The Principal Commissioner Of Income Tax, Central-2, Chennai v. M/S.standard Fireworks Pvt. Ltd., Sivakasi

In the High Court of Judicature at Madras The Honourable Mr.Justice T.S.SIVAGNANAM The Honourable Mrs.Justice V.BHAVANI SUBBAROYAN The Principal Commissioner of Income Tax, Central-2, Chennai...Appellant/RespondentVs M/s.Standard Fireworks Pvt. Ltd.,Sivakasi...Respondent/Appellant APPEAL under Section 260A of the Income Tax Act, 1961 to setaside the order dated 26.6.2018 made in ITA.No.1619/Chny/2017 onthe file of the Income Tax Appellate Tribunal, Chennai 'B' Benchagainst the order dated 04.05.2017 in I.T.A. 210/2016-2017 onthe file of the Commissioner of Income Tax(Appeals) 19, Chennaiagainst the assessment order dated 31.12.2016 against PAN No. by the Assistant Commissioner of Income Tax, CentralCircle 2, Madurai Judgment was delivered by T.S.Sivagnanam,J We have heard Mr.T.R.Senthilkumar, learned Senior StandingCounsel appearing for the appellant – Revenue andMr.A.S.Sriraman, learned counsel accepting notice for therespondent – assessee. 2. This appeal, filed by the Revenue under Section 260A ofthe Income Tax Act, 1961 (for short, the Act), is directedagainst the order dated 26.6.2018 in ITA.No.1619/Chny/2017 onthe file of the Income Tax Appellate Tribunal, Chennai 'B' Benchfor the assessment year 2014-15. 3.The Revenue has filed this appeal by raising the followingsubstantial questions of law : https://hcservices.ecourts.gov.in/hcservices/ “i. Whether the Appellate Tribunal iscorrect in law in holding that the assesseeis eligible to claim deduction under Section54F of the Income Tax Act, when the propertysoldatBangalorewasonlyadepot/godown/storage place and not anindustrial undertaking ? ii. Whether the Appellate Tribunal wasjustified in directing the Assessing Officerto grant deduction under Section 54G of theAct with respect to the long term capitalgain earned by the assessee on the sale ofits godown situated in Bangalore, an urbanarea and which has been relocated in a nonurban area, in the outskirts of Sivakasitown? iii. Whether the Appellate Tribunal wascorrect in not appreciating that theassessee had obtained LE-3 licence under theExplosives Rules, 2008 for its Bangaloreproperty and in terms of this licence, nomanufacturing activity could be conducted inthe subject Bangalore property and is alsonot an 'industrial undertaking'? And iv. Whether the Appellate Tribunal iscorrect in law in holding that the assesseeis eligible to claim deduction under Section54F of the Income Tax Act on the amount ofRs.2,99,50,000/-, which was seized by theDepartment without taking cognizance of thelack of intention on the part of theassessee to make the deposit of the saidamount in Capital Gains Accounts Scheme?”4. Though the Revenue has raised four substantial questionsof law, it would suffice to answer substantial question of lawNo.1 and therefore, we entertain this appeal on substantialquestion of law No.1 alone, namely “Whether the Appellate Tribunal iscorrect in law in holding that the assesseeis eligible to claim deduction under Section54F of the Income Tax Act, when the propertysoldatBangalorewasonlyadepot/godown/storage place and not anindustrial undertaking ?”5. The issue, which falls for consideration, is as towhether the assessee is eligible to claim deduction underSection 54F of the Act when the assessee sold an explosivegodown/property at Bangalore and invested in a property locatedin a non urban area i.e in the outskirts of Sivakasi town. https://hcservices.ecourts.gov.in/hcservices/ “Whether the Appellate Tribunal iscorrect in law in holding that the assesseeis eligible to claim deduction under Section54F of the Income Tax Act, when the propertysoldatBangalorewasonlyadepot/godown/storage place and not anindustrial undertaking ?”5. The issue, which falls for consideration, is as towhether the assessee is eligible to claim deduction underSection 54F of the Act when the assessee sold an explosivegodown/property at Bangalore and invested in a property locatedin a non urban area i.e in the outskirts of Sivakasi town. https://hcservices.ecourts.gov.in/hcservices/ 6. The Assessing Officer, while completing the assessment,vide order dated 31.12.2016, under Section 143(3) read withSection 153A of the Act, opined that the property sold by theassessee was only a godown and used for storing fireworks andthat it could not be interpreted to mean an 'industrialundertaking'. Accordingly, the claim for deduction under Section54G was disallowed and an amount of Rs.50,36,72,654/- wasassessed under the head 'capital gains'. 7. As against the order of assessment dated 31.12.2016, theassessee carried the matter on appeal before the Commissioner ofIncome Tax (Appeals)-19, Chennai [for short, the CIT(A)], who,by order dated 04.5.2017, concurred with the findings of theAssessing Officer and while accepting the fact that the land inquestion was used for the purposes of the business of anindustrial undertaking, denied the relief to the assessee on theground that the sale of the store area land in Bangalore is oneoff transaction not specifically effected in the course of or inconsequence of shifting of any industrial undertaking. 8. As against the order passed by the CIT(A) dated04.5.2017, 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 theassessee and the meaning assigned to the expression 'industrialundertaking' and held that the interpretation to be given shouldbe in such a manner that it promotes economic growth anddevelopment and it should aid an industry. Keeping the saidprinciple in mind, the Tribunal considered the facts of theassessee's case, noted that the assessee shifted its godownstoring hazardous products to a non urban area and that theactivity carried on in the godown being storage and repacking,which is severable from the other activities of the industrialestablishment and held that the assessee is entitled to claimexemption of capital gains as per the provisions of Section 54Gof the Act. While rendering such a finding, the Tribunal notedthat the factual position was not in dispute. The Revenue is onappeal before us challenging such finding. 9. In our considered view, the Assessing Officer failed totake note of the vital factor namely that the property, whichwas sold by the assessee in Bangalore, was a 'magazine'. Rule 2(31) of the Explosives Rules, 2008 defines the word 'magazine'to mean a building or structure (other than an explosivesmanufacturing building) intended for storage of explosives,specially constructed in accordance with the specificationprovided under these Rules or of a design and approved by theChief Controller. The expression 'Chief Controller' is definedunder Rule 2(9) of the Explosives Rules, 2008 to mean the ChiefController of Explosives. 9. In our considered view, the Assessing Officer failed totake note of the vital factor namely that the property, whichwas sold by the assessee in Bangalore, was a 'magazine'. Rule 2(31) of the Explosives Rules, 2008 defines the word 'magazine'to mean a building or structure (other than an explosivesmanufacturing building) intended for storage of explosives,specially constructed in accordance with the specificationprovided under these Rules or of a design and approved by theChief Controller. The expression 'Chief Controller' is definedunder Rule 2(9) of the Explosives Rules, 2008 to mean the ChiefController of Explosives. 10. Section 4(h) of the Explosives Act, 1884 defines theword 'manufacture' in relation to an explosive, which includesthe process of (1) dividing the explosive into its componentparts or otherwise breaking up or unmaking the explosive, ormaking fit for use any damaged explosive; and (2) re-making,altering or repairing the explosive. Thus, the definition of theword 'manufacture' as defined under the Explosives Act, 1884 isan inclusive definition and storing of bulk quantity ofexplosives and repacking for retail sale would undoubtedly fallwithin the meaning of the word 'manufacture'. In terms of Rule71 of the Explosives Rules, 2008, a person holding licence forpossession of explosives granted under these Rules shall storethe explosives only in the premises specified in the licence.Thus, possession, usage and sale of explosives are strictlyregulated under the provisions of the Explosives Act and therelevant Rules framed thereunder. 11. Unfortunately, the Assessing Officer did not take noteof this vital factor, but was guided by the common parlance testgiven to an industrial undertaking. One more factor, which theAssessing Officer lost sight of, was the manner, in which, thefirst limb of Section 54G(1) of the Act is worded wherein thetransfer of a capital asset includes machinery or plant orbuilding or land or any rights in the building or land used forthe purpose of business of an industrial undertaking situated inan urban area. The second limb of Section 54G(1) of the Act iswhat had weighed in the mind of the Assessing Officer whiledenying the deduction under Section 54G of the Act. However,what was important to note is that where the capital gainsarising from transfer of capital asset, being machinery or plantor land or building used for the purposes of business of anindustrial undertaking situated in an urban area effected in thecourse of or in consequence of the shifting of such industrialundertaking to any area other than an urban area, the assesseeis entitled to the benefit of deduction under Section 54G of theAct. 12. The scheme of the Explosives Act and the relevant Rulesframed thereunder would clearly bring a 'magazine', which wasreferred to by the Assessing Officer as a godown to qualify tobe a place used for the purpose of business of an industrialundertaking and in fact, going by the definition of the word'manufacture' under the Explosives Act, the activity done by theassessee namely storage and repacking would also, in ouropinion, fall within the definition of the word 'manufacture'.The Tribunal, in paragraph 4.6 of its order, has specificallyrecorded that the facts are not in dispute. In the light of theabove, we find that the interpretation given by the Tribunal tothe facts of the case of the assessee is perfectly legal andvalid. For the above reasons, the Revenue has not made out any ground to interfere with the order passed by the Tribunal.13.Accordingly, the above tax case appeal is dismissed. Thesubstantial question of law is answered against theRevenue. No costs. s/d- Assistant Registrar(CO) True Copy Sub-Assistant Registrar To 1.The Income Tax Appellate Tribunal, Chennai 'B' Bench 2.The Commissioner of Income Tax (Appeals)Chennai. ground to interfere with the order passed by the Tribunal.13.Accordingly, the above tax case appeal is dismissed. Thesubstantial question of law is answered against theRevenue. No costs. s/d- Assistant Registrar(CO) True Copy Sub-Assistant Registrar To 1.The Income Tax Appellate Tribunal, Chennai 'B' Bench 2.The Commissioner of Income Tax (Appeals)Chennai. 3.The Assistant Commissioner of Income TaxCentral Circle 2 MaduraiCentral Circle 2 Madurai +1 CC to Mr.T.R.Senthilkumar, Advocate sr 58387. +1 CC to Mr.S.Sridhar, Advocate sr 57425. TCA.No.426 of 2019 GJII(CO)SP(05/08/2019)