TMI Blog2005 (5) TMI 690X X X X Extracts X X X X X X X X Extracts X X X X ..... leveling of land, etc. It had also paid an advance amount of Rs. 24,62,980/- to M/s. Maharashtra Industrial Development Corporation for the purchase of industrial plot in the non-urban area. 2. The assessee company, for the assessment year namely, 1991-1992, filed its return of income on 31.12.1991, declaring 'nil' income. The return of income so filed was processed by the assessing officer under Section 141(1)(a) of Income Tax Act 1961 ('Act' for short) on 4.11.1992 and an intimation was issued to the assessee company alter making some adjustments to the income declared in the return filed under Section 139 of the Act. It is relevant to notice at this stage itself; that the assessee company in its return of income filed, had claimed exemption under Section 54G of the Act on the entire capital gains earned from the sale proceeds of its industrial undertaking situate at Majiwada, Thane. 3. The assessing officer with a view to rectify the mistake in the order of assessment for the assessment year 1991-1992, had initiated proceedings under Section 154 of the Act by issuing a show cause notice to the assessee company. After hearing the representative of the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e passing the order under Section 154 of the Act, has summed up the whole issue and has observed that due to non-declaration of the area to be a non-urban area by the Central Government and its failure to deposit the Capital Gains in the Capital Gains Deposit Account, the assessee's claim for exemption under Section 54G of the Act cannot be accepted . 6. The assessee company being aggrieved by this portion of the order passed by the Assessing Officer, has filled the first appeal before the first Appellate Authority and the assessee's representative had reiterated the very same submission made before the Assessing Officer and had requested him to direct the Assessing Officer to grant deduction claimed under Section 54G of the Act. The first Appellate Authority, alter detailed consideration of the submission made by the assessee's representative has rejected the appeal by his order dated 20.7.1995. 7. The assessee company, being Aggrieved by the aforesaid order of the first Appellate Authority, had filed second appeals before the Income Tax Appellate Tribunal in ITA Nos. 767 768/1995. The main issue that was raised and canvassed before the Tribunal was allowa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s made reference to the notification issued by the Central Government dated 2.3.1994 as required under the Explanation appended to the Section, wherein for the first time, Greater Bombay and some other urban areas of Maharashtra which included the Thane Municipal Corporation were declared as urban areas for the purpose of Section 54G of the Act Secondly, the Tribunal also takes note of the stand of the department, wherein it was contended that the notification has come into force on the date of its publication in the official gazette, namely, 24.3.1994 and therefore, the assessee which has shifted its industrial undertaking before the issuance of the notification is not entitled for the benefit of exemption of Capital Gains under this Section. It was the further contention of the departmental representative that the notification must be considered to be prospective in nature and no retrospective operation can be attributed to the notification. While rebutting the contention so canvassed, it was contended by the assessee's representative that the executive instructions cannot supplement the statute or cover areas to which the statute does not extend and they cannot run contrary ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... area' (other than the urban area) used in Section 54G of the Act would simply mean 'any area' which is not an urban area and will obviously include rural area. They further add, that Section 54G of the Act was introduced with effect from 1.4.198$ and the notification as required under the Explanation was issued only in the month of March, 1994 and therefore, it cannot be said that the intention of the Legislature was to keep a beneficial provision otiose for a long period of six years and the delay must have occurred at the level of the executive on account of bureaucratic red tapism. The Tribunal further observes, that a provision in the Act granting exemption is required to be construed liberally and therefore, even taking into consideration the intention of the Legislature to grant exemption under Section 54G of the Act to such cases of shifting of industrial undertakings only, where the shifting was from certain specify led urban areas which the Government wanted to decongest since the assessee's case ultimately fell within the said specifications by issue of the relevant notification, it must be said that the assessee's case comes within the intention of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anation appended to the Section for the purpose of Section 54G of the Act and in the absence of issuance of such notification, the assessee cannot seek for any exemption under Section 54G of the Act. While elaborating this contention, the learned Counsel would submit, that, during the accounting period relevant to the assessment year in question Thane' was not declared as urban area and the same was done only in the month of March, 1994 and therefore, the assessee was not eligible to claim exemption under Section 54G of the Act Secondly it is contended, that payment of advance amount to different concerns for purchase of plant and machinery, construction of factory building, levelling of land, erection of plant and machinery etc., does not amount to utilisation of capital gains and since the capital gains is not deposited with the scheduled banks in the capital gains account scheme, 1988, which is a prerequisite condition to claim benefit under Section 54G of the Act. Thirdly, it is contended that the notification No. S.O. 248(E) was published in the Official Gazette on 24.3.1994 and it is only in this notification, for the first time, Greater Bombay and some other urban areas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tary act and agreement founded on valuable consideration. In Arvind Reddy's case 120 ITR 46, the Supreme Court has explained the meaning of the word 'purchase' for the purpose of capital gains would merely mean 'to buy for a price or equivalent of the price, by payment in kind or adjustment towards a debt or the other monetary consideration. The learned Senior Counsel would submit, that in the present case, for the assessment year in question, the date of filing of the return was on 31.12.1991, and the assessee had invested huge funds in a sum of Rs. 1,11,42,974/- in non-urban industrial area located at Kurkumbh Industrial Area, Kurkumbh Village, Pune District, Maharashtra and the amount invested was by way of advance towards purchase of plot from Maharashtra Industrial Development Corporation, purchase of plant and machinery, etc., and the amount of advance paid exceeds the capital gains of Rs. 1,08,37,044/- and therefore, the Tribunal was justified in allowing the assessee's appeals. 13. In so far as the notification issued by the Central Government, the learned Senior Counsel would submit, that a subordinate legislation issued by the Government cannot ov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ention of the learned Senior Counsel is, that Section 280-Y(d) of the Act defines the word urban areas' to mean any area which the Central Government may, having regard to the population, concentration of industries, need 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 Section. In pursuance of the aforesaid provision, the Central Government had issued notification bearing No. SO. 3419 dated 22.9.1967 and it was further amended by notification No. SO. 718 dated 23.2.1970 and in those notifications, it was notified that Bombay-Thane area was notified as urban area, and therefore, it could not have been the intention of the Government that Thane which was declared as urban area since 1967 should suddenly cease to be an urban area with effect from 1988 and again to be considered to be an urban area with effect from 1994. In a nutshell, the submission of the learned Senior Counsel is, that the purchase of land, equipment etc., for the new industrial undertaking is to include the acquisition of interest in the property and does not necessarily involve the perfection of the title, that the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtakings from urban areas: 27.1: Under Sce. 280-ZA, if a company owning an industrial undertaking shifts the undertaking from an urban area, it qualifies to receive a tax credit certificate in respect of capital gains arising from the transfer of plant and machinery. This provision has been omitted with effect from 1st April 1988 by the Finance Act, 1987, 27.2: With an intent to promote decongestion of urban areas and to ensure a balanced regional growth, the newly inserted Section 54G exempts capital gains on transfer of plant, machinery, land, buildings, etc., used for the purposes of the business of industrial undertaking. The transfer must be effected in the course of, or in consequence of, shitting of the industrial undertaking from an urban area to a non-urban area. Capital gains would be exempt, to be 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 and building, etc. for the purposes of the business of the undertaking in the area to which it is shifted, II. incurring expenses in the purchase of new plant and machinery, etc., and in the shifting of the establ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pality, as the case may be, mentioned in column (3) of the schedule hereto annexed and situated within the State shown in column (2) thereof as urban areas for the purposes of subsection (1) of Sce. 54G of the Income Tax Act, 1961 (43 of 1961). 2. This notification shall come into force on the date of its publication in the Official Gazette. [Notification No. 9489 (F. No. 207/1/93-ITA.II] 22. Section 54G of the Act is attracted when any capital gains result from transfer of fixed assets of an industrial undertaking from urban area. It provides that capital gains arising on transfer of certain fixed assets of an industrial undertaking are exempted from tax, if the transfer is effected in the course of or in consequence of shitting of the industrial undertaking from an urban area to any other non-urban area. The assets in relation to whose transfer the exemption from capital gain tax may be claimed are those which were used for the business of an industrial undertaking in an urban area, such as, plant and machinery, land and building, any right in building or land is transferred to a non-urban area. This exemption may be claimed if the capital gain arising on tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... resultant capital gain for the purpose of new acquisition, the whole or the remaining unutilised portion shall be chargeable under Section 45 of the Act as capital gains of the previous year in which the period of three years from the date of transfer of the original assets expire. 23. The first question that requires to be considered and decided is, whether the exemption under Section 54G of the Act is admissible even though only advances were given for the acquisition of land, plant, building and machinery etc., within the time stipulated in the Section? 24. Under Section 54G of the Act, exemption may be claimed, if the capital gain arising on transfer of existing industrial unit in an urban area is utilised within one year before or three years alter the date on which the transfer took place, apart from others 'purchased' new machinery or plant for the purposes of business of the industrial undertaking in the area to which the said undertaking is shitted, acquired' building or land or constructed building for the purposes of his business in the said area, etc., then instead of the capital gain being charged to income tax as income of the previous year in wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... while dealing with the taxing statute which deals with income from business, the word 'purchase' will, therefore, have to' be construed in commercial sense. In the commercial sense, a transaction of purchase is a part of a transaction of a sale. A transaction of sale can never be complete unless there is a transfer of property from the seller to the buyer and the buyer who is the purchaser, must, therefore acquire the property before he can claim to have purchased the property. 27. In Sec. 54G of the Act, the expressions used are 'purchased', 'acquired', etc. The meaning of the word 'purchased' came up for consideration before the Andhra Pradesh High Court in the case of Commissioner of Income Tax v. Shahzada Begum -173 ITR 399. The Court has affirmed the view expressed by the Tribunal. The view expressed by the Tribunal was: The Tribunal held that the matter had to be decided on the basis as to when the assessee purchased the property and not when the property was sold in favour of the assessee, that the expression 'purchased' connoted the domain and control over the property given into the assessee's hands. 28. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of advance amount will also amount to purchase of plant and machinery and acquisition of land and building, etc. It is difficult to accept the submission of the learned Senior Counsel. The fact situation in Arvind Reddy's case - 120 ITR 46, was conversion of joint ownership into sole ownership through release deed and purchase of property. The assessee was the eldest of four brothers constituting a coparcenary. He sold his own house and acquired the common house from his three brothers, who executed release deeds for a consideration of Rs. 30,000/- each, adjusted towards the eighth share agreed to be given to the assessee as the eldest brother. Before the Supreme Court, the question was whether the execution of release deed amounted to 'purchase of new property' as envisaged under Section 54(1) of the Act? While answering the question in the affirmative, the Court was pleased to observe, that the legal meaning of the word 'purchase' in Section 54 Clause (1) is not different from its plain meaning which connotes buying for a price or equivalent of price by payment in kind or adjustment towards an old debt or for other monetary consideration. Each release in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Legislature and an interpretation, which would defeat the very purpose, and the object of the Act requires to be avoided. 32. The Tribunal has accepted the plea of the assessee that exemption under Section 54G of the Act is admissible even though only advances were given for the acquisition of land and building, plant and machinery, etc., within the time stipulated in the Section by placing heavy reliance on the observations made by the Apex Court in T.N. Arvinda Reddy's case - 120 ITR 47. As we have already noticed, that was a case where there was a conversion of joint ownership into sole ownership through release deeds. The Apex Court in the said decision, has observed that the word 'purchase' in Section 54 of the Act must be interpreted in its ordinary meaning, as buying for a price or equivalent of price by payment in kind or adjustment towards old debt or for other monetary consideration. There is no stress in the Section on cash and carry . In our view, the observations made by the Apex Court in the aforesaid decision is wrongly understood by the Tribunal while interpreting the word 'purchased' and 'acquired' that finds a place in Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ominant intention of the enactment so demands, the Act must be construed so as to have retrospective operation, for the rule against the retrospective effect of statutes is not a rigid or inflexible rule but is one to be applied always in the light of the language of the statute and the subject matter with which the statute is dealing. 35. The learned Senior Counsel has also placed reliance on the observations made by the Supreme Court in the case of State of Punjab v. Nestle India Ltd., and another - [2004] 269 ITR 97. In the said decision, apart from others, the Court has observed that the Government cannot rely on a representation made without complying with the procedure prescribed in the relevant statute, but a citizen may and can compel the Government to act on such representation, if the factors necessary for founding the plea of promissory estoppel are established. 36. It is also brought to our notice, the observations made by the Apex Court in the case of B.K. Industries v. Union of India - 1993 (65) ELT 465. In the said decision, the Court has observed that the Finance Minister's speech is not a law. The parliament may or may not accept his proposal. Inde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of doubt in regard to the intention of the legislature manifest on the statutory language. Indeed, the need to resort to any interpretative process arises only where the meaning is not manifest on the plain words of the statute. If the words are plain and clear and directly convey the meaning, there is no need for any interpretation. It appears to us the true rule of construction of a provision as to exemption is the one stated by this Court in Union of India V. Wood Paper Ltd. [1990 (47) ELT 500 (SC) : 1990 (4) SCC 256]. ..... Truly speaking liberal and strict construction of an exemption provision are to be invoked at different stages of interpreting it. When the question is whether a subject falls in the notification or in the exemption clause then it being in nature of exception is to be construed strictly and against the subject but once ambiguity or doubt about applicability is lilted and the subject falls in the notification then full play should be given to it and it calls for a wider and liberal construction..... 18. We are, however, of the opinion that, on principle, the decision of this Court in Mangalore Chemicals - and in Union of India V. Wood Papers refe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded into two classes : (1) those declaratory of the common law, and (2) those declaring the meaning of an existing statute. Obviously, those declaratory of the common law should be construed according to the common law. Those of the second class are to be construed as intended to lay down a rule for future cases and to act retrospectively. They closely resemble interpretation clauses, and their paramount purpose is to remove doubt as to the meaning of existing law, or to correct a construction considered erroneous by the Legislature. (emphasis supplied). In Francis Bennion's Statutory Interpretation (Second Edition) 1992, page 105, the learned author says Declaratory Acts - A declaratory Act or enactment declares what, the law is on a particular point, often for the avoidance of doubt'. In Justice G.P. Singh's (Sixth edition 1996) Principles of Statutory Interpretation , under the heading declaratory statutes , the learned author has summed up as follows: Declaratory statutes: The presumption against retrospective operation is not applicable to declaratory statutes. As stated in Craieis and approved by the Supreme Court : for modern purpos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vested rights of the parties unless made retrospective either expressly or by necessary intendment. There is a presumption against the retrospective operation of a statute and further a statute is not to be construed to have a greater retrospective operation than its language renders necessary, but an amending Act which affects the procedure is presumed to be retrospective; unless amending Act provides otherwise. The substituted S. 15 in me absence of anything in it to show that it is retrospective, does not effect the right of the parties which accrued to them on the date of suit or on the date of passing of the decree by the Court of first instance. The appeals are unaffected by change in law in so far it related to determination of the substantive rights of the parties and the same are required to be decided in light of law or pre-emption as it existed on the date of passing of the decree. 41. The next decision on which reliance was placed by the learned Senior Counsel is the decision of the Apex Court in the case of Collector of Central Excise v. Neoli Sugar Factory - AIR 1993 SC 1921. In the said decision, the Court has observed: 15. It is then argued by the learn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he view that the Central Government should be directed to consider within a reasonable time the question whether it should bring section 30 of the Act into force or not. If on such consideration the Central Government feels that the prevailing circumstances are such that section 30 of the Act should not be brought into force immediately it is a different matter. But it cannot be allowed to leave the matter to lie over without applying its mind to the said question. Even though the power under section 30 of the Act is discretionary, the Central Government should be called upon in this case to consider the question whether it should exercise the discretion one way or the other having regard to the fact that more than a quarter of century has elapsed from the date on which the Act received the assent of the President of India. The learned Attorney General of the India did not seriously dispute the jurisdiction of this Court to issue the writ in the manner indicated above. 43. The learned Senior Counsel also relies upon the observations made by the Apex Court in the case of A.K. Roy v. Than Singh Tyagi and another - AIR 1982 SC 710. In the said decision, the Court has observed: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sibly prevent the Government from bringing into force the provisions of S. 3 of the 44th Amendment, after the passage of two and half years. But the remedy, according to us, is not the writ of mandamus. If the Parliament had laid down an objective standard or test governing the decision of the Central Government in the matter of enforcement of the Amendment, it may have been possible to assess the situation judicially by examining the causes of the inaction of the Government in order to see how tar they bear upon the standard or test prescribed by the Parliament. But, the Parliament has left the matter to judgment of the Central Government without prescribing any objective norms. That makes it difficult for us to substitute our own judgment for that of the Government of the question whether S. 3 of the Amendment Act should be brought into force. This is particularly so when the failure of the Central Government to bring that section into force so tar can be no impediment in the way of the Parliament in enacting a provision in the National Security Act on the lines of that section. In fact, the ordinance rightly adopted that section as a model and it is the Act, which has wrongly di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly, whether the notification issued under the omitted provision still continues to be in force till it is replaced and a fresh notification is issued under the newly inserted provision. 45. In Justice G.P. Singh's (Seventh Edition 2000) principles of statutory interpretation under the heading 'Expiry and Repeal of the Statutes', the learned Author has summed up the issue as follows: Perpetual and Temporary Statutes: A Statute is either perpetual or temporary. It is perpetual when no time is fixed for its duration and such a statute remains in force until its repeal, which may be express or implied. A perpetual statute is not perpetual in the sense, that it cannot be repealed; it is perpetual in the sense that it is not abrogated by efflux of time or by non-user, A statute is temporary when its duration is only for a specified time and such statute expires on the expiry of the specified time unless it is repealed earlier. Simply because the purpose of a statute, as mentioned in its preamble, is temporary, the statute cannot be regarded as temporary when no fixed period is specified for its duration. The Finance Acts which are annual Acts are not temp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aled provision namely Sce. 280Y(d) of the Act dated 22.9.1967 amended by notification dated 23.2.1970 would not be obliterated and the effect of the earlier notification continues to be in existence. This submission of the learned Senior Counsel, in our view, has no merit for the reason, the notification that is issued under a provision, which has subsequently repealed or substituted, cannot stand on its own. It also gets repealed once the provision under which it is issued gets repealed. 48. The object of the Section 54G of the Act relates to exemption of capital gains on transfer of assets in cases of shifting of industrial undertaking from urban area to non-urban area. The Explanation appended to the Section defines the meaning of the expression 'urban area' to mean any such area within the limits of Municipal Corporation or Municipality as the Central Government may by general or special order declare to be an urban area, Therefore, in order to effectively implement the provisions of Sec. 54G of the Act a notification requires to be issued by the Central Government declaring the limits of Municipal Corporation or the Municipality as the urban area. The Explanation ..... 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