(2015) 376 ITR 596 (SC)
Capital gains on shifting an industrial undertaking out of an urban area
Advances paid towards the purchase of land, building and plant amount to utilisation of the capital gain. Completion of the purchase within the period is not required.
Does 'utilisation' of the capital gain require completed purchases, or do advances paid towards acquiring the new assets qualify?
The assessee shifted its industrial undertaking out of an urban area and realised capital gains on the sale of its existing assets. Within the statutory period, it paid substantial advances to various persons towards the acquisition of land, buildings, plant and machinery at the new location. The acquisitions were not completed within that period. The assessee claimed exemption under Section 54G on the footing that the gains had been utilised. The Assessing Officer denied the claim, holding that mere advances did not amount to utilisation and that the assets had to be acquired within the time allowed.
The claim was rejected in the assessment and through the appellate stages, and the High Court decided against the assessee. A further question arose as to whether the relief survived the notification of a successor provision. The assessee appealed to the Supreme Court.
For the assessee
The statute requires the capital gain to be 'utilised' for specified purposes within the period. Paying advances earmarks the funds irrevocably for those purposes and is utilisation in the ordinary sense of the word. Relocation of an industrial undertaking is necessarily a protracted exercise, and a construction requiring completed acquisitions would render the relief largely illusory.
For the Revenue
The relief is granted for the purchase of new assets. Until the purchase is effected, there is no asset and no compliance with the condition. Advances are revocable in principle and cannot be equated with acquisition.
The Supreme Court held that the word 'utilised' must be given its plain and ordinary meaning, and that there is a deliberate distinction between a requirement to 'purchase' and a requirement to 'utilise' the gain for the purpose of purchasing. Once the assessee has paid advances towards the identified purposes, the amount has been applied to that end and is no longer available for other use; that is utilisation. The Court also placed weight on the purpose of the provision, which is to facilitate the shifting of industrial undertakings away from congested urban areas. Relocation involves acquiring land, constructing premises and installing plant, a process that cannot realistically be completed within a short window, and a narrow construction would defeat the object Parliament had in mind. On the subsidiary question, the Court held that the repeal or supersession of a notification does not extinguish a right that had already accrued, applying the General Clauses Act. The exemption was accordingly allowed.
Section 87 carries the relief forward under the IT Act 2025. The decision is the standard answer where relief is disallowed because the new asset was not fully acquired within the window, and its reasoning on 'utilisation' is frequently applied by analogy to other reinvestment reliefs, including those for residential property.