I am shifting my factory out of an urban area. I have paid advances for the new land, building and machinery but nothing is bought yet, and I have not deposited anything in the capital gains scheme. Is s.54G lost?
No. The Supreme Court held that advances paid towards the purchase or acquisition of new machinery, plant, land or building amount to 'utilisation' of the capital gain for the purposes of s.54G, so the deposit machinery in s.54G(2) is not attracted and the assessee has the full three-year window in s.54G(1) in which to complete the purchases. The Court also held that the 1967 notification declaring Thane an urban area survived the omission of s.280ZA, so the section was workable.
Decided by the Supreme Court (R.F. Nariman J and A.K. Sikri J) on 2015-08-11, reported as Civil Appeal Nos. 5525-5526 of 2005, Supreme Court of India. Cited as 376 ITR 596 in the Hyderabad Tribunal's order in ITA No. 472/H/2021; no citation is printed in the judgment as retrieved.. It bears on section 54G, section 54H, section 280ZA, section 280Y(d), section 139 of the Income Tax Act 1961, in Capital Gains, Capital Gains Exemptions and How Tax Law Is Read matters.
Two of the three killers of a s.54G claim are removed here. The first is the Assessing Officer's argument that only completed purchases count in the year of transfer, which if right would collapse the statutory three-year window into a single assessment year — the Supreme Court called that construction one that 'would render nugatory a vital part of the said Section'. The second is the argument that s.54G was a dead letter because the notification defining 'urban area' was made under a chapter Parliament had deleted; the Court's answer, that an omission is a repeal for the purposes of ss.6 and 24 of the General Clauses Act, keeps the notification alive. That second holding has a long reach well outside capital gains — it is the same reasoning that is fought over whenever a provision is omitted without a saving clause — and the Court itself recorded at para 26 that the point may deserve a larger Bench, so it must be cited with that in mind. The reasoning on 'utilisation' has also been carried across to s.54GB, where the statutory language is similar.
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The assessee, a private limited company, had an industrial unit at Majiwada, Thane, a notified urban area. Intending to shift to a non-urban area at Kurukumbh Village, Pune District, it sold its land, building, plant and machinery at Thane to Shree Vardhman Trust for Rs 1,20,00,000, earning a capital gain of Rs 1,08,33,044 after deducting Rs 11,62,956. Out of the gain it paid advances of Rs 1,11,42,973 in 1991-92 to various persons for purchase of land, plant and machinery and construction of a factory building, and claimed s.54G on the whole gain, the advances exceeding it. By order dated 31 March 1994 the Assessing Officer refused the exemption on two grounds: that the destination had not been declared a non-urban area by any general or special order of the Central Government, and that giving advances is not utilisation, so the assessee should have deposited the gain in the capital gains deposit scheme. The CIT(A) dismissed the appeal on 20 July 1995; the Tribunal allowed it on 20 November 1995, holding an agreement to purchase good enough and the Explanation to s.54G declaratory and retrospective. By judgment dated 26 May 2005 the High Court reversed the Tribunal, holding that the notification declaring Thane an urban area stood repealed with the repeal of the section under which it was made, and that 'purchase' could not be equated with 'towards purchase'. The assessee appealed to the Supreme Court. Section 54G was inserted with effect from 1 April 1988 by the Finance Act 1987, which by the same Act omitted s.280ZA with effect from the same date; s.280Y(d), which defined 'urban area', was omitted with effect from 1990.
The appeals were allowed and the High Court's judgment set aside. First, on the omission of s.280ZA and its re-enactment with modification in s.54G, s.24 of the General Clauses Act applies and the notification of 22 September 1967 declaring Thane an urban area continues for the purposes of the section (para 35). Second, the assessee has a window of three years after the transfer to purchase new machinery or plant or acquire building or land, and for the assessment year in question all that s.54G requires is that the capital gain be 'utilized'; advances paid for the purpose of purchase or acquisition of those assets 'would certainly amount to utilization' of the capital gain (paras 36 and 38). The High Court had missed both the three-year window and the words 'not utilized' in s.54G(2).
On the notification, the Court distinguished s.24 of the General Clauses Act from s.6: s.24 does not save rights, it continues subordinate legislation made under a Central Act that is repealed and re-enacted with or without modification, and s.280ZA having been repealed by omission and re-enacted with modification in s.54G, the 1967 notification continues (para 18). It then confronted the Revenue's two Constitution Bench roadblocks, Rayala Corporation (P) Ltd. v Director of Enforcement (1969) 2 SCC 412 and Kolhapur Canesugar Works Ltd. v Union of India (2000) 2 SCC 536, which say that 'repeal' in s.6 does not include an 'omission'. It held that statement not to be ratio at all but obiter, because once it was found that s.6 does not apply to a rule as opposed to a Central Act or Regulation, the further observation about omissions was superfluous (para 27); that both judgments were per incuriam for want of any reference to s.6A of the General Clauses Act, which itself contemplates a repeal effected by express omission (paras 28 and 29); and that both had missed the Constitution Bench in State of Orissa v M.A. Tulloch & Co. (1964) 4 SCR 461, under which even an implied repeal falls within 'repeal', so that any obliteration of a statute or part of it is covered (paras 30 and 31). It noted G.P. Singh's criticism of the two judgments (para 25), recorded that the appropriate course might have been a larger-bench reference but that it was unnecessary (para 26), and relied on CIT v Venkateswara Hatcheries (P) Ltd. (1999) 3 SCC 632 on simultaneous omission and re-enactment (para 34). On utilisation, the Court read s.54G(1) and (2) together: sub-section (1) confers a three-year window and sub-section (2) speaks of the amount 'not utilized', so a construction confining the assessee to completed purchases within the year of transfer would render a vital part of the section nugatory (paras 36 and 38). It also set out the Finance Minister's 1987 Budget Speech and the notes on clauses to the Finance Bill 1987 to establish the section's object (paras 9 and 10).
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.
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Handle my notice → Ask a CA on WhatsAppNo. The Supreme Court held that advances paid towards the purchase or acquisition of new machinery, plant, land or building amount to 'utilisation' of the capital gain for the purposes of s.54G, so the deposit machinery in s.54G(2) is not attracted and the assessee has the full three-year window in s.54G(1) in which to complete the purchases. The Court also held that the 1967 notification declaring Thane an urban area survived the omission of s.280ZA, so the section was workable. This was decided by the Supreme Court (R.F. Nariman J and A.K. Sikri J) and bears on section 54G, section 54H, section 280ZA, section 280Y(d), section 139 of the Income Tax Act 1961. It is reported as Civil Appeal Nos. 5525-5526 of 2005, Supreme Court of India. Cited as 376 ITR 596 in the Hyderabad Tribunal's order in ITA No. 472/H/2021; no citation is printed in the judgment as retrieved.. Two of the three killers of a s.54G claim are removed here. The first is the Assessing Officer's argument that only completed purchases count in the year of transfer, which if right would collapse the statutory three-year window into a single assessment year — the Supreme Court called that construction one that 'would render nugatory a vital part of the said Section'. The second is the argument that s.54G was a dead letter because the notification defining 'urban area' was made under a chapter Parliament had deleted; the Court's answer, that an omission is a repeal for the purposes of ss.6 and 24 of the General Clauses Act, keeps the notification alive. That second holding has a long reach well outside capital gains — it is the same reasoning that is fought over whenever a provision is omitted without a saving clause — and the Court itself recorded at para 26 that the point may deserve a larger Bench, so it must be cited with that in mind. The reasoning on 'utilisation' has also been carried across to s.54GB, where the statutory language is similar. If it applies to you, the first step is this: Where the purchases will not complete in the year of transfer, document the advances precisely — payee, date, the asset each advance is against — because 'utilisation' is what the section turns on and utilisation is proved by the payment trail.
The assessee, a private limited company, had an industrial unit at Majiwada, Thane, a notified urban area. Intending to shift to a non-urban area at Kurukumbh Village, Pune District, it sold its land, building, plant and machinery at Thane to Shree Vardhman Trust for Rs 1,20,00,000, earning a capital gain of Rs 1,08,33,044 after deducting Rs 11,62,956. Out of the gain it paid advances of Rs 1,11,42,973 in 1991-92 to various persons for purchase of land, plant and machinery and construction of a factory building, and claimed s.54G on the whole gain, the advances exceeding it. By order dated 31 March 1994 the Assessing Officer refused the exemption on two grounds: that the destination had not been declared a non-urban area by any general or special order of the Central Government, and that giving advances is not utilisation, so the assessee should have deposited the gain in the capital gains deposit scheme. The CIT(A) dismissed the appeal on 20 July 1995; the Tribunal allowed it on 20 November 1995, holding an agreement to purchase good enough and the Explanation to s.54G declaratory and retrospective. By judgment dated 26 May 2005 the High Court reversed the Tribunal, holding that the notification declaring Thane an urban area stood repealed with the repeal of the section under which it was made, and that 'purchase' could not be equated with 'towards purchase'. The assessee appealed to the Supreme Court. Section 54G was inserted with effect from 1 April 1988 by the Finance Act 1987, which by the same Act omitted s.280ZA with effect from the same date; s.280Y(d), which defined 'urban area', was omitted with effect from 1990. The matter was decided on 2015-08-11 by the Supreme Court (R.F. Nariman J and A.K. Sikri J). On those facts the Supreme Court held as follows. The appeals were allowed and the High Court's judgment set aside. First, on the omission of s.280ZA and its re-enactment with modification in s.54G, s.24 of the General Clauses Act applies and the notification of 22 September 1967 declaring Thane an urban area continues for the purposes of the section (para 35). Second, the assessee has a window of three years after the transfer to purchase new machinery or plant or acquire building or land, and for the assessment year in question all that s.54G requires is that the capital gain be 'utilized'; advances paid for the purpose of purchase or acquisition of those assets 'would certainly amount to utilization' of the capital gain (paras 36 and 38). The High Court had missed both the three-year window and the words 'not utilized' in s.54G(2).
On the notification, the Court distinguished s.24 of the General Clauses Act from s.6: s.24 does not save rights, it continues subordinate legislation made under a Central Act that is repealed and re-enacted with or without modification, and s.280ZA having been repealed by omission and re-enacted with modification in s.54G, the 1967 notification continues (para 18). It then confronted the Revenue's two Constitution Bench roadblocks, Rayala Corporation (P) Ltd. v Director of Enforcement (1969) 2 SCC 412 and Kolhapur Canesugar Works Ltd. v Union of India (2000) 2 SCC 536, which say that 'repeal' in s.6 does not include an 'omission'. It held that statement not to be ratio at all but obiter, because once it was found that s.6 does not apply to a rule as opposed to a Central Act or Regulation, the further observation about omissions was superfluous (para 27); that both judgments were per incuriam for want of any reference to s.6A of the General Clauses Act, which itself contemplates a repeal effected by express omission (paras 28 and 29); and that both had missed the Constitution Bench in State of Orissa v M.A. Tulloch & Co. (1964) 4 SCR 461, under which even an implied repeal falls within 'repeal', so that any obliteration of a statute or part of it is covered (paras 30 and 31). It noted G.P. Singh's criticism of the two judgments (para 25), recorded that the appropriate course might have been a larger-bench reference but that it was unnecessary (para 26), and relied on CIT v Venkateswara Hatcheries (P) Ltd. (1999) 3 SCC 632 on simultaneous omission and re-enactment (para 34). On utilisation, the Court read s.54G(1) and (2) together: sub-section (1) confers a three-year window and sub-section (2) speaks of the amount 'not utilized', so a construction confining the assessee to completed purchases within the year of transfer would render a vital part of the section nugatory (paras 36 and 38). It also set out the Finance Minister's 1987 Budget Speech and the notes on clauses to the Finance Bill 1987 to establish the section's object (paras 9 and 10). In the words reproduced by the source cited on this page: "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." The decision followed or applied State of Orissa v. M.A. Tulloch & Co., (1964) 4 SCR 461 — followed; CIT v. Venkateswara Hatcheries (P) Ltd., (1999) 3 SCC 632 — followed; State of Punjab v. Mohar Singh, (1955) 1 SCR 893 — referred to; Rayala Corporation (P) Ltd. v. Director of Enforcement, (1969) 2 SCC 412 — the observation that 'repeal' excludes 'omission' held to be obiter and per incuriam; Kolhapur Canesugar Works Ltd. v. Union of India, (2000) 2 SCC 536 — same; General Finance Company v. ACIT, (2002) 7 SCC 1 — referred to.
It was decided by the Supreme Court on 2015-08-11 and is reported as Civil Appeal Nos. 5525-5526 of 2005, Supreme Court of India. Cited as 376 ITR 596 in the Hyderabad Tribunal's order in ITA No. 472/H/2021; no citation is printed in the judgment as retrieved.. Binding on every court and authority in India. A Supreme Court decision binds every assessing officer, every Commissioner (Appeals), every bench of the Income Tax Appellate Tribunal and every High Court in India. An officer who declines to follow it is acting contrary to law, and that refusal is itself a ground of appeal. On section 54G, section 54H, section 280ZA, section 280Y(d), section 139, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. The appeals were allowed and the High Court's judgment set aside. First, on the omission of s.280ZA and its re-enactment with modification in s.54G, s.24 of the General Clauses Act applies and the notification of 22 September 1967 declaring Thane an urban area continues for the purposes of the section (para 35). Second, the assessee has a window of three years after the transfer to purchase new machinery or plant or acquire building or land, and for the assessment year in question all that s.54G requires is that the capital gain be 'utilized'; advances paid for the purpose of purchase or acquisition of those assets 'would certainly amount to utilization' of the capital gain (paras 36 and 38). The High Court had missed both the three-year window and the words 'not utilized' in s.54G(2). It arises in Capital Gains, Capital Gains Exemptions and How Tax Law Is Read matters, on section 54G, section 54H, section 280ZA, section 280Y(d), section 139 of the Income Tax Act 1961, and was decided by R.F. Nariman J and A.K. Sikri J. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Do not deposit under s.54G(2) merely out of caution if the gain has genuinely been utilised by advances before the s.139 return: the deposit obligation bites only on the amount 'not utilized'. Still diarise the three-year outer limit from the date of transfer for completing the purchase of plant or machinery and the acquisition of land or building or construction of a building. If the Assessing Officer says the area was never notified as urban, or that the notifying provision has been deleted, rely on paras 18 and 35 — the pre-1988 notification under s.280Y(d) continues for the purposes of s.54G by force of s.24 of the General Clauses Act. Check the notification for the specific area before relying on it; the Court dealt with the notification dated 22 September 1967 covering Thane, not with urban areas generally. Where the shift is to a Special Economic Zone rather than out of an urban area, the section is s.54GA, not s.54G; the reasoning here on 'utilisation' should transfer, but no decision was located applying it there.
Validity check could not be completed. Validity check could not be completed and this needs care. On the s.54G limb — advances as utilisation — I found no contrary authority but did not search for one. On the omission-is-repeal limb the Court itself recorded at para 26 that 'perhaps the appropriate course in the present case would have been to refer the aforesaid judgment to a larger bench' and declined to do so only because it could decide the case on the per incuriam and obiter grounds; two Constitution Bench decisions, Rayala Corporation and Kolhapur Canesugar, say the opposite, and a two-Judge Bench holding them per incuriam is not the last word. That limb should not be cited as settled. Separately, the Hyderabad Tribunal in ITA No. 472/H/2021 (ITO v Lakshmi Devi Suryadevera, 6 January 2022) applied Fibre Boards to hold that advances given by an eligible company amounted to utilisation for s.54GB; I retrieved that order but the retrieval came back as a paraphrase rather than raw text and I did NOT read it in the original, so it is recorded here as a lead and not as authority. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
Para 35 of the judgment as retrieved concludes that the 1967 notification 'would be continued under and for the purposes of Section 54A'. Section 54A is not the section in issue; the reference is plainly to s.54G, as paras 18 and 36 to 38 show. This is not a transcription slip — the document was fetched twice and para 35 read 'Section 54A' on both passes. Note also that the appeal concerns the assessment year in which the transfer took place, arising from an Assessing Officer's order dated 31 March 1994, with advances of Rs 1,11,42,973 made in 1991-92 against a capital gain of Rs 1,08,33,044; the judgment does not state the assessment year in terms. Paras 35, 36 and 38 were re-fetched separately and came back word for word identical to the first pass. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The appeals were allowed and the High Court's judgment set aside. First, on the omission of s.280ZA and its re-enactment with modification in s.54G, s.24 of the General Clauses Act applies and the notification of 22 September 1967 declaring Thane an urban area continues for the purposes of the section (para 35). Second, the assessee has a window of three years after the transfer to purchase new machinery or plant or acquire building or land, and for the assessment year in question all that s.54G requires is that the capital gain be 'utilized'; advances paid for the purpose of purchase or acquisition of those assets 'would certainly amount to utilization' of the capital gain (paras 36 and 38). The High Court had missed both the three-year window and the words 'not utilized' in s.54G(2).
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