Advances paid for purpose of purchase and/or acquisition of plant/machinery, and land/building amount to utilization by assessee of capital gains under section 54G
SUPREME COURT OF INDIA
Fibre Boards (P.) Ltd.
v.
Commissioner of Income-tax, Bangalore
CIVIL APPEAL NOS. 5525 – 5526 OF 2005
AUGUST 11, 2015
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. 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 section 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. 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. Therefore 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.