Case: Fibre Boards Ltd., Bangalore Vs. Commissioner of Income Tax, Bangalore

1. The assessee, a private limited company, had an industrial unit at Majiwada, Thane, which was a notified urban area. With a view to shift its industrial undertaking from an urban area to a non-urban area at Kurukumbh Village, Pune District, Maharashtra, it sold its land, building and plant and machinery situated at Majiwada, Thane to Shree Vardhman Trust for a consideration of Rs.1,20,00,000/-, and after deducting an amount of Rs.11,62,956/-, had earned a capital gain of Rs.1,08,33,044/-. Since it intended to shift its industrial undertaking from an urban area to a non-urban area, out of the capital gain so earned, the appellant paid by way of advances various amounts to different persons for purchase of land, plant and machinery, construction of factory building etc. Such advances amounted to Rs.1,11,42,973/- in the year 1991-1992. The appellant claimed exemption under Section 54G of the Income Tax Act 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.2. By an order dated 31.3.1994, the Assessing Officer imposed a tax on capital gains, refusing to grant exemption to the appellant under Section 54G. The reasons givenI have carefully considered the submission of the assessee. In this case, it is to be noted that the non urban area has not been declared to be so by any general or special order of the Central Govt. Therefore, the assessee cannot take the plea that it has shifted the undertaking to a non urban area. The second point is regarding utilization of capital gains. In this case, the assessee has given advances to different persons. However, such advance does not amount to utilization of capital gains. The assessee is required to acquire the plant and machinery within the time frame spelt out in sub-section (1) of Section 54G. However, if it fails to acquire the plant and machinery before one year of transfer or within the period of filing return, it is supposed to deposit the capital gains in the Capital Gains Deposit Scheme. It cannot be said that giving advance to different concerns means utilization of money for acquiring the assets. Therefore, the assessee was to deposit the capital gains in the specific account and file proof of such deposit. As the assessee had not done so, it is not entitled for deduction u/s 54G.To sum up, on both counts, i.e., due to non declaration of the area to be a non urban area by Central Govt. and its failure to deposit the capital gain in the Capital Gains Deposit Account, theclaim is not applicable.By its order dated 20.7.1995, the Commissioner, Income Tax (Appeals) dismissed theappeal. By its order dated 20.11.1995, the Income Tax Appellate Tribunal allowed theappeal stating that even an agreement to purchase is good enough and that the explanation to Section 54G being declaratory in nature would be retrospective.4. By the impugned judgment dated 26.5.2005, the High Court reversed the judgment of the Income Tax Appellate Tribunal and held that as the notification declaring Thane to be an urban area stood repealed with the repeal of the Section under which it was made, the appellant did not satisfy the basic condition necessary to attract Section 54G, namely that a transfer had to be made from an urban area to a non urban area. Further, the expressionin Section 54G cannot be equated with the expressiond, therefore, admittedly as land, plant and machinery had not been purchased in the assessment year in question, the exemption contained in Section 54G had to be denied. It is the correctness of this judgment that is assailed before us.

Court's reasoning:
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 definingor 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 beQuite 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 becomeIt was redundant because it had no independent existence, apart from providing a definition ofor 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 together with what has been stated by this Court above, it becomes difficult to accept Shri Arijitcontention 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 andwith 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 andwith or without modification. It being clear in the present case that Section 280ZA which was repealed by omission andwith 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.Shri Prasad is correct in relying upon these two Constitution Bench judgments for they do indeed say that in Section 6 of the General Clauses Act, the wordA reading of this Section would show that a repeal can be by way of an express omission. This being the case, obviously the wordin both Section 6 and Section 24 would, therefore, include repeals by express omission. The absence of any reference to Section 6A, therefore, again undoes the binding effect of these two judgments on an application of the ‘perprinciple. (In Mamleshwar Prasad & Anr. v. Kanahaiya Lal (dead) through LRs., (1975) 3 SCR 834 , Krishna Iyer, J., succinctly laid down what is meant by the5. For all the aforesaid reasons, we are therefore of the view that on omission of Section 280ZA and itswith 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.36. 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 tonew machinery or plant orbuilding 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) isis 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 tothe 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 sofor purchase and/or acquisition of new machinery or plant and land or building.We are of the view that the aforesaid construction of Section 54G would render nugatory a vital part of the said Section so far as the assessee is concerned. Under(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 wordsn (2) which would show that it is enough that the capital gain made by the assessee should only beby 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.