Advances paid for purchase of assets would amount to utilization of capital gains under Section 54G of Income Tax Act, 1961

Supreme Court:  Deciding
on the appeals the bench comprising of A.K. Sikri and R.F. Nariman JJ. was
posed with question whether advances paid for the purchase of assets while
shifting of industrial undertaking from urban area, would amount to
utilization  of capital gains, allowed as
an exemption under Section 54G of Income Tax Act, 1961. Answering the question
in affirmative the Court went on discussing application of Section 24 of the
General Clauses Act, 1897 over the matter in hand.

The nodus in this case was the Income Tax Act, prior
to 1-4-1988, contained Section 280ZA which when read with the definition of
“urban area” in Section 280Y (d) gave to a person who shifted from an urban
area to another area, a tax credit certificate with reference to the amount of
tax payable by the Company on income tax chargeable under the Heading “Capital
Gains” and would be given relief accordingly. Section 54G was inserted on 1-4-1988
at the same time that Section 280ZA was omitted and that therefore Section 24
of the General Clauses Act would be attracted. That being so, the notification
dated 22-9-1967 which declared ‘Thane’ an urban area, where appellant’s
industrial unit was situated, would ensure to the benefit of the appellant for
the purpose of claiming exemption from capital gains under Section 54G. 

The Court relying on various previous judgments over
both the matters involved and reversing the judgment of the High Court declared
that, on omission of Section 280ZA and its re-enactment with 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. 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 to “purchase” new machinery or plant or
“acquire” building or land.   The court held that Section. 54G does not
require that the machinery etc has to be acquired in the same assessing year in
which the transfer takes place. It is sufficient if the capital gain is
“utilized” towards purchase of plant and machinery by giving advances to
suppliers and also, Section 24 of the General Clauses Act applies also to
‘omissions’ along with `repeals’ and saves rights given by subordinate
legislation. [Fibre Boards v. CIT, 2015
SCC OnLine SC 707, decided on August 11, 2015]
Source: Legal news India

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