. Both these persons could not deny that money was credited to their respective bank accounts. Such accounts were operated by them, and they had also effected withdrawals therefrom. According to learned A.R., assessee was entrusted with erection, commissioning and building a part of the large thermal plants at Ratnagiri and Bellary. The area was inaccessible forest land and assessee had to start from the scratch. It had to clear the area, level it, demarcate it and then make it ready for construction. Very heavy equipment had to be brought in. It was impossible to do such work without constructing roads. Relying on paper-book pages 394 and 395, learned A.R. submitted that hydraulic cranes, crawler cranes, telescopic cranes, trailors, trucks, buses and jeeps had to be deployed at the sites in both Bellary and Ratnagiri. Assessee had to transport equipment to the sites. The contract scope included creating access with suitable roads and drains. As per the learned A.R., presumption taken by the lower authorities that assessee had not constructed any road at all was incorrect. If that was taken to be true, it would mean that assessee was not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... one any work in these places since contract receipts from M/s JSWERL were reflected in its accounts. None of the authorities below have doubted the claim of the assessee that it had to start work from scratch. For building a thermal power plant, it is essential to move in heavy equipment. Temporary roads have to be laid and such roads necessarily had to have capacity to carry heavy equipment to the site. Even M/s JSWERL have stated that assessee might have constructed temporary roads for the execution of work. Assessee had also filed certain measurements taken by an Engineer before the Assessing Officer, which he refused to consider. The areas identified for the project had to be brought to a shape where work could be started, buildings could be constructed and plant and machinery set up. To say that assessee had not laid any temporary roads for access, for moving in machinery, will be equivalent to saying that assessee had never done any work on the project. Admittedly assessee had done substantial work and received payments as well. In such a situation, to deny the whole of the claim of expenditure for laying the access roads to the project sites, for a reason that persons engage ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stion of any disallowance under Section 40(a)(i) of the Act. In support it seems, assessee had filed copies of correspondence, work orders and ledger extracts. 36. However, the A.O. was not impressed. According to her, original work order dated 2.6.2008 was issued to M/s Gulf Spic Engineering (LLC), Dubai. M/s Gulf Spic Engineering (LLC), Dubai, vide its letter dated 14.6.2008 and 15.6.2008, required the assessee to entrust the work to M/s Fairline Shipping Services Ltd. and M/s AMS Enterprises respectively and debit the amounts paid to them, from their invoices. As per the A.O., the sub-contracting was not done by the assessee. It was M/s Gulf Spic Engineering (LLC), Dubai that sub-contracted the work to M/s Fairline Shipping Services Ltd. and M/s AMS Enterprises. Ledger extracts produced by the assessee showed that it had effected payments to the said two companies, after deducting TDS, on behalf of M/s Gulf Spic Engineering (LLC), Dubai. M/s Gulf Spic Engineering (LLC), Dubai had raised an invoice on the assessee on 6.10.2008 for whole of the work. Thus, according to him, assessee had effected payments to a non-resident company without deducting tax at source. He, therefore, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... invoice by such parties. Tax was deducted at the rate mentioned in Section 194C on the payments effected to such contractors. Account of M/s Gulf Spic Engineering (LLC), Dubai was debited. As per learned A.R., there was no further remittance to M/s Gulf Spic Engineering (LLC), Dubai and for payments made to Indian entities, tax was deducted. 40. Per contra, learned D.R., strongly supporting the orders of authorities below, submitted that assessee had debited the amount in the account of M/s Gulf Spic Engineering (LLC), Dubai. It would only show that the amounts were earlier credited to M/s Gulf Spic Engineering (LLC), Dubai. Assessee had not deducted tax at source as required under Section 194C of the Act. Therefore, according to him, rigours of Section 40(a)(i) stood attracted. 41. We have perused the orders and heard the rival submissions. There is no dispute that the original work order was given by the assessee to M/s Gulf Spic Engineering (LLC), Dubai. It is also an admitted position that the work was eventually done by two Indian concerns, namely, M/s Fairline Shipping Services Ltd. and M/s AMS Enterprises. M/s Gulf Spic Engineering (LLC), Dubai had themselves asked th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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