Advantage of Sec. 54G exception isn't accessible if land was advised as metropolitan land after its deal: High Court

  • Income Tax
  • Section54G

Assessee had a factory at Anekal, Bangalore. It decided to shift its operations from a district in the State of Andhra Pradesh. The plot held by the assessee was sold on 26-9-1997 and the sale proceeds were invested in an industrial site located at District Ananthapur, Andhra Pradesh.

Assessee filed its return of income claiming exemption under Section 54G against long-term capital gains. Assessing Officer (AO) rejected the assessee’s claim on the grounds that Bangalore was not an urban area. Assessee challenged the order passed by AO. Both ITAT and CIT(A) supported the order issued by AO.Assessee contended that the Central Government video Notification dated 27-4-2006 had declared Anekal to be an urban area for the purposes of Section 54G. 

Revenue submitted that in the absence of any express legislative intent to give the Notification on which reliance was placed had a retrospective effect, the Notification could not be treated to have a retrospective effect.It was also urged that exemption Notification or clause should be interpreted strictly and the non-compliance of the same would render the assessee ineligible to claim exemption.

On additional allure, Karnataka High Court held that Explanation to segment 54G(1) explicitly engages the Central Government to pronounce a territory to be a metropolitan region having respect to populace, centralization of businesses, need for legitimate arranging of the zone and different elements.

In exercise of such power, the Central Government had issued notification on 27-4-2006 to declare Anekal where the factory of assessee was situated to be an urban area for the purposes of Section 54G. 

However, from the perusal of the Notification, no inference can be drawn that the same have any retrospective operation. The Notification comes into power on the date of its distribution in the Official Gazette. Along these lines, the assessee was not qualified for exception under Section 54G.