Brief of the case:
In this case assessee with an intention to shift its industrial undertaking from urban to non-urban area sold its land, plant & machinery, building etc. and out of capital gain earned he made advance payments to various persons to purchase land, plant & machinery, building etc. Assessee claimed exemption on the entire capital gain earned from the sale proceed in view of the advances so made being more than the capital gain made by it. On appeal to supreme court by assessee Hon’ble SC held that under sub-section (1), the assessee is given a period of three years after the date on which the transfer takes place to purchase new machinery or plant and acquire building or land or construct building for the purpose of his business in the said area. Advances paid for the purpose of purchase and/or acquisition of the aforesaid assets would certainly amount to utilization by the assessee of the capital gains made by him for the purpose of purchasing and/or acquiring the aforesaid assets.
Facts of the case:
- The assessee is a private limited company which had an industrial unit at Majiwada, Thane, which was a notified urban area.
- With a view to shift its industrial undertaking from an urban area to a non-urban area at Kurukumbh Village, Pune District, Maharashtra, it sold its land, building and plant and machinery situated at Majiwada, Thane to Shree Vardhman Trust for a consideration of Rs.1,20,00,000/-, and after deducting an amount of Rs.11,62,956/-, had earned a capital gain of Rs.1,08,33,044/-.
- Since it intended to shift its industrial undertaking from an urban area to a non-urban area, out of the capital gain so earned, the appellant paid by way of advances various amounts to different persons for purchase of land, plant and machinery, construction of factory building etc.
- Such advances amounted to Rs.1,11,42,973/- in the year 1991-1992. The appellant claimed exemption under Section 54G of the Income Tax Act on the entire capital gain earned from the sale proceeds of its erstwhile industrial undertaking situate in Thane in view of the advances so made being more than the capital gain made by it.
- AO vide order 31.03.1994, imposed a tax on capital gains, refusing to grant exemption to the appellant under Section 54G due to non-declaration of the area to be a non-urban area by Central Govt. and its failure to deposit the capital gain in the Capital Gains Deposit Account.
Contention of the revenue:
