Fabsun Engineering Private Limited v. The Income-tax Officer, Ward-11(2), Bangalore
[Citation -2020-LL-1104-29]

Citation 2020-LL-1104-29
Appellant Name Fabsun Engineering Private Limited
Respondent Name The Income-tax Officer, Ward-11(2), Bangalore
Court HIGH COURT OF KARNATAKA
Relevant Act Income-tax
Date of Order 04/11/2020
Assessment Year 1998-99
Judgment View Judgment
Keyword Tags transfer of capital asset • industrial undertaking • sale consideration • industrial unit • new machinery • capital gain • tax credit • urban area
Bot Summary: The Assessing Officer by an order dated 09.08.1999 rejected the claim of the assessee for exemption under Section 54G of the Act and it was held that the transaction is liable to be taxed as Short Term Capital Gain. Learned counsel for the assessee at the outset invited the attention of this court to Notification dated 27.04.2006 issued by the Central Government in 6 exercise of powers conferred by Explanation 2 Sub- Section of Section 54G of the Act and submitted that for the purposes of Sub-Section of Section 54G of the Act, Anekal has also been declared to be an urban area. In the instant case, the assessee has shifted from non urban area and since, the original asset itself was not located in urban area, the benefit under Section 54G of the Act is not allowable. Explanation to Section 54G(1) of the Act expressly provides that having regard to population, concentration of industries need for proper planning of the area and other factors, the Central Government may by general or special order declare to be an area to be urban area for the purposes of sub-Section of Section 54G of the Act. In exercise of powers under the aforesaid provision, the Central Government has issued a Notification dated 27.04.2006 and has declared Anekal where the factory of the assessee is situated to be an urban area for the purposes of sub-Section of Section 54G of the Act. The aforesaid Notification is applicable for Tax Credit Certificates for shifting of industrial undertakings from urban areas under Section 280YD read with Section 280ZA of the Act and therefore, the same cannot be held applicable for exemption under Section 54G of the Act. So far as reliance placed by learned counsel for the assessee in the case of Fibre Boards Private Limited supra is concerned, in the aforesaid decision, the case of the assessee was that Notification dated 22.09.1967 issued under Section 280ZA of the Act would enure to the benefit of assessee for the purposes of claiming exemption under Section 54G of the Act.


1 IN HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS 4TH DAY OF NOVEMBER 2020 PRESENT HON BLE MR. JUSTICE ALOK ARADHE AND HON BLE MR. JUSTICE H.T.NARENDRA PRASAD I.T.A. NO.193 OF 2015 BETWEEN: FABSUN ENGINEERING PRIVATE LIMITED NO.A/2, CASTEL, NO.5, CORNWELL ROAD BANGALORE - 560 025. ... APPELLANT (BY SRI.IAN LEWIS, ADV.) AND: INCOME TAX OFFICER WARD 11(2) BANGALORE. ... RESPONDENT (BY SRI.JEEVAN J NEERALGI, ADV.) --- THIS ITA IS FILED UNDER SECTION 260-A OF I.T. ACT, 1961 ARISING OUT OF ORDER DATED 27.02.2015 PASSED IN ITA NO.1396/BANG/2013. PRAYING TO: (I) FORMULATE SUBSTANTIAL QUESTIONS OF LAW STATED ABOVE. (II) ALLOW APPEAL AND SET ASIDE ORDERS PASSED BY ITAT, BANGALORE IN ITA NO.1396/BANG/2013 DATED 27.02.2015. 2 THIS ITA COMING ON FOR HEARING, THIS DAY, ALOK ARADHE J., DELIVERED FOLLOWING: JUDGMENT This appeal under Section 260A of Income Tax Act, 1961 (hereinafter referred to as Act for short) has been preferred by assessee. subject matter of appeal pertains to Assessment year 1998-99. appeal was admitted by bench of this Court vide order dated 15.12.2015 on following substantial questions of law: (i) Whether on facts and circumstances of case, tribunal was right in directing Assessing Officer to assess capital gains of appellant as short term capital gains? (ii) Whether tribunal was right in ignoring contemporaneous notification No.9447 dated 6.1.1994? (iii) Whether tribunal was right in classifying Bangalore as non-urban area for purposes of Section 54G when it was previously categorized as urban area until 3 1990? (iv) Whether tribunal was right in finding that urban area such as Bangalore could be classified as non-urban area for purpose of Section 54G from 1990 and then once again be classified as urban area from 27.04.2006? 2. Facts leading to filing of this appeal briefly stated are that assessee is private limited company that had its factory at on plot No.155A, Bommasandra Industrial Area, Anekal, Bangalore. Thereafter, assessee decided to shift its operations from Bommasandra Industrial Area, Anekal, Bangalore to District Ananthapur in State of Andhra Pradesh viz., Rural Area. plot held by assessee was sold on 26.09.1997 for sale consideration of Rs.90 Lakhs and sale proceeds were invested in industrial site located at District Ananthapur, Andhra Pradesh. assessee filed its return of income for Assessment Year 1998-99 showing loss of 4 Rs.1,86,737/- from business and claimed exemption of Rs.78,65,256/- under Section 54G of Act against Long Term Capital Gains. Assessing Officer by order dated 09.08.1999 rejected claim of assessee for exemption under Section 54G of Act and it was held that transaction is liable to be taxed as Short Term Capital Gain. exemption was also denied on ground that Bangalore was not urban area. assessee thereupon filed appeal before Commissioner of Income Tax (Appeals) who by order dated 25.08.1996 affirmed findings of Assessing Officer. assessee thereupon filed appeal before Income Tax Appellate Tribunal (hereinafter referred to as 'the tribunal' for short). tribunal by order dated 26.10.2007 remitted matter to Assessing Officer. 3. Assessing Officer, however, by order dated 31.12.2008 once again, reiterated findings recorded in previous order and levied tax of 5 Rs.53,91,798/-. assessee once again challenged order passed by Assessing Officer in appeal before Commissioner of Income Tax (Appeals) who by order dated 26.08.2010 affirmed order passed by Assessing Officer. assessee thereupon filed appeal before tribunal. tribunal vide order dated 31.10.2011 once again remitted matter to Assessing Officer. Assessing Officer maintained its previous order vide order dated 24.12.2012. aforesaid order was upheld in appeal by Commissioner of Income Tax (Appeals) vide order dated 30.08.2013. assessee challenged aforesaid order in appeal before tribunal. tribunal vide order dated 27.02.2015 affirmed order passed by Commissioner of Income Tax (Appeals). In aforesaid factual background, this appeal has been filed. 4. Learned counsel for assessee at outset invited attention of this court to Notification dated 27.04.2006 issued by Central Government in 6 exercise of powers conferred by Explanation 2 Sub- Section (1) of Section 54G of Act and submitted that for purposes of Sub-Section (1) of Section 54G of Act, Anekal has also been declared to be urban area. authorities under Act had relied on decision of this court and has held that aforesaid Notification is prospective in nature and therefore, assessee is not entitled to benefit of Section 54G of Act. It is also urged that Section 280ZA of Act is replaced by Section 54G of Act and therefore, Notification issued under eth earlier Section holds good for new provision enacted and assessee is entitled to deduction under Section 54G of Act. However, it is submitted that decision of this court subsequently has been reversed by Supreme Court in 'FIBRE BOARDS PRIVATE LIMITED, BANGALORE VS. COMMISSIONER OF INCOME-TAX, BANGALORE, (2015) 10 SCC 333 and therefore, issue involved in this appeal is no longer res integra and assessee 7 is entitled to benefit of Section 54G of Act. 5. On other hand, learned counsel for revenue submitted that as per Section 54F of Act, capital gain should arise from transfer of capital asset gained from urban area and to be shifted to non urban area. In instant case, assessee has shifted from non urban area and since, original asset itself was not located in urban area, benefit under Section 54G of Act is not allowable. It is also urged that Notification dated 27.04.2006 cannot be applied with retrospective effect. It is also argued that intention of enacting Section 54G is to promote decongestion of urban areas and to balance regional growth and with aforesaid object legislature by enacting Section 54G exempted capital gains on transfer of plant, machinery, land, building etc. used for purposes of business of industrial undertaking. It is also contended that Section 54G envisages shifting of industrial undertaking from urban area to non urban area. It 8 is also pointed out that all authorities under Act have held that assessee is not entitled to benefit of Section 54G of Act and no perversity could be pointed out by assessee. It is further submitted that in absence of any express legislative intention to give Notification on which reliance is placed retrospective effect, Notification cannot be treated to have retrospective effect. It is also urged that exemption Notification or clause should be interpreted strictly and non compliance of same would render assessee ineligible to claim exemption. In support of aforesaid submissions, reliance has been placed on decision of Supreme Court in 'COMMISSIONER OF INCOME-TAX, (CENTRAL)-1 VS. VATIKA TOWNSHIP PRIVTE LIMITED', 367 ITR 466 and 'COMMISSIONER OF CUSTOMS (IMPORT) MUMBAI VS. DILIP KUMAR & CO', 2018 68 GST 239. 9 6. We have considered submissions made by learned counsel for parties and have perused record. Explanation to Section 54G(1) of Act expressly provides that having regard to population, concentration of industries need for proper planning of area and other factors, Central Government may by general or special order declare to be area to be urban area for purposes of sub-Section (1) of Section 54G of Act. In exercise of powers under aforesaid provision, Central Government has issued Notification dated 27.04.2006 and has declared Anekal where factory of assessee is situated to be urban area for purposes of sub-Section (1) of Section 54G of Act. However, from perusal of Notification no inference can be drawn that same has any retrospective operation. Notification comes into force on date of its publication in Official Gazette. 10 7. Section 280ZA of Act was omitted by Finance Act, 1987 with effect from 01.04.1988. Central Board of Direct Taxes (CBDT) has issued Notification under Section 280Y(d) vide Notification dated 22.09.1967, by which Bangalore Corporation is declared as urban area for purposes of Chapter XXIIB of Act. However, aforesaid Notification is applicable for Tax Credit Certificates for shifting of industrial undertakings from urban areas under Section 280YD read with Section 280ZA of Act and therefore, same cannot be held applicable for exemption under Section 54G of Act. 8. So far as reliance placed by learned counsel for assessee in case of Fibre Boards Private Limited supra is concerned, in aforesaid decision, case of assessee was that Notification dated 22.09.1967 issued under Section 280ZA of Act would enure to benefit of assessee for purposes of claiming exemption under Section 54G of Act. In 11 aforesaid context, it was held by Supreme Court that assessee has been given window of three years after date on which transfer has taken place to purchase new machinery or land or acquire building or land. It was further held that High Court missed window of three years given to assessee to purchase or acquire machinery or building or land and High Court committed error in holding that exemption under Section 54G can be claimed if capital gains arising on transfer of any of assets of existing industrial unit is utilized within one year or three years after date on which transfer took place for purchase of new machinery or land for purposes of business or industrial undertaking in area to which said undertaking is shifted. It was further held by Supreme Court that expression 'purchased' used in clause (a) of Section 54G of Act requires to be understood as domain and control given to assessee. Admittedly, in instant case, it is not 12 case of assessee that he has utilized sale proceeds within period of three years. Therefore, decision of Supreme Court in Fibre Boards Private Limited supra is of no assistance to assessee in fact situation of case. In view of preceding analysis, substantial questions of law framed by this court are answered against assessee and in favour of revenue. In result, we do not find any merit in this appeal, same fails and is hereby dismissed. Sd/- JUDGE Sd/- JUDGE ss Fabsun Engineering Private Limited v. Income-tax Officer, Ward-11(2), Bangalore
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