Godown used for storage of explosives qualifies for exemption u/s 54G being a place used for purpose of business of Industrial Undertaking
ABCAUS Case Law Citation:
ABCAUS 3258 (2020) (02) SC
The Hon’ble Supreme Court had dismissed the SLP of the ITD against the judgment of the High Court in holding that Godown used for storage of explosives qualifies for exemption u/s 54G being a place used for purpose of business of Industrial Undertaking.
In the instant case, the Assessing Officer (AO), while completing the assessmentunder Section 143(3) read with Section 153A of the Income Tax Act, 1961 (the Act) , opined that the property sold by the assessee was only a godown and used for storage purpose and that it could not be interpreted to mean an ‘industrial undertaking’.
Accordingly, the AO disallowed the claim for deduction under Section 54G and assessed income under the head ‘capital gains’
The assessee carried the matter on appeal before the Commissioner of Income Tax (Appeals) who, concurred with the findings of the Assessing Officer and while accepting the fact that the land in question was used for the purposes of the business of an industrial undertaking, denied the relief to the assessee on the ground that the sale of the store area land was one off transaction not specifically effected in the course of or in consequence of shifting of any industrial undertaking.
The assessee preferred an appeal before the Tribunal. After considering the provisions of Section 54G(1) of the Act, the Tribunal took note of the business activities of the assessee and the meaning assigned to the expression ‘industrial undertaking’ and held that the interpretation to be given should be in such a manner that it promotes economic growth and development and it should aid an industry.
Keeping the said principle in mind, the Tribunal considered the facts of the assessee’s case, noted that the assessee shifted its godown storing hazardous products to a non urban area and that the activity carried on in the godown being storage and repacking, which was severable from the other activities of the industrial establishment and held that the assessee was entitled to claim exemption of capital gains as per the provisions of Section 54G of the Act.
The Revenue carried the matter to High Court.
The Hon’ble High Court noted that the property, which was sold by the assessee to shift to rural area was defined as ‘magazine’ under the Explosives Rules, 2008 and intended for storage of explosives, specially constructed.
The Hon’ble High Court also noted that the word ‘manufacture’ under the Explosives Act, 1884 is an inclusive definition and storing of bulk quantity of explosives and repacking for retail sale would undoubtedly fall within the meaning of the word ‘manufacture’.
The Hon’ble High Court stated that the Assessing Officer did not take note of the above vital factor, but was guided by the common parlance test given to an industrial undertaking.
The Hon’ble High Court pointed out that the Assessing Officer also lost sight of the manner, in which, the first limb of Section 54G(1) of the Act is worded. Thus where the capital gains arising from transfer of capital asset, being machinery or plant or land or building used for the purposes of business of an industrial undertaking situated in an urban area effected in the course of or in consequence of the shifting of such industrial undertaking to any area other than an urban area, the assessee is entitled to the benefit of deduction under Section 54G of the Act.
The Hon’ble High Court opined that under the scheme of the Explosives Act and the relevant Rules, a ‘magazine’, which was referred to by the Assessing Officer as a godown qualifies to be a place used for the purpose of business of an industrial undertaking. Also, going by the definition of the word ‘manufacture’ under the Explosives Act, the activity done by the assessee namely storage and repacking would also fall within the definition of the word ‘manufacture’.
Accordingly, the Hon’ble High Court had dismissed the appeal of the Revenue.
Aggrieved with the order of the Hon’ble High Court, the Revenue had challenged it before the Hon’ble Supreme Court by way of filing a Special Leave Petition (SLP). However, their Lordships dismissed the SLP without specifically assigning any reasons to it.
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