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I.T.A No.193/2015 1 IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 14TH DAY OF OCTOBER, 2022 PRESENT THE HON’BLE MR. JUSTICE P.S. DINESH KUMAR AND THE HON’BLE MR. JUSTICE UMESH M. ADIGA 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 SHRI. T. SURYANARAYANA, SENIOR ADVOCATE FOR SHRI. IAN LEWIS, ADVOCATE)
AND:
THE INCOME TAX OFFICER WARD 11(2) BANGALORE.
…RESPONDENT
(BY SHRI. E.I. SANMATHI, ADVOCATE)
THIS ITA IS FILED UNDER SECTION 260-A OF THE INCOME TAX ACT, 1961 ARISING OUT OF ORDER DATED:27/02/2015 PASSED IN ITA NO.1396/BANG/2013, PRAYING TO FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN AND ETC.
THIS ITA, HAVING BEEN HEARD AND RESERVED FOR JUDGMENT ON 23.08.2022 COMING ON FOR PRONOUNCEMENT OF JUDGMENT, THIS DAY, P.S.DINESH KUMAR J., PRONOUNCED THE FOLLOWING:-
I.T.A No.193/2015 2 JUDGMENT
Though this Court has admitted the appeal to consider four questions of law raised by the assessee, learned Senior Advocate Shri. Suryanarayana does not press the first and the second questions. Hence, the following two questions are considered in this appeal.
Whether the Tribunal was right in classifying Bangalore as a non-urban area for the purposes of Section 54G when it was previously categorized as an urban area until 1990?
Whether the Tribunal was right in finding that an urban area such as Bangalore could be classified as a non-urban area for the purpose of Section 54G from 1990 and then once again be classified as an urban area from 27-04-2006? "
Brief facts of the case are, assessee's Manufacturing unit in Bommasandra Industrial Area, was originally allotted by KIADB on 01.01.1985 in the name of Proprietor of M/s. Sun Industries. The Proprietary firm was changed into a
I.T.A No.193/2015 3 Private Limited Company in the name and style of M/s. Fabsun Engineering Pvt. Ltd., the assessee herein. The Sale deed in respect of the industrial plot was executed by KIADB in the name of the assessee in the year 1997. Later, assessee decided to shift its operation to a rural area in Ananthapur District in Andhrapradesh. Assessee sold the industrial plot on 26.09.1997 for Rs.90 Lakhs and invested the sale proceeds in an industrial site in Ananthapur District.
Assessee filed its tax returns for A.Y.1998-99 declaring a loss of Rs.1,86,737/- and claimed an exemption of Rs.78,65,256/- under Section 54G of the Income tax Act, 1961('Act' for short) against long term capital gains. The Assessing Officer rejected the benefit under Section 54G on the ground that Bangalore was not an urban area. He further held that KIADB had executed the sale deed on 19.03.1997 and assessee had sold the
I.T.A No.193/2015 4 property on 26.09.1997 and therefore, Short Term Capital Gains were applicable. Assessee's challenge to the Assessment Order dated 25.08.1996 before CIT(A) in Appeal No.113/ITO-11(2)/A-I/12-13 failed. On further appeal in ITA No.948/Bang/2006, the ITAT remanded the matter to the Assessment Officer vide order dated 26.10.2007.
After remand, the Assessing Officer by order dated 31.12.2008, reiterated the earlier stand. The CIT(A) vide order dated 26.08.2010 dismissed the appeal in ITA No.178/W-11(2)/A- I/08-09. The ITAT, vide order dated 31.10.2011 allowed ITA No.1213/Bang/2010 and restored the matter on the file of Assessing Officer. After second remand, the Assessing Officer reiterated the demand vide order dated 24.12.2012. The CIT(A) vide order dated 30.08.2013 dismissed appeal No.113/ITO-11(2)/A-I/12-13. The ITAT also
I.T.A No.193/2015 5 dismissed the appeal vide impugned order dated 27.02.2015 in Appeal No.1396/Bang/2013.
Shri. Suryanarayana, learned Senior Advocate for the assessee submitted that the ITAT has dismissed the appeal on the ground that explanation to Section 54G(1) of the Income Tax Act, 1961 ('Act' for short) expressly provides that having regard to the population, concentration of Industries and the need for proper planning of area, the Central Government declares an area to be an urban area. The CBDT1 has issued Notification dated 27.04.2006 for the purpose of exemption under Section 54G of the Act, declaring urban areas. The benefit has been denied by placing reliance on the judgment of this Court in Fibre Boards Pvt. Ltd., Bangalore Vs. CIT.
1 Central Board of Direct Taxes
I.T.A No.193/2015 6
He submitted that Fibre Board's case, has been finally decided by the Hon'ble Supreme Court of India in Fibre Boards Pvt. Ltd., Bangalore Vs. CIT2 holding that the Notifications issued under Section 280-ZA will be valid for the purpose of Section 54G of the Act.
He further submitted that in view of law laid down in Fibre Boards case, assessee will be entitled for the benefit of the Notification and prayed for allowing this appeal.
Shri. E.I. Sanmathi, opposing the appeal, contended inter alia that Section 280ZA of the Act has been omitted with effect from 01.04.1988 and sale has taken place on 19.03.1997. Further, Section 54G of the Act has been introduced simultaneously with the omission of Section 280ZA of the Act.
2 [2015]10 SCC 333 (para 39)
I.T.A No.193/2015 7
He argued that Section 280Y(d) of the Act was omitted by the Finance Act, 1990 and not simultaneously with omission of Section 280ZA of the Act. Section 280Y(d) being a definition Section defining the 'urban area' had no independent existence. Therefore, the Notification issued under Section 280Y(d) cannot inure to the benefit of the assessee. According to him, Notification under Section 54G has been issued on 27.04.2006 and it cannot be applied retrospectively. With these submissions, he prayed for dismissal of this appeal.
We have carefully considered rival contentions and perused the records.
Undisputed facts of the case are: • assessee has sold the property situated in Bengaluru on 19.03.1997; • CBDT has issued Notification under Section 280Y(d) on 22.09.1967 declaring Bangalore
I.T.A No.193/2015 8 Corporation as urban area. The ITAT has noticed this aspect in para 14 of its order, but held that the said Notification is applicable for Tax Credit Certificates and cannot be held applicable to exemption under Section 54G of the Act; • The benefit under Section 54G has been denied by the Revenue on the premise that this Court had held that CBDT Notification dated 27.04.2006 issued under Sub-Section (1) of Section 54G had no retrospective effect.
The ITAT's order is dated February 27, 2015. The Fibre Board's case, has been finally decided by the Apex Court on August 11, 2015 holding thus:
"14. On a conjoint reading of the aforesaid Budget Speech, notes on clauses and memorandum explaining the Finance Bill of 1987, it becomes clear that the idea of omitting Section 280-ZA and introducing on the same date Section 54-G was to do away with the tax credit certificate scheme together with the prior approval required by the
I.T.A No.193/2015 9 Board and to substitute the repealed provision with the new scheme contained in Section 54-G. It is true that Section 280-Y(d) was only omitted by the Finance Act, 1990 and was not omitted together with Section 280-ZA. However, we agree with the learned counsel for the appellant that this would make no material difference in as much as Section 280-Y(d) is a definition section defining " urban area " for the purpose of Section 280-ZA only and for no other purpose. It is clear that once Section 280-ZA is omitted from the statute book, Section 280-Y(d) having no independent existence would for all practical purposes also be " dead ". Quite apart from this, Section 54-G(1) by its Explanation introduces the very definition contained in Section 280-Y(d) in the same terms. Obviously, both provisions are not expected to be applied simultaneously and it is clear that the Explanation to Section 54-G(1) repeals by implication Section 280-Y(d) "
With regard to declaration of Urban area, it is held as follows:
" 39. For all the aforesaid reasons, we are thereof of the view that on omission of Section 280-ZA and its re- enactment with modification in Section 54-G, 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 54-G "
By virtue of Notification under Section 280Y(d) of the Act dated 22.09.1967, Bengaluru
I.T.A No.193/2015 10 Corporation was declared as Urban area. Therefore, in view of the law laid down in para 39 in Fibre Boards, Bengaluru continues to be an Urban area for the purpose of Section 54G of the Act.
In view of the above, assessee shall be entitled for the benefit under Section 54G of the Act.
Hence, the following: ORDER
(a) Appeal is allowed.
(b) Questions of law are answered in favour of the assessee and against the Revenue.
No costs.
Sd/- JUDGE
Sd/- JUDGE SPS