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Wednesday, August 12, 2015

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.= 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. We find that the High Court has completely missed the window of three years given to the assessee to purchase or acquire machinery and building or land. This is why the expression used in 54G(2) is “which is not utilized by him for all or any of the purposes aforesaid….”. The High Court is not correct when it states:- “31. The word ‘purchase’ is not defined under the Act and therefore, has to be construed in the commercial sense. In many dictionaries, the word ‘purchase’ means the acquisition of property by party’s own act as distinguished from acquisition by act of law. In the context in which the expression issued by the Legislature requires first to be understood and interpretation that suits the context requires to be adopted. Exemption of capital gains under Section 54G of the Act can be claimed on transfer of assets in cases of shifting of industrial undertaking from urban area to any other non-urban area. This exemption may be claimed if the capital gains arising on transfer of any of assets of existing industrial unit is utilized within one year or three years after the date on which the transfer took place for purchase of new machinery or plant for the purposes of the business of the industrial undertaking in the area to which the said undertaking is shifted. The Legislature consciously has not used the expression ‘towards the purchase of plant and machinery’ as in Section 54(4) of the Act in contrast to Section 54(2) of the Act wherein the words ‘towards’ is used before the word ‘purchase’. The expression ‘purchased’ used in sub-clause (a) of section 54G of the Act requires to be understood as the domain and control given to the assessee. In the present case, it is not in dispute that the assessee has paid advance amount for acquisition of land, plant, building and machinery, etc., within the time stipulated in the Section, but it is not the case of the assessee that after such payment of advance amount, it has taken possession of land and building, plant and machinery. In our view, if the argument of the learned Senior Counsel for the assessee is accepted, it would defeat the very purpose and object of the Section itself. By merely paying some amount by way of advance towards the cost of acquisition of land for shifting its industrial unit from urban area to non-urban area, an assessee cannot claim exemption from payment of tax on capital gains. This cannot be the intention of the Legislature and an interpretation, which would defeat the very purpose, and the object of the Act requires to be avoided.” (at para 31 of the impugned judgment) We are of the view that the aforesaid construction of Section 54G would render nugatory a vital part of the said Section so far as the assessee is concerned. 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. If the High Court is right, the assessee has to purchase and/or acquire machinery, plant, land and building within the same assessment year in which the transfer takes place. Further, the High Court has missed the key words “not utilized” in sub-section (2) which would show that it is enough that the capital gain made by the assessee should only be “utilized” by him in the assessment year in question for all or any of the purposes aforesaid, that is towards purchase and acquisition of plant and machinery, and land and building. 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. We find therefore that on this ground also, the assessee is liable to succeed. The appeals are, accordingly, allowed and the judgment of the High Court is set aside.

                                                                  REPORTABLE

                        IN THE SUPREME COURT OF INDIA

                        CIVIL APPELLATE JURISDICTION

                     CIVIL APPEAL NOS. 5525-5526 OF 2005



M/S FIBRE BOARDS (P) LTD.
BANGALORE                               …APPELLANT

                                   VERSUS

COMMISSIONER OF INCOME TAX,
BANGALORE                                     ...RESPONDENT


                               J U D G M E N T

R.F. Nariman, J.

1.    The assessee, a private limited company, 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.

2.    By an order dated 31.3.1994, the Assessing Officer imposed  a  tax  on
capital gains, refusing to grant exemption to the  appellant  under  Section
54G. The reasons given were:

“7.   I have carefully considered the submission of the  assessee.  In  this
case, it is to be noted that the non urban area has not been declared to  be
so by any general or special order  of  the  Central  Govt.  Therefore,  the
assessee cannot take the plea that it has shifted the undertaking to  a  non
urban area. The second point is regarding utilization of capital  gains.  In
this case, the assessee has given advances to  different  persons.  However,
such advance does not amount to utilization of capital gains.  The  assessee
is required to acquire the plant and machinery within the time  frame  spelt
out in sub-section (1) of Section 54G. However, if it fails to  acquire  the
plant and machinery before one year of transfer  or  within  the  period  of
filing return, it is supposed to deposit the capital gains  in  the  Capital
Gains Deposit Scheme. It cannot be said that  giving  advance  to  different
concerns means utilization of money for  acquiring  the  assets.  Therefore,
the assessee was to deposit the capital gains in the  specific  account  and
file proof of such deposit. As the assessee had  not  done  so,  it  is  not
entitled for deduction u/s 54G.

To sum up, on both counts, i.e., 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,  the  assessee’s  claim  is   not
applicable.”



3.    By its order dated 20.7.1995, the Commissioner, Income  Tax  (Appeals)
dismissed the appellant’s  appeal.   By  its  order  dated  20.11.1995,  the
Income Tax Appellate Tribunal allowed the  assessee’s  appeal  stating  that
even an agreement to purchase is good enough and  that  the  explanation  to
Section 54G being declaratory in nature would be retrospective.

4.    By the impugned judgment dated 26.5.2005, the High Court reversed  the
judgment of  the  Income  Tax  Appellate  Tribunal  and  held  that  as  the
notification declaring Thane to be an urban area  stood  repealed  with  the
repeal of the Section under  which  it  was  made,  the  appellant  did  not
satisfy the basic condition necessary to attract Section 54G, namely that  a
transfer had to be made from an urban area to a  non  urban  area.  Further,
the expression  “purchase”  in  Section  54G  cannot  be  equated  with  the
expression “towards purchase” and, therefore, admittedly as land, plant  and
machinery had not been purchased in the assessment  year  in  question,  the
exemption contained in Section 54G had to be denied.  It is the  correctness
of this judgment that is assailed before us.

5.    Shri Dhruv Mehta, learned senior advocate appearing on behalf  of  the
assessee argued before us and pointed out that Chapter XXII-B of 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. He referred us to  a  notification  dated  22.9.1967  by  which
Thane had been declared to be an urban area for the purpose of Chapter XXII-
B.  He further contended that 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 to the facts of this case.   That
being so, the notification dated 22.9.1967 would enure  to  the  benefit  of
the appellant for the purpose  of  claiming  exemption  from  capital  gains
under Section 54G.  He also argued that Section 280Y(d), which  was  omitted
with effect from 1990, had been so omitted  because  it  had  been  rendered
redundant with  the  omission  of  Section  280ZA.   Further,  according  to
learned counsel, on a correct interpretation of Section  54G,  the  assessee
gets a period of three years after the date on which the transfer has  taken
place to purchase new machinery and plant, and  acquire  land  or  construct
building. Further, in order to avail the benefit of  Section  54G  all  that
the assessee has to do in the assessment year in question  is  to  “utilize”
the amount of capital gain for the purposes aforesaid  before  the  date  of
furnishing the return of income under Section 139.  If that is done,  it  is
not necessary for the assessee to deposit  before  furnishing  such  return,
the amount in a Capital Gain Deposit Scheme and  utilize  such  proceeds  in
accordance with the scheme which the Central Government may by  notification
frame in this behalf.  His further contention  was  that  in  any  case  the
explanation added to Section 54G(1) being  in  the  same  terms  as  Section
280Y(d) has repealed Section 280Y(d) by implication.

6.    Learned counsel for the revenue,  Shri  Arijit  Prasad  supported  the
judgment of the High Court  and  argued  that  Section  24  of  the  General
Clauses Act had no application to the facts of the present case as  it  only
applied to `repeals’ and not ‘omissions’, and  also  that  it  saved  rights
that were given by subordinate legislation, and as  the  notification  dated
22.9.1967 did not by itself confer any right on the  appellant,  Section  24
of the General Clauses Act would not be  attracted.   He  further  submitted
that as no purchase of plant and machinery and/or  acquisition  of  land  or
building or construction  of  building  had  actually  taken  place  in  the
assessment year in question, in any event the conditions precedent  for  the
applicability of Section 54G were not  met.   As  was  pointed  out  by  the
assessee itself by a letter dated 25.11.1993, even till that date  land  had
not been acquired but only possession was taken and a factory  building  had
not yet been constructed.   This  being  so,  according  to  him,  the  High
Court’s judgment needs no interference.

7.     We  have  heard  learned  counsel  for  the  parties.   In  order  to
appreciate the submissions made by both sides, it is necessary to first  set
out the statutory provisions. Section 280Y(d)  as  it  stood  prior  to  its
omission in 1990 read thus:-

280Y. Definitions. – In this Chapter, -

Xxx

Xxx

Xxx

(d) “urban area” means 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 Chapter.

Section 280ZA as it stood before its amendment in 1988 read as follows:-

280ZA. Tax credit certificates for shifting of industrial  undertaking  from
urban area.-     (1)   If any

company owning an industrial undertaking situate in an  urban  area  shifts,
with the prior approval of the Board, such  undertaking  to  any  area  (not
being the area in which such undertaking is situate), it shall be granted  a
tax credit certificate.

(2)   The tax credit certificate to be granted under sub-section  (1)  shall
be for an amount computed in the following  manner  with  reference  to  the
amount of the tax payable by the company on its income chargeable under  the
head “Capital gains” arising from the  transfer  of  capital  assets,  being
machinery or plant or buildings or lands  or  any  rights  in  buildings  or
lands used for the purposes of the business of the said undertaking  in  the
urban area, effected in the course of or in consequence of the  shifting  of
such industrial undertaking, namely:-

      (a)   the amount of expenditure incurred by the company in-

(i)   purchasing new machinery or plant for the purposes of the business  of
the company in the area to which the undertaking is shifted;

(ii) acquiring lands or constructing  buildings  for  the  purposes  of  its
business in the said area; and

(iii) shifting its machinery or plant and  other  effects  and  transferring
its establishment to such area,

within a period of three years, from the date of the  approval  referred  to
in sub-section (1), or such further period as the  Board  may  allow,  shall
first be ascertained;

(b)   the amount of the tax credit certificate shall bear to the  amount  of
tax payable by the company on its income chargeable under the head  “Capital
gains” as aforesaid, the  same  proportion  as  the  amount  of  expenditure
ascertained under clause (a) bears to the amount of the said income:

Provided that the amount of the tax credit  certificate  shall  in  no  case
exceed the amount of the tax aforesaid.

(3)   The amount shown on a tax credit  certificate  granted  to  a  company
under this section shall, on  the  certificate  being  produced  before  the
Income-tax Officer, be adjusted against any liability of the  company  under
the Indian Income-tax Act,1922 (11 of 1922), or this Act,  existing  on  the
date on which the certificate was produced  before  the  Income-tax  Officer
and where the amount of such certificate exceeds such  liability,  or  where
there is no such liability, the excess or the whole of such amount,  as  the
case may be, shall, notwithstanding anything contained in  Chapter  XIX,  be
deemed, on the said date, to  be  refund  due  to  the  company  under  that
Chapter and the provisions of this Act shall apply accordingly.

(4)   Where a capital asset, being machinery  or  plant  purchased  for  the
purposes  of  the  business  of  the  company  in  the  area  to  which  the
undertaking is shifted or building or land, or  any  right  in  building  or
land, acquired, or as the case may be, constructed  in  the  said  area,  is
transferred by the company within a period of five years from  the  date  of
purchase, acquisition or, as the case may be,  the  date  of  completion  of
construction to any person other than the Government, a local  authority,  a
corporation established,  by  a  Central,  State  or  Provincial  Act  or  a
Government company as defined in section 617 of the Companies Act,  1956  (1
of 1956), an amount equal to one-half of the amount for which a  tax  credit
certificate has been granted to the company under sub-section (1)  shall  be
deemed to be tax due from the company on the  thirtieth  day  following  the
date of transfer under a notice of demand issued under Section 156, and  all
the provisions of this Act shall apply accordingly.

Explanation. -   Any land or building used  for  the  residence  of  persons
employed in the business of the company or for the use of such persons as  a
hospital, crèche, school, canteen, library,  recreational  centre,  shelter,
rest-room or lunch-room shall, for the purposes of this section,  be  deemed
to be land or building  used  for  the  purposes  of  the  business  of  the
company.



The notification dated 22.9.1967  issued  under  Section  280Y(d)  reads  as
under:-

“In pursuance of clause (d) of section 280Y of the Income-tax Act, 1961  (43
of 1961) the Central Government hereby declares the areas  shown  in  column
(3) of the Schedule hereto annexed and forming part of the territory of  the
State or the  Union  territory,  as  the  case  may  be,  specified  in  the
corresponding entry in column (2)  thereof  to  be  “urban  areas”  for  the
purposes of Chapter XXII-B of the said Act, namely:-

                                  SCHEDULE

Serial No.  Name of the State or  Details of the area
the Union territory
                        (2)                                         (3)

__________________________________________________________
………………………

………………………

………………………

………………………

………………………

6.    Maharashtra                 (i)   Bombay Thana Area.
                                  (ii)  Poona-Pimpri-Chinchwad area.
                                  (iii) Khopoli area.
                                  (iv)  Areas within the limits of-
(a)Nagpur Municipal Corporation.
(b)Sholapur Municipal Corporation.


8.    Section 54G of the Income Tax Act inserted by the  Finance  Act,  1987
with effect from 1.4.1988 reads as follows:

“54G. Exemption of capital gains on transfer of assets in cases of  shifting
of industrial undertaking from urban area. (1) Subject to the provisions  of
sub-section (2), where the capital  gain  arises  from  the  transfer  of  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  industrial
undertaking situate in an urban area, effected  in  the  course  of,  or  in
consequence of, the shifting of such industrial  undertaking  (hereafter  in
this section referred to as the original asset) to any area (other  than  an
urban area) 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 purposes  of  business  of  the
industrial undertaking  in  the  area  to  which  the  said  undertaking  is
shifted;
(b) acquired building or land or constructed building 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 purposes of this section,
then, instead of the capital gain being charged to income-tax as  income  of
the previous year in which the transfer took place, it shall be  dealt  with
in accordance with the following provisions of  this  section,  that  is  to
say,—
(i) if the amount of the capital gain is greater than 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 difference 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 previous year; and for the purpose of computing in respect  of
the new asset any capital gain arising from its transfer within a period  of
three years of its being purchased, acquired,  constructed  or  transferred,
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  charged  under section  45;
and for the purpose of computing in respect of the  new  asset  any  capital
gain arising from its transfer within a period of three years of  its  being
purchased, acquired, constructed or transferred, as the  case  may  be,  the
cost shall be reduced by the amount of the capital gain.
Explanation.—In this sub-section, “urban area” means any  such  area  within
the limits of  a  municipal  corporation  or  municipality  as  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 sub-section.
(2) The amount of capital gain which is not  appropriated  by  the  assessee
towards the cost and expenses incurred in relation to  all  or  any  of  the
purposes mentioned in clauses (a) to (d) of sub-section (1) within one  year
before the date on which the transfer of the original asset took  place,  or
which is not utilised by him for  all  or  any  of  the  purposes  aforesaid
before the date of furnishing the return of income under section 139,  shall
be deposited by him before furnishing such return [such deposit  being  made
in any case not later than the due  date  applicable  in  the  case  of  the
assessee  for  furnishing  the  return  of  income  under  sub-section   (1)
of section 139] in an account in any such bank  or  institution  as  may  be
specified in, and utilised in accordance with, any scheme which the  Central
Government may, by notification in  the  Official  Gazette,  frame  in  this
behalf and such return shall be accompanied by proof of such  deposit;  and,
for the purposes of sub-section (1), the amount, if  any,  already  utilised
by the assessee for all or any of the purposes aforesaid together  with  the
amount, so deposited shall be deemed to be the cost of the new asset:

Provided that  if  the  amount  deposited  under  this  sub-section  is  not
utilised wholly or partly for all  or  any  of  the  purposes  mentioned  in
clauses (a) to (d) of sub-section (1) within the period  specified  in  that
sub-section, then,—
(i) the amount not so utilised shall  be  charged  under section  45 as  the
income of the previous year in which the period  of  three  years  from  the
date of the transfer of the original asset expires; and
(ii) the assessee shall be entitled to withdraw such  amount  in  accordance
with the scheme aforesaid.”


9.    On the same date, by the same Finance Act, Section 280ZA  was  omitted
with effect from the same date i.e. 1.4.1988.  We have been referred to  the
Budget Speech of the Minister of Finance  when  he  introduced  the  Finance
Act, 1987. Among other things, the learned Minister stated:-

“83.  Concentration of industries in many of our urban areas  poses  serious
problems of  congestion,  pollution  and  hazards.  In  order  to  encourage
industries to shift out of such areas, I propose  to  exempt  capital  gains
made on the sale of land and buildings in  such  areas  provided  these  are
reinvested in approved relocation schemes.”



10.   Further, the notes on clauses for the  Finance  Bill,  1987  reads  as
under:-

“Clause 24 seeks to insert two new sections 54G and 54H  in  the  Income-tax
Act.

The new section 54G provides for exemption of capital gains on  transfer  of
assets in cases of industrial undertaking shifting  from  urban  area.  Sub-
section (1) provides that if  an  assessee  transfers  a  long-term  capital
asset in the nature of machinery, plant,  building  or  land  used  for  the
purposes of the business of the industrial undertaking situated in an  urban
area in connection with the shifting of  such  undertaking  to  a  non-urban
area, and within a period of one year before or three years after  the  date
of transfer, purchases new machinery or plant and acquires land or  building
or constructs building for the purposes of  his  business  in  the  area  to
which the  undertaking  is  shifted  or  incurs  expenses  on  shifting  the
original asset and transferring the  establishment  of  the  undertaking  to
such area and incurs expenses on such other purposes as may be specified  in
a scheme framed by the Central Government, the capital gain shall be  exempt
to the extent such gain has been utilized for the aforesaid purposes.

Explanation to sub-section (1) defines “urban area”  on  the  lines  of  the
definition in section 280Y.”



11.   The relevant part of the memorandum explaining the provisions  in  the
Finance Bill, 1987 reads as under:

“34.  Under the existing provisions of section 280ZA of the Income-tax  Act,
any company owning an industrial undertaking situated in an urban  area,  is
entitled for a tax credit certificate with reference to the  amount  of  the
tax payable on capital gains arising from the  transfer  of  its  machinery,
plant, etc., to any other area. These provisions have not proved to be  very
effective.

      With a view to promoting decongestion  of  urban  areas  and  balanced
regional growth, the Bill seeks to exempt capital gains arising on  transfer
of long-term capital assets in the nature of machinery, plant,  building  or
land used for the purposes of the business  of  the  industrial  undertaking
situated  in  an  urban  area  in  connection  with  the  shifting  of  such
industrial undertaking from an urban area to a non-urban area.  Accordingly,
capital gains arising in such cases will be exempt to the  extent  they  are
utilized within a period of one year before or three years  after  the  date
of transfer, for the purchase of new machinery or plant  or  acquiring  land
and building, etc., for the purpose of the business in  the  area  to  which
the undertaking is shifted or  incurs  expenses  on  shifting  the  original
asset and transferring the establishment of the  undertaking  to  such  area
and incurs expenses as may be specified.

      As a consequential measure, section 280ZA of  the  Income-tax  Act  is
proposed to be omitted.

These  amendments  will  take  effect  from  1st  April,  1988,  and   will,
accordingly,  apply  in  relation  to  the  assessment  year   1988-89   and
subsequent years.”



12.   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 280ZA and introducing  on  the  same
date Section 54G was to do away  with  the  tax  credit  certificate  scheme
together with the prior approval required by the  Board  and  to  substitute
the repealed provision with the new scheme contained in Section 54G.  It  is
true that Section 280Y(d) was only omitted by the Finance Act, 1990 and  was
not omitted together with Section 280ZA.  However,  we  agree  with  learned
counsel for the appellant  that  this  would  make  no  material  difference
inasmuch as Section 280Y(d) is a definition Section  defining  “urban  area”
for the purpose of Section 280ZA only and  for  no  other  purpose.   It  is
clear that once Section 280ZA is omitted  from  the  statute  book,  Section
280Y(d) having no independent existence would  for  all  practical  purposes
also be “dead”.  Quite apart from this, Section 54G(1)  by  its  explanation
introduces the very definition contained in  Section  280Y(d)  in  the  same
terms.   Obviously,  both  provisions  are  not  expected  to   be   applied
simultaneously and it is  clear  that  the  explanation  to  Section  54G(1)
repeals by implication Section 280Y(d).

13.   Repeal by implication has been dealt with by at  least  two  judgments
of this Court.  In State of Orissa and another v. M/s M.A. Tulloch and  Co.,
(1964) 4 SCR 461, this Court considered  the  question  as  to  whether  the
expression “repeal” in Section 6 of the General  Clauses  Act  would  be  of
sufficient amplitude to cover cases of implied repeal.  This Court stated:

“The next question is whether the application of  that  principle  could  or
ought to be limited to cases where a particular form of  words  is  used  to
indicate that  the  earlier  law  has  been  repealed.   The  entire  theory
underlying implied repeals is that there is no need for the later  enactment
to state in express terms that an earlier enactment  has  been  repealed  by
using any particular set of words or  form  of  drafting  but  that  if  the
legislative intent to  supersede  the  earlier  law  is  manifested  by  the
enactment of provisions as to effect such supersession,  then  there  is  in
law a repeal notwithstanding the absence of the word ‘repeal’ in  the  later
statute.”  (at page 483)



Similarly in Ratan Lal Adukia v. Union of India,  (1989)  3  SCC  537,  this
Court held that the substituted Section 80 of the Code  of  Civil  Procedure
repealed by implication, insofar as the railways are concerned,  Section  20
of the self-same code. In so holding, this Court stated:-


“The doctrine  of  implied  repeal  is  based  on  the  postulate  that  the
legislature which is presumed to know the existing state of the law did  not
intend to create any confusion by retaining conflicting provisions.  Courts,
in applying this doctrine,  are  supposed  merely  to  give  effect  to  the
legislative intent by examining the object and scope of the two  enactments.
But in a conceivable case, the very  existence  of  two  provisions  may  by
itself, and without more, lead to an inference of  mutual  irreconcilability
if the later set of provisions is by itself a complete code with respect  to
the same matter. In such a case the actual detailed comparison  of  the  two
sets of provisions may not be necessary.  It  is  a  matter  of  legislative
intent that the two sets of provisions  were  not  expected  to  be  applied
simultaneously. Section 80 is a special provision.  It  deals  with  certain
class of suits distinguishable on the  basis  of  their  particular  subject
matters.” (at para 18)

14.   Further, the Finance Act which omitted the whole of Chapter XXII-B  of
which Section 280Y(d) is a part, in its notes on clauses stated:

“Clause 46 seeks to omit Chapter XXII-B of the Income-tax Act relating to
tax credit certificates.

Under the provisions of this Chapter, which was introduced with effect  from
1st  April,  1965,  tax  credit  certificates  were  granted  to   assessees
fulfilling certain conditions. These certificates were to  be  utilized  for
the adjustment of the tax liability or for refund or both. This Chapter  has
now become virtually redundant and is, therefore,  being  omitted.  However,
if a person still  possesses  any  tax  credit  certificates  granted  under
section 280Z or section 280ZC, he shall be allowed to utilize  the  same  up
to 31st March, 1991.

This amendment will take effect from 1st April, 1990.”



Equally, the Memorandum explaining the provisions in the Finance  Bill  also
stated:-

“40.  Chapter XXII-B of the Income-tax Act, contains provisions relating  to
tax credit certificates. This was introduced with  effect  from  1st  April,
1965, with various objects, viz., providing an incentive to individuals  and
Hindu undivided families for investing in  newly-floated  equity  shares  of
certain companies (section 280Z), facilitating the  shifting  of  industrial
undertakings of public companies from urban areas to new areas with  a  view
to relieving congestion in urban areas (section 280ZA), providing  resources
for purposes relevant to the expansion of industry to companies  engaged  in
important industries and earning  profits  higher  than  in  a  “base  year”
(section 280ZB), stimulating exports (section  280ZC)  and  encouraging  the
production of certain goods liable to central excise duty  (section  280ZB).
The  provisions  dealing  with  tax  credit  certificates  for  shifting  of
industrial undertakings from urban areas to  new  areas  have  already  been
omitted with effect from 1st April, 1988. No tax credit certificates can  be
granted at present under the remaining provisions  of  this  Chapter.  Thus,
the  provisions  contained  in  Chapter  XXII-B,   have   become   virtually
redundant. Therefore, as a measure of rationalization,  it  is  proposed  to
delete the Chapter containing these provisions with effect from the 1st  day
of April, 1990.

The tax credit certificates granted under section 280Z or section 280ZC  and
not presented so far  for  payment  or  adjustment  of  tax  liability  can,
however, be presented before the Assessing Officer up to 31st day of  March,
1991, for the said purposes.”



15.   From a reading of the notes on  clauses  and  the  Memorandum  of  the
Finance Bill, 1990, it is clear that Section 280Y(d) which was omitted  with
effect from 1.4.1990 was so omitted because it had become  “redundant”.   It
was redundant because it had no independent existence, apart from  providing
a definition of “urban area” for the purpose  of  Section  280ZA  which  had
been omitted with effect from the very date that Section 54G  was  inserted,
namely, 1.4.1988.  We are, therefore, of the view that  the  High  Court  in
not referring to Section 24 of the  General  Clauses  Act  has  fallen  into
error.  Section 24 states:

“24. Continuation of orders, etc., issued under enactments repealed and  re-
enacted.  —Where  any 44[Central  Act]  or   Regulation,   is,   after   the
commencement  of  this  Act,  repealed  and  re-enacted  with   or   without
modification,   then,   unless   it   is   otherwise   expressly    provided
any 45 [appointment  notification,]  order,  scheme,  rule,  form  or   bye-
law, 45 [made or] issued under the repealed Act  or  Regulation,  shall,  so
far as it is not inconsistent with the provisions  re-enacted,  continue  in
force, and be deemed to have been 45 [made or] issued under  the  provisions
so re-enacted, unless and until  it  is  superseded  by  any 45 [appointment
notification,] order, scheme, rule,  form  or  bye-law, 45[made  or]  issued
under the provisions so  re-enacted 46 [and  when  any 44 [Central  Act]  or
Regulation, which, by a notification under section 5 or 5A of the  Scheduled
Districts Act, 1874, (14 of 1874) or any like law, has been extended to  any
local area, has, by a subsequent notification, been withdrawn from  the  re-
extended to such area or any part thereof, the provisions  of  such  Act  or
Regulation shall be deemed to have been  repealed  and  re-enacted  in  such
area or part within the meaning of this section]”



16.   In Poonjabhai Vanmalidas v. Commissioner  of  Income  Tax,  Ahmedabad,
1992 Supp. (1) SCC 182, this Court in construing Section 24 of  the  General
Clauses Act held:-

“7. The effect of Section 24 of the General Clauses Act,  1897,  insofar  as
it is material, is that where the repealed  and  re-enacted  provisions  are
not inconsistent  with  each  other,  any  order  made  under  the  repealed
provisions is deemed to be an order made under  the  re-enacted  provisions.
The question, therefore, is whether the provisions of the  repealed  Section
10(2)(xi), under which the bad debts were written off  as  irrecoverable  in
the books of the assessee, are in terms re-enacted by the repealing  Act.  A
comparative table furnished in The Law and Practice  of  Income  Tax,  Kanga
and Palkhivala (7th edn., volume II) shows that  Section  10(2)(xi)  of  the
1922 Act is equivalent to Sections 36(1)(vii), 36(2) and 41(4) of  the  1961
Act. The repealed Section 10(2)(xi) is thus a composite  section  containing
the ingredients of the re-enacted  Sections  36(1)(vii),  36(2)  and  41(4).
Consequently when a debt is written off by an  order  in  terms  of  Section
10(2)(xi) of the 1922 Act, the Income Tax Officer exercises the  same  power
as he would have exercised on the enactment of  Section  36(1)(vii)  of  the
1961 Act. These two provisions are, therefore, consistent with  each  other.
Section 36(1)(vii) is subject to the provisions of sub-section (2)  of  that
section. Therefore, both Sections 36(1)(vii) and  36(2)  of  the  1961  Act,
being two of the ingredients of Section 10(2)(xi) of the 1922 Act,  must  be
read together with reference to an order under which debts had been  written
off. Accordingly, in the light of Section 24 of  the  General  Clauses  Act,
1897, the relevant order made under Section 10(2)(xi) of the 1922  Act  with
reference to which the debt in question had been written off, is  deemed  to
be an order made under Section 36(1)(vii) of the 1961 Act and such order  is
what is contemplated under Section 41(4) of that Act. Any  amount  which  is
recovered on any such debt is attracted by the provisions of  Section  41(4)
of the 1961 Act and is, therefore, chargeable to tax in terms of  that  sub-
section to the extent of the ‘excess’ specified therein.” (at para 7).



17.   In State of Punjab v. Harnek Singh,  (2002)  3  SCC  481,  this  Court
held:-

“17. Section 24 of the General Clauses Act deals with the effect  of  repeal
and re-enactment of an Act and the object of the section is to preserve  the
continuity of the notifications, orders, schemes, rules or bye-laws made  or
issued under the repealed Act unless they are shown to be inconsistent  with
the provisions of the re-enacted statute.

23. We do not find any force  in  the  submission  of  the  learned  counsel
appearing for the respondents that as reference made in sub-section  (2)  of
Section 30 of the 1988 Act is only to Section 6 of the General Clauses  Act,
the other provisions of the said Act are not applicable for the purposes  of
deciding the controversy with respect to the notifications issued under  the
1947 Act. We are further of the opinion that  the  High  Court  committed  a
mistake of law by holding that as  notifications  have  not  expressly  been
saved by Section 30 of the Act, those would not enure or survive  to  govern
any investigation done or legal proceedings instituted  in  respect  of  the
cases registered under the 1988 Act. There is no dispute that the  1988  Act
is both  repealing  and  re-enacting  the  law  relating  to  prevention  of
corruption to which the provisions of Section 24 of the General Clauses  Act
are specifically applicable. It appears that as Section  6  of  the  General
Clauses Act applies to repealed enactments, the legislature  in  its  wisdom
thought it proper to make the same specifically applicable in the  1988  Act
also which is a repealing and re-enacted statute. Reference to Section 6  of
the General Clauses Act in sub-section (1) of Section 30 has  been  made  to
avoid any confusion or misunderstanding regarding the effect of repeal  with
regard to actions taken under the  repealed  Act.  If  the  legislature  had
intended not to apply the provisions of Section 24 of  the  General  Clauses
Act to the 1988 Act, it  would  have  specifically  so  provided  under  the
enacted law. In the light of  the  fact  that  Section  24  of  the  General
Clauses Act is specifically applicable  to  the  repealing  and  re-enacting
statute, its exclusion  has  to  be  specific  and  cannot  be  inferred  by
twisting the language of the enactments. Accepting  the  contention  of  the
learned counsel for the respondents would render the provisions of the  1988
Act redundant inasmuch  as  appointments,  notifications,  orders,  schemes,
rules, bye-laws made or issued under the repealed Act would be deemed to  be
non-existent  making  impossible  the  working   of   the   re-enacted   law
impossible. The provisions of the 1988 Act are  required  to  be  understood
and interpreted in the light of the provisions of the  General  Clauses  Act
including Sections 6 and 24 thereof.” (at paras 7 and 23).



18.   On a reading of Section 24 together with what has been stated by  this
Court above, it becomes difficult to accept Shri Arijit Prasad’s  contention
that Section 24  would  only  apply to





notifications which themselves gave rights to persons  like  the  appellant.
Unlike Section 6 of the General Clauses Act,  which  saves  certain  rights,
Section 24 merely continues notifications, orders, schemes, rules etc.  that
are made under a Central Act  which  is  repealed  and  re-enacted  with  or
without modification.  The idea of Section 24 of  the  General  Clauses  Act
is, as its  marginal  note  shows,  to  continue  uninterrupted  subordinate
legislation that may be made under a Central Act that is  repealed  and  re-
enacted with or without modification. It being clear  in  the  present  case
that Section 280ZA which  was  repealed  by  omission  and  re-enacted  with
modification in section 54G, the  notification  declaring  Thane  to  be  an
urban area dated 22.9.1967 would continue under  and  for  the  purposes  of
Section 54G.  It is clear, therefore, that  the  impugned  judgment  in  not
referring to section 24 of the General Clauses Act at all  has  thus  fallen
into error.

19.   But then Shri Arijit Prasad put before us two roadblocks in  the  form
of two Constitution Bench decisions.  He cited Rayala Corporation  (P)  Ltd.
and M.R. Pratap v. Director of Enforcement, New  Delhi,  (1969)  2  SCC  412
which was followed in  Kolhapur Canesugar Works Ltd.  &  Anr.  v.  Union  of
India & Ors., (2000) 2 SCC 536.  He argued based upon  these  two  judgments
that an “omission” would not amount to “repeal” and that since  the  present
case was concerned with the omission of  Section  280ZA,  Section  24  would
have no application.

20.   Shri Prasad is correct in relying upon these  two  Constitution  Bench
judgments for they do indeed say that in Section 6 of  the  General  Clauses
Act, the word “repeal” would not take within its ken an “omission”.

21.   In Rayala Corporation (P) Ltd., what fell  for  decision  was  whether
proceedings could be validly continued  on  a  complaint  in  respect  of  a
charge made under Rule 132A of the Defence of India Rules, which  ceased  to
be in existence before the accused were convicted in respect of  the  charge
made under the said rule.  The said Rule 132A was omitted by a  notification
dated 30th March, 1966.   What was decided  in  that  case  is  set  out  by
paragraph 17 of the said judgment, which is as follows:

“17. Reference was next made to a decision of the Madhya Pradesh High  Court
in State of Madhya Pradesh v. Hiralal Sutwala [AIR 1959 MP  93]  but,  there
again, the accused was sought to be prosecuted  for  an  offence  punishable
under an Act on the repeal of which Section 6 of  the  General  Clauses  Act
had been made applicable. In the case before us, Section 6  of  the  General
Clauses Act cannot obviously apply on the omission  of  Rule  132-A  of  the
DIRs for the two obvious reasons that Section 6 only applies to repeals  and
not to omissions, and applies when  the  repeal  is  of  a  Central  Act  or
Regulation and not of a rule. If Section 6 of the General  Clauses  Act  had
been applied, no doubt this  complaint  against  the  two  accused  for  the
offence punishable under Rule 132-A of the DIRs could have  been  instituted
even after the repeal of that rule.”



22.   It will be clear from a  reading  of  this  paragraph  that  a  Madhya
Pradesh High Court judgment was distinguished by the Constitution  Bench  on
two grounds. One being that Section 6 of the General Clauses  Act  does  not
apply to a rule but only  applies  to  a  Central  Act  or  Regulation,  and
secondly, that  Section 6 itself would apply only to a “repeal” not  to  “an
omission”.  This statement of  law  was  followed  by  another  Constitution
Bench in the  Kolhapur  Canesugar  Works  Ltd.  case.    After  setting  out
paragraph  17  of  the  earlier  judgment,  the  second  constitution  bench
judgment states as follows:

“33. In para 21 of the judgment the Full Bench has noted the decision  of  a
Constitution Bench of this Court in Chief Inspector of Mines v. Karam  Chand
Thapar [AIR 1961 SC 838] and  has  relied  upon  the  principles  laid  down
therein. The Full Bench overlooked the position that that was a  case  under
Section  24  of  the  General  Clauses  Act  which   makes   provision   for
continuation of orders, notification, scheme, rule, form or bye-law,  issued
under the repealed Act or regulation under an Act after its repeal  and  re-
enactment. In that case  Section  6  did  not  come  up  for  consideration.
Therefore the ratio of that case is not  applicable  to  the  present  case.
With respect we agree with the principles  laid  down  by  the  Constitution
Bench in Rayala Corpn. Case [(1969) 2 SCC 412 : (1970) 1 SCR 639] .  In  our
considered view the ratio of the said decision squarely applies to the  case
on hand.”


23.   The Kolhapur Canesugar Works  Ltd.   judgment  also  concerned  itself
with the applicability of Section 6  of  the  General  Clauses  Act  to  the
deletion of Rule 10 and 10A of the  Central  Excise  Rules  on  6th  August,
1977.

24.   An attempt was made in General Finance Company  &  Anr.  v.  Assistant
Commissioner of Income Tax, Punjab,  (2002) 7  SCC  1  to  refer  these  two
judgments to a larger bench on the point that an omission would  not  amount
to a repeal for the purpose  of  Section  6  of  the  General  Clauses  Act.
Though the Court found substance in the argument favouring the reference  to
a larger bench, ultimately it decided that the prosecution in cases of  non-
compliance of the provision therein  contained  was  only  transitional  and
cases covered by it were few and far between, and hence found on facts  that
it was not an appropriate case for reference to a larger bench.

25.   We may also point out that in G.P. Singh’s   Principles  of  Statutory
Interpretation,  12th  Edition,  the  learned   author  has  criticized  the
aforesaid judgments in the following terms:

“Section 6 of the General Clauses Act applies to all types of  repeals.  The
section applies whether the repeal be express or implied, entire or  partial
or  whether  it  be  repeal  simpliciter  or  repeal  accompanied  by  fresh
legislation. The section also applies when a temporary statute  is  repealed
before its expiry, but it has no application when  such  a  statute  is  not
repealed but comes to an end by expiry. The section  on  its  own  terms  is
limited to a repeal brought about by a Central Act  or  Regulation.  A  rule
made under an Act is not a Central Act  or  regulation  and  if  a  rule  be
repealed by another rule, section 6 of the General Clauses Act will  not  be
attracted. It has been so held in  two  Constitution  Bench  decisions.  The
passing observation in these cases that “section 6 only applies  to  repeals
and not to omissions" needs reconsideration  for  omission  of  a  provision
results in abrogation or obliteration of that provision in the same  way  as
it happens in repeal. The stress in these cases was on the question  that  a
'rule' not being a Central Act or Regulation,  as  defined  in  the  General
Clauses Act, omission or repeal of a  'rule'  by  another  'rule'  does  not
attract section 6 of the Act and proceedings  initiated  under  the  omitted
rule cannot continue unless the new rule contains a saving  clause  to  that
effect….”(At pages 697 and 698)



26.   In view of what has been stated hereinabove, perhaps  the  appropriate
course in the present case would have been to refer the  aforesaid  judgment
to a larger bench. But we do not find the need to do so in view of  what  is
stated by us hereinbelow.

27.   First and foremost, it will be noticed that two reasons were given  in
Rayala Corporation (P) Ltd.  for  distinguishing  the  Madhya  Pradesh  High
Court judgment.  Ordinarily, both reasons would  form  the  ratio  decidendi
for the said decision and both reasons would be  binding  upon  us.  But  we
find that once it is held that Section 6 of the General  Clauses  Act  would
itself not apply to a rule which is subordinate legislation  as  it  applies
only to a Central Act or Regulation,  it  would  be  wholly  unnecessary  to
state that on a construction of the  word  “repeal”  in  Section  6  of  the
General Clauses Act, “omissions”  made  by  the  legislature  would  not  be
included.  Assume, on the other hand, that the Constitution Bench had  given
two reasons for the non-applicability of Section 6 of  the  General  Clauses
Act. In such a situation, obviously both reasons would  be  ratio  decidendi
and would be binding upon a subsequent bench.  However,  once  it  is  found
that Section 6 itself would not apply, it would  be  wholly  superfluous  to
further state that on an interpretation of the word “repeal”, an  “omission”
would not be included.  We are, therefore, of the view that the  second  so-
called ratio of the  Constitution  Bench  in  Rayala  Corporation  (P)  Ltd.
cannot be said to be a ratio decidendi at all and is really  in  the  nature
of obiter dicta.

28.   Secondly, we find no reference to Section  6A of the  General  Clauses
Act in either of these Constitution Bench judgments.  Section  6A  reads  as
follows:

“6A. Repeal of Act making textual amendment in Act  or  Regulation  -  Where
any Central Act or Regulation  made  after  the  commencement  of  this  Act
repeals any enactment by which the text of any  Central  Act  or  Regulation
was amended by the  express  omission,  insertion  or  substitution  of  any
matter, then, unless a different intention appears,  the  repeal  shall  not
affect the continuance of any  such  amendment  made  by  the  enactment  so
repealed and in operation at the time of such repeal.”



29.   A reading of this Section would show that a repeal can be  by  way  of
an express omission.  This being the case, obviously the  word  “repeal”  in
both Section 6 and Section 24 would, therefore, include repeals  by  express
omission.  The absence of any reference  to  Section  6A,  therefore,  again
undoes the binding effect of these two judgments on an  application  of  the
‘per incuriam’ principle.[1]

30.   Thirdly, an earlier Constitution Bench judgment referred   to  earlier
in this judgment, namely, State of Orissa v. M.A. Tulloch &  Co.,  (1964)  4
SCR 461 has also been missed.  The Court there stated:

“….Now, if the legislative intent to supersede the earlier law is the  basis
upon which the doctrine of implied repeal is  founded  could  there  be  any
incongruity in attributing to the later legislation the  same  intent  which
Section 6 presumes where the word ‘repeal' is  expressly  used.  So  far  as
statutory construction is concerned, it is one of  the  cardinal  principles
of the law that there is no distinction or  difference  between  an  express
provision and a provision which is necessarily implied, for it is  only  the
form that differs in the two cases and there is no difference  in  intention
or in substance. A repeal may be brought  about  by  repugnant  legislation,
without even any reference to the Act intended  to  be  repealed,  for  once
legislative competence to effect a repeal  is  posited,  it  matters  little
whether this is done expressly or  inferentially  or  by  the  enactment  of
repugnant legislation. If such is the basis upon which repeals  and  implied
repeals are brought about it appears to us to be both logical as well as  in
accordance with the principles upon which the  rule  as  to  implied  repeal
rests to attribute to that legislature which effects a repeal  by  necessary
implication the same intention as that which would attend  the  case  of  an
express repeal. Where an intention to effect a repeal  is  attributed  to  a
legislature then the same would, in our opinion,  attract  the  incident  of
the saving found in Section 6 for the rules of construction embodied in  the
General Clauses Act are,  so  to  speak,  the  basic  assumptions  on  which
statutes are drafted…….” (At page 484)



31.   The two later Constitution Bench  judgments  also  did  not  have  the
benefit of the aforesaid exposition of the law.  It is clear  that  even  an
implied repeal of a statute would fall within  the  expression  “repeal”  in
Section 6 of the General Clauses Act.  This is for the reason given  by  the
Constitution Bench in M.A. Tulloch &  Co.  that  only  the  form  of  repeal
differs but there is no difference in  intent  or  substance.   If  even  an
implied repeal is covered by the  expression  “repeal”,  it  is  clear  that
repeals may take any form and so  long  as  a  statute  or  part  of  it  is
obliterated, such obliteration would be covered by the  expression  “repeal”
in Section 6 of the General Clauses Act.

32.   In fact in Halsbury’s  Laws of England Fourth Edition,  it  is  stated
that:

“So far as express repeal  is  concerned,  it  is  not  necessary  that  any
particular form of words should be used. (R  v.  Longmead,  (1795)  2  Leach
694 at 696). All that is required is  that  an  intention  to  abrogate  the
enactment or portion in question should be clearly shown. (Thus, whilst  the
formula "is hereby repealed" is frequently used, it is  equally  common  for
it to be provided that an enactment "shall cease to  have  effect"  (or,  If
not yet in operation, "shall not have effect") or that a particular  portion
of an enactment "shall be omitted).”



33.   At this stage, it is important to note that a temporary  statute  does
not attract the provision of Section 6 of the General Clauses Act  only  for
the reason that the said statute expires by  itself  after  the  period  for
which it has been promulgated ends. In such cases, there is  no  repeal  for
the reason that the legislature has not applied its mind to a  live  statute
and obliterated it.  In all cases where a  temporary  statute  expires,  the
statute expires of its own force without being obliterated by  a  subsequent
legislative enactment.  But even in this area, if a temporary statute is  in
fact repealed at a point of time earlier than its expiry, it has  been  held
that Section 6 of  the General Clauses Act would  apply.  –  See:  State  of
Punjab v. Mohar Singh, (1955) 1 SCR 893 at page 898.



34.   In CIT v. Venkateswara Hatcheries (P) Ltd., (1999)  3  SCC  632,  this
Court was faced with an omission and re-enactment of  two  Sections  of  the
Income Tax Act.  This Court found that Section 24  of  the  General  Clauses
Act would apply to such omission and re-enactment.  The Court has stated  as
follows:

“As noticed earlier, the omission  of  Section  2(27)  and  re-enactment  of
Section 80-JJ was done simultaneously. It is a very well-recognized rule  of
interpretation of statutes that where a provision of an Act  is  omitted  by
an Act and the said Act  simultaneously  re-enacts  a  new  provision  which
substantially covers the field  occupied  by  the  repealed  provision  with
certain modification, in that event such  re-enactment  is  regarded  having
force continuously and the modification or changes are treated as  amendment
coming into force with effect from  the  date  of  enforcement  of  the  re-
enacted provision. Viewed in this background, the effect of  the  re-enacted
provision of Section 80-JJ was that profit from the  business  of  livestock
and poultry which enjoyed total exemption under Section 10(27)  of  the  Act
from Assessment Years 1964-65 to 1975-76 became partially exempt by  way  of
deduction on fulfilment of certain conditions.” (At para 12)


35.   For all the aforesaid reasons, we are therefore of the  view  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.

36.   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.   We  find
that the High Court has completely missed the window of  three  years  given
to the assessee to purchase or  acquire  machinery  and  building  or  land.
This is why the expression used in 54G(2) is “which is not utilized  by  him
for all or any of the purposes aforesaid….”.   It  is  clear  that  for  the
assessment year in question all that is required for the assessee  to  avail
of the exemption contained in the Section is  to  “utilize”  the  amount  of
capital gains for purchase and acquisition of new  machinery  or  plant  and
building or land. It is undisputed that the entire  amount  claimed  in  the
assessment year in question has  been  so  “utilized”  for  purchase  and/or
acquisition of new machinery or plant and land or building.



37.   The High Court is not correct when it states:-

“31. The word ‘purchase’ is not defined under the Act and therefore, has  to
be construed in the  commercial  sense.   In  many  dictionaries,  the  word
‘purchase’  means  the  acquisition  of  property  by  party’s  own  act  as
distinguished from acquisition by act of law.  In the context in  which  the
expression issued by the Legislature requires first  to  be  understood  and
interpretation that suits the context requires to be adopted.  Exemption  of
capital gains under Section 54G of the Act can be  claimed  on  transfer  of
assets in cases of shifting of industrial undertaking  from  urban  area  to
any other non-urban area.  This exemption may  be  claimed  if  the  capital
gains arising on transfer of any of assets of existing  industrial  unit  is
utilized within one year  or  three  years  after  the  date  on  which  the
transfer took place for purchase of new machinery or plant for the  purposes
of the business of the industrial undertaking in the area to which the  said
undertaking is shifted.   The  Legislature  consciously  has  not  used  the
expression ‘towards the purchase of  plant  and  machinery’  as  in  Section
54(4) of the Act in contrast to Section 54(2) of the Act wherein  the  words
‘towards’ is used before the word ‘purchase’.   The  expression  ‘purchased’
used in sub-clause (a) of section 54G of the Act requires to  be  understood
as the domain and control given to the assessee.  In the  present  case,  it
is not in dispute that the assessee has paid advance amount for  acquisition
of land, plant, building and machinery, etc., within the time stipulated  in
the Section, but it is not the case of the assessee that after such  payment
of advance amount, it has taken possession of land and building,  plant  and
machinery.  In our view, if the argument of the learned Senior  Counsel  for
the assessee is accepted, it would defeat the very  purpose  and  object  of
the Section itself.  By merely paying some amount by way of advance  towards
the cost of acquisition of land for shifting its industrial unit from  urban
area to non-urban area, an assessee cannot claim exemption from  payment  of
tax on capital gains.  This cannot be the intention of the  Legislature  and
an interpretation, which would defeat the very purpose, and  the  object  of
the Act requires to be avoided.” (at para 31 of the impugned judgment)





38.   We are of the view that the  aforesaid  construction  of  Section  54G
would render nugatory a vital part  of  the  said  Section  so  far  as  the
assessee is concerned.  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.   If  the  High
Court is right, the assessee  has  to  purchase  and/or  acquire  machinery,
plant, land and building within  the  same  assessment  year  in  which  the
transfer takes place.  Further, the High Court  has  missed  the  key  words
“not utilized” in sub-section (2) which would show that it  is  enough  that
the capital gain made by the assessee should only be “utilized”  by  him  in
the assessment year in question for all or any of  the  purposes  aforesaid,
that is towards purchase and acquisition of plant and  machinery,  and  land
and building.  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.  We  find  therefore  that  on  this
ground  also,  the  assessee  is  liable  to  succeed.   The  appeals   are,
accordingly, allowed and the judgment  of  the  High  Court  is  set  aside.


                                  ……………………….J.
                                  (A.K. Sikri)


                                  ……………………….J.
                                  (R.F. Nariman)
New Delhi;
August 11, 2015



-----------------------
[1]    In Mamleshwar Prasad & Anr. v. Kanahaiya Lal  (dead)   through  LRs.,
(1975) 3 SCR 834, Krishna Iyer, J., succinctly laid down what  is  meant  by
the “per incuriam” principle.  He stated:

      “We do not intend to  detract  from  the  rule  that,  in  exceptional
instances, whereby obvious inadvertence or oversight  a  judgment  fails  to
notice a plain statutory provision or obligatory authority  running  counter
to the reasoning and result  reached,  it  may  not  have  sway  of  binding
precedents.  It should be a glaring case, an obtrusive  omission.   No  such
situation presents itself here and we do not  embark  on  the  principle  of
judgment per incuriam.”   (At page 837)

      An interesting application of  the  said  principle  is  contained  in
State of U.P. & Anr. v. Synthetics and Chemicals Ltd. & Anr., (1991)  3  SCR
64,  where  a  Division  Bench  of  this  Court  held  that  one  particular
conclusion of  a  Bench  of  seven  Judges  was  per  incuriam  –  see:  the
discussion at pages 80, 81 and 91 of the said judgment.




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