M/s Fabsun Engineering Pvt. Ltd., Bangalore V. ITO, Bangalore

ITA 1396/BANG/2013

• Counselvise Citation: [2015] 120 COUNSELVISE.COM (IT) 8715 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 4 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-02-2015
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 24-02-2015
• Assessment Year: 1998-1999
• Appeal Filed On: 07-10-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: P DHIVAHAR JT
• Assessee Lawyers: IAN LEWIS
• Keywords: Capital asset; Retrospective amendment; Benefit of exemption
• Section: 2(14); 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER AND SHRI JASON P. BOAZ, ACCOUNTANT MEMBER ITA NO.1396/BANG/2013 ASSESSMENT YEAR : 1998-99 M/S. FABSUN ENGINEERING PVT. LTD., NO.A-2, CASTEL NO.5, CORNWELL ROAD, BANGALORE 560 025. PAN: AAACF 2575Q VS. THE INCOME TAX OFFICER, WARD 11(2), BANGALORE. APPELLANT RESPONDENT APPELLANT BY : SHRI IAN LEWIS, ADVOCATE RESPONDENT BY : SHRI P. DHIVAHAR, JT. CIT(DR) DATE OF HEARING : 24.02.2015 DATE OF PRONOUNCEMENT : 27.02.2015 O R D E R PER N.V. VASUDEVAN, JUDICIAL MEMBER THIS APPEAL IS BY THE ASSESSEE AGAINST THE ORDER DATED 30.8.2013 OF THE CIT(APPEALS)-I, BANGALORE RELATING TO ASSESSMEN T YEAR 1998-99. 2. THE ASSESSEE IS A COMPANY. DURING THE PREVIOUS YEAR RELEVANT TO AY 98-99, I.E., ON 26.9.1997, THE ASSESSEE SOLD PRO PERTY AT 47E, BOMMASANDRA INDUSTRIAL AREA, ANEKAL, BANGALORE FOR A SALE CONSIDERATION OF RS.90 LACS. THERE IS NO DISPUTE THAT ON SUCH TR ANSFER THERE WAS A SHORT ITA NO. 1396/BANG/2013 PAGE 2 OF 9 TERM CAPITAL GAIN OF RS.85,11,648. THE ASSESSEE CL AIMED THAT THE CAPITAL GAIN IS NOT CHARGEABLE TO TAX AND IS EXEMPT U/S.54G OF THE ACT. SECTION 54G, WAS INSERTED BY THE FINANCE ACT, 1987 W.E.F. 1 ST APRIL, 1988.THE RELEVANT PROVISIONS OF SEC.54G OF THE ACT READS AS FOLLOWS: 54G. EXEMPTION OF CAPITAL GAINS ON TRANSFER OF ASS ETS IN CASES OF SHIFTING OF INDUSTRIAL UNDERTAKING FROM URBAN AREA. -(1) SUBJECT TO THE PROVISIONS OF SUB-SECTION (2), WHERE THE CAPITAL GA IN ARISES FROM THE TRANSFER OF A CAPITAL ASSET, BEING MACHINERY OR PLA NT 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, TH E SHIFTING OF SUCH INDUSTRIAL UNDERTAKING (HEREAFTER IN THIS SECTION R EFERRED TO AS THE ORIGINAL ASSET) TO ANY AREA (OTHER THAN AN URBAN AR EA) 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 PURPOS ES OF BUSINESS OF THE INDUSTRIAL UNDERTAKING IN THE AREA TO WHICH THE SAID UNDERTAKING IS SHIFTED; (B) ACQUIRED BUILDING OR LAND OR CONSTRUCTED BUILDI NG FOR THE PURPOSES OF HIS BUSINESS IN THE SAID AREA; (C) SHIFTED THE ORIGINAL ASSET AND TRANSFERRED THE ESTABLISHMENT OF SUCH UNDERTAKING TO SUCH AREA; AND (D) INCURRED EXPENSES ON SUCH OTHER PURPOSE AS MAY BE SPECIFIED IN A SCHEME FRAMED BY THE CENTRAL GOVERNMENT FOR THE P URPOSES OF THIS SECTION, THEN, INSTEAD OF THE CAPITAL GAIN BEING CHARGED TO INCOME-TAX AS INCOME OF THE PREVIOUS YEAR IN WHICH THE TRANSFER T OOK PLACE, IT SHALL BE DEALT WITH IN ACCORDANCE WITH THE FOLLOWING PROV ISIONS OF THIS SECTION, THAT IS TO SAY,- (I) IF THE AMOUNT OF THE CAPITAL GAIN IS GREATER TH AN THE COST AND EXPENSES INCURRED IN RELATION TO ALL OR ANY OF THE PURPOSES MENTIONED IN CLAUSES (A) TO (D) (SUCH COST AND EXPENSES BEING HEREAFTER IN THIS SECTION REFERRED TO AS THE NEW ASSET), THE DIFFEREN CE BETWEEN THE AMOUNT OF THE CAPITAL GAIN AND THE COST OF THE NEW ASSET SHALL BE CHARGED UNDER SECTION 45 AS THE INCOME OF THE PREVI OUS YEAR; AND ITA NO. 1396/BANG/2013 PAGE 3 OF 9 FOR THE PURPOSE OF COMPUTING IN RESPECT OF THE NEW ASSET ANY CAPITAL GAIN ARISING FROM ITS TRANSFER WITHIN A PERIOD OF T HREE YEARS OF ITS BEING PURCHASED, ACQUIRED, CONSTRUCTED OR TRANSFERR ED, AS THE CASE MAY BE, 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 CHA RGED UNDER SECTION 45; AND FOR THE PURPOSE OF COMPUTING IN RESPECT OF THE NEW ASSET ANY CAPITAL GAIN ARISING FROM ITS TRANSFER WITHIN A PER IOD OF THREE YEARS OF ITS BEING PURCHASED, ACQUIRED, CONSTRUCTED OR TRANS FERRED, AS THE CASE MAY BE, THE COST SHALL BE REDUCED BY THE AMOUN T OF THE CAPITAL GAIN. EXPLANATION : IN THIS SUB-SECTION, 'URBAN AREA' MEA NS ANY SUCH AREA WITHIN THE LIMITS OF A MUNICIPAL CORPORATION OR MUN ICIPALITY AS THE CENTRAL GOVERNMENT MAY, HAVING REGARD TO THE POPULA TION, CONCENTRATION OF INDUSTRIES, NEED FOR PROPER PLANNI NG OF THE AREA AND OTHER RELEVANT FACTORS, BY GENERAL OR SPECIAL ORDER , DECLARE TO BE AN URBAN AREA FOR THE PURPOSES OF THIS SUB-SECTION. 3. THE INTENTION FOR ENACTING SECTION 54G WAS TO PR OMOTE DECONGESTION OF URBAN AREAS AS ALSO BALANCED REGIONAL GROWTH. WI TH THAT INTENT, SECTION 54G EXEMPTED CAPITAL GAINS ON TRANSFER OF PLANT, MA CHINERY, LAND, BUILDING, ETC. USED FOR THE PURPOSES OF THE BUSINESS OF INDUS TRIAL UNDERTAKING. IT ENVISAGES TRANSFER IN THE COURSE OF, OR IN CONSEQUE NCE OF, SHIFTING OF INDUSTRIAL UNDERTAKING FROM AN URBAN AREA TO A NON- URBAN AREA. CAPITAL GAINS WOULD BE EXEMPT TO THE EXTENT IT IS UTILISED WITHIN A PERIOD OF ONE YEAR BEFORE OR THREE YEARS AFTER THE DATE OF TRANSFER IN (I) ACQUIRING NEW PLANT, MACHINERY, LAND, BUILDING, ETC. FOR THE PURPOSE OF THE BUSINESS OF THE UNDERTAKING IN THE AREA TO WHICH IT IS SHIFTED, (II ) INCURRED EXPENSES IN THE PURCHASE OF NEW PLANT AND MACHINERY, ETC. AND IN SH IFTING OF THE ESTABLISHMENT OF THE UNDERTAKING; AND (III) INCURRI NG OTHER EXPENSES AS ITA NO. 1396/BANG/2013 PAGE 4 OF 9 WOULD BE SPECIFIED IN A SCHEME TO BE DRAWN UP BY TH E CENTRAL GOVERNMENT. IT MAY BE NOTED THAT NO SUCH SCHEME HAD BEEN NOTIFI ED BY THE GOVERNMENT AS ON THE DATE OF TRANSFER OF CAPITAL ASSET BY THE ASSESSEE. 4. THE ASSESSEE CLAIMED BEFORE THE AO THAT IT PROP OSED TO SET UP ANOTHER INDUSTRIAL UNIT IN A NON-URBAN AREA AT ANAT HAPUR DISTRICT OF AP FOR WHICH IT HAD ADVANCED SUBSTANTIAL AMOUNTS TO M/S.AP SFC AND M/S.APIDC FOR THE PURCHASE OF LAND IN NON-URBAN AREA IN ANATH APUR DISTRICT, STATE OF ANDHRA PRADESH. 5. THE FIRST QUESTION WHICH THE AO TOOK UP FOR CON SIDERATION WAS AS TO WHETHER THE PROPERTY TRANSFERRED BY THE ASSESSEE WA S 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 INDUSTR IAL UNDERTAKING SITUATE IN AN URBAN AREA. THE AO NOTICED THAT AS PER EXPLANATION TO SEC.54G (1) URBAN AREA MEANS ANY SUCH AREA WITHIN THE LIMITS OF A MUNICIPAL CORPORATION OR MUNICIPALITY AS THE CENTRAL GOVERNME NT MAY, HAVING REGARD TO THE POPULATION, CONCENTRATION OF INDUSTRIES, NEE D FOR PROPER PLANNING OF THE AREA AND OTHER RELEVANT FACTORS, BY GENERAL OR SPECIAL ORDER, DECLARE TO BE AN URBAN AREA FOR THE PURPOSES OF THIS SUB-SECTI ON. THE AO FURTHER FOUND THAT NO TOWN OR CITY WITHIN THE STATE OF KARN ATAKA HAD BEEN NOTIFIED FOR THE PURPOSES OF THE PROVISIONS OF SEC.54G OF TH E ACT. THEREFORE THE AO DENIED THE BENEFIT OF EXEMPTION U/S.54G OF THE ACT TO THE ASSESSEE. ITA NO. 1396/BANG/2013 PAGE 5 OF 9 6. BEFORE THE AO, THE ASSESSEE HAD PLACED RELIANCE ON THE DECISION OF THE ITAT BANGALORE BENCH IN ITA NO.768/BANG/1995 DA TED 20.11.1995 IN THE CASE OF M/S.FIBRE BOARDS WHEREIN THE TRIBUNAL H ELD THAT SINCE NO AREA HAD BEEN NOTIFIED AS AN URBAN AREA, THE ASSESSEE CO ULD NOT BE DENIED THE BENEFIT OF A BENEVOLENT SECTION. THE TRIBUNAL FURT HER HELD THAT THE DEFINITION OF URBAN LAND AS PER THE OTHER PROVISIONS OF THE ACT AND THE GENERAL UNDERSTANDING SHOULD BE APPLIED, IN THE ABSENCE OF ANY NOTIFICATION. THE AO HELD THAT THE AFORESAID DECISION WAS RENDERED DI FFERENT CIRCUMSTANCES AND HENCE NOT APPLICABLE TO THE FACTS OF THE ASSESS EES CASE. THE ORDER OF THE AO IS DATED 16.8.2004. 7. IN EXERCISE OF POWERS CONFERRED U/S.54G OF THE ACT, THE CENTRAL GOVERNMENT BY NOTIFICATION DATED 27.4.2006 NOTIFIED ANEKAL WHERE THE ASSESSEES PROPERTY WAS SITUATE AS URBAN AREA FOR T HE PURPOSE OF SEC.54G OF THE ACT. 8. ON APPEAL BY THE ASSESSEE THE CIT(A) CONFIRMED THE ORDER OF THE AO BY HIS ORDER DATED 25.8.2006. THE CIT(A) NOTICE D THAT THE DECISION OF THE TRIBUNAL RENDERED IN THE CASE OF M/S.FIBRE BOAR D (SUPRA) HAD SINCE BEEN REVERSED BY THE HONBLE KARNATAKA HIGH COURT I N ITRC NO.26/1997 DATED 26.5.2005 WHEREBY THE HONBLE KARNATAKA HIGH COURT AFTER NOTICING THE NOTIFICATION OF URBAN AREAS IN AND AROUND BANGA LORE BY NOTIFICATION DATED 27.4.2006 REFERRED TO IN THE EARLIER PARAGRAP H, HELD THAT SUCH NOTIFICATION CANNOT HAVE ANY RETROSPECTIVE EFFECT. ITA NO. 1396/BANG/2013 PAGE 6 OF 9 9. ON FURTHER APPEAL BY THE ASSESSEE THE ITAT IN I TA NO.948/BANG/2006 ORDER DATED 26.10.2006 SET ASIDE T HE ORDER OF THE CIT(A) AND REMANDED THE ISSUE TO THE AO ON THE REPR ESENTATION OF THE ASSESSEE THAT THE ASSESSEE HAS MOVED THE CBDT TO MA KE THE NOTIFICATION DATED 27.4.2006 RETROSPECTIVE FROM 1.4.1988. 10. AS PER THE DIRECTIONS OF THE ITAT THE AO PASSE D AN ORDER GIVING EFFECT TO ORDER OF ITAT ON 31.12.2008 HOLDING THAT NO NOTIFICATION GIVING RETROSPECTIVE EFFECT TO NOTIFICATION DATED 27.4.200 6 WAS PASSED. THE CIT(A) BY HIS ORDER DATED 26.8.2010 CONFIRMED THE O RDER OF THE AO. ON FURTHER APPEAL BY THE ASSESSEE, THE ITAT IN ITA NO. 1213/BANG/2010 DATED 31.10.2011 RESTORED THE ISSUE TO THE AO FOR FRESH C ONSIDERATION TO AFFORD OPPORTUNITY TO THE ASSESSEE AND ADJUDICATE THE ISSU E. 11. ON 24.12.2012 THE AO PASSED AN ORDER GIVING EFF ECT TO THE DIRECTIONS OF THE TRIBUNAL DATED 31.10.2010 HOLDING THAT NO NOTIFICATION GIVING RETROSPECTIVE EFFECT TO NOTIFICATION DATED 2 7.4.2006 WAS PASSED. ON FURTHER APPEAL, THE CIT(A) BY HIS ORDER DATED 30.8. 2013 CONFIRMED THE ORDER OF THE AO. THE ASSESSEE HAS FILED THE PRESENT APPE AL BEFORE THE TRIBUNAL AGAINST THE ORDER OF THE CIT(A). 12. WE HAVE HEARD THE RIVAL SUBMISSIONS. EXPLANATI ON TO SECTION 54G(1) OF THE ACT EXPRESSLY PROVIDES THAT HAVING REGARD TO THE POPULATION, CONCENTRATION OF INDUSTRIES, NEED FOR PROPER PLANNI NG OF THE AREA AND THE OTHER FACTORS, THE CENTRAL GOVERNMENT BY GENERAL OR SPECIAL ORDER DECLARED ITA NO. 1396/BANG/2013 PAGE 7 OF 9 TO BE AN URBAN AREA FOR THE PURPOSE OF SUB-SECTION( 1) OF SECTION 54G OF THE ACT. THE CBDT HAS ISSUED NOTIFICATION DATED 27/04/2 006 FOR THE PURPOSE OF EXEMPTION OF CAPITAL GAINS U/S 54G IN CONFORMITY TO THE EXPLANATION ABOVE, DECLARING BANGALORE AS URBAN AREA. SUCH NOTIFICATI ON AS WE HAVE ALREADY SEEN HAS BEEN HELD BY THE HONBLE KARNATAKA HIGH CO URT AS APPLICABLE FROM THE DATE OF NOTIFICATION AND HAS NO RETROSPECT IVE EFFECT. IN VIEW OF THE LEGAL POSITION MENTIONED ABOVE, THE ASSESSEES CONT ENTION IS NOT TENABLE. 13. THE ASSESSEE RAISED ANOTHER ISSUE THAT UNDER SE CTION 280ZA OF THE ACT, WHICH WAS A SECTION PROVIDING FOR RELIEF TO AS SESSEES WHO RELOCATE THEIR INDUSTRIES TO BACKWARD AREA, BANGALORE WAS N OTIFIED AS URBAN AREA FOR THE PURPOSE OF GIVING RELIEF FOR SHIFTING THE INDUS TRY FROM BANGALORE TO OTHER BACKWARD AREA. SECTION 280ZA OF THE ACT WAS INTROD UCED BY THE FINANCE ACT 1965 WITH EFFECT FROM 01/04/1965 AND OMITTED BY THE FINANCE ACT 1987 WITH EFFECT FROM 01/04/1988. SECTION-280Z PROVIDED FOR RELIEF BY WAY OF REDUCTION OF A FRACTION OF TAX ON CAPITAL GAINS ARI SING FROM THE SALE OF THE ASSETS AT THE OLD PLACE FROM WHERE AN INDUSTRIAL UN DERTAKING IS SHIFTED IN TERMS OF THE SCHEME OF THE CENTRAL GOVERNMENT ANNOU NCED FOR THIS PURPOSE. IN ORDER TO BE ELIGIBLE FOR THE CONCESSION SPECIFIED CONDITIONS HAVE TO BE FULFILLED. THOUGH THE EXPRESSION INDUSTRIAL UNDERTAKING HAS NOT BEEN DEFINED IN THIS CHAPTER, IT SHOULD BEAR THE MEANING ASSIGNED TO IT IN SECTION 80J OF THE ACT FORMERLY SECTION 84 OF THE ACT. ITA NO. 1396/BANG/2013 PAGE 8 OF 9 14. CBDT HAS ISSUED NOTIFICATION URBAN AREAS U/S 28 0Y(D) VIDE NOTIFICATION NO.S.O.3419 DATED 22/09/1967 THEREBY B ANGALORE CORPORATION IS DECLARED AS URBAN AREAS FOR THE PURPOSE OF XXI IB OF THE ACT. MOREOVER, THIS NOTIFICATION IS APPLICABLE FOR TAX CREDIT CERT IFICATES FOR SHIFTING OF INDUSTRIAL UNDERTAKING FROM URBAN AREAS U/S 280Y(D) R.W.S. 280ZA OF THE ACT AND SAME CANNOT BE HELD TO BE APPLICABLE FOR EXEMPT ION U/S 54G OF THE ACT. 15. IT IS ALSO SEEN THAT THE HONBLE HIGH COURT OF KARNATAKA HAS HELD THAT NOTIFICATION DATED 27.10.2006 CANNOT APPLY RETROSPE CTIVELY. IN SUCH CIRCUMSTANCES, WE ARE OF THE VIEW THAT THE LD. CIT( APPEALS) WAS JUSTIFIED IN UPHOLDING THE ORDER OF THE ASSESSING OFFICER DENYIN G THE BENEFIT OF SECTION 54G TO THE ASSESSEE. 16. THE LD. COUNSEL FOR THE ASSESSEE FILED BEFORE U S NOTIFICATION NO.9447 DATED 6.1.1994. THE SAID NOTIFICATION WAS ISSUED B Y THE CENTRAL GOVT. NOTIFYING AREAS WHICH HAVE TO BE REGARDED AS URBAN AREAS FOR THE PURPOSE OF SECTION 2(1A) & 2(14) OF THE ACT, WHICH DEFINES AGRICULTURAL INCOME AND CAPITAL ASSETS RESPECTIVELY. IT WAS POINTED OUT BY HIM THAT MUNICIPAL AREA OF BANGALORE AND AREA UPTO A DISTANCE OF 8 KMS. FROM M UNICIPAL LIMITS OF BANGALORE IN ALL DIRECTIONS HAVE BEEN NOTIFIED AS U RBAN AREAS. ACCORDING TO HIM, DEFINITION OF URBAN AREA CANNOT BE DIFFERENT F OR THE PURPOSE OF SECTION 54G. 17. WE ARE UNABLE TO ACCEPT THE AFORESAID ARGUMENT OF THE LD. COUNSEL FOR THE ASSESSEE. THE BENEFIT CONFERRED U/S. 54G O F THE ACT IS A SPECIFIC ITA NO. 1396/BANG/2013 PAGE 9 OF 9 BENEFIT. EXPLANATION BELOW SECTION 54G(1) OF THE A CT CONTEMPLATES NOTIFICATION BY THE CENTRAL GOVERNMENT FOR THE PURP OSE OF ALLOWING DEDUCTION U/S. 54G OF THE ACT. THE NOTIFICATION IS SUED UNDER A DIFFERENT PROVISION OF THE ACT WHICH IS MEANT FOR DIFFERENT P URPOSE CANNOT BE APPLIED WHILE DEALING WITH THE PROVISION OF SECTION 54G OF THE ACT. WE THEREFORE REJECT THE ARGUMENT OF THE LD. COUNSEL FOR THE ASSE SSEE. 18. WE DO NOT FIND ANY MERIT IN THIS APPEAL BY THE ASSESSEE. CONSEQUENTLY THE SAME IS DISMISSED. 19. IN THE RESULT, THE APPEAL IS DISMISSED . PRONOUNCED IN THE OPEN COURT ON THIS 27 TH DAY OF FEBRUARY , 2015 . SD/- SD/- ( JASON P. BOAZ ) ( N.V. VASUDEVA N ) ACCOUNTANT MEMBER JUDICIAL MEMBE R BANGALORE, DATED, THE 27 TH FEBRUARY , 2015 . /D S/ COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR/ SENIOR PRIVATE SECRETARY ITAT, BANGALORE.