2024 (10) TMI 1002 - HC - Income Tax

Telangana HC confirms section 10(23G) exemption applies to pre-1997 infrastructure investments, dismisses revenue appeal

THE COMMISSIONER OF INCOME TAX -III Versus M/s. V.B.C. FERRO ALLOYS LTD

The Telangana HC dismissed the appeal regarding exemption under section 10(23G) for long-term capital gains. The assessee purchased shares in February ... Exemption u/s 10(23G) - whether long-term capital gains exempt under section 10(23G) are available? - application of retroactive laws - whether prospective Legislation or declaratory Legislation and, thus, has to be construed as retroactive? - HELD THAT:- In the present case assessee seeking under the newly amended provision which was later incorporated in the section 10(23G) initially it was part of the section. The exemption relates to power generation under the long term capital gains, which include infrastructure facilities. In the said circumstances, if Assesment Officer exempted the assessee and no provision was altered. Hence, this is also not applicable to present case. In the present case, appellant raised the objection with regard to exemption, stating that the provision itself was not exist for those previous years, so, the question of allowing exemption under sec. 10(23G) prior to 1.4.1997 does not arise. The contention of the appellant counsel is incorrect. Subsequently after amendment the Central Board of direct Taxes have clarified by way of press release that the exemptions available under the provisions of secretion 10 (23G) ,prior to its amendment by the Act, will continue to govern the investments made prior to 1.6.1998. When doubts arise about whether long-term capital gains exempt u/s 10(23G) are available, the CBDT has clarified the issue through a press release, resolving the matter. Therefore, the question of exemption under section 10(23G) is no longer a concern, as correctly observed by the Income Tax Appellate Tribunal. An infrastructure facility is created by purchasing shares, but this will not be considered income. It is solely for the creation of infrastructure facilities. Once the shares are purchased on February 4, 1996, they are classified as a creation of an infrastructure facility, not as income. In the present case, as per Explanation 2, prior to its amendment, the capital expenditure for purchasing shares falls under the category of infrastructure facilities and shall not be included in total income. This is because merely purchasing shares does not contribute to the income of the respondent/assessee. Since it does not count as income, no amount needs to be paid in taxes. We firmly believe that the question of law framed by the Court while admitting the appeal should be decided in the negative. Therefore, the appeal is dismissed, thereby confirming the impugned order of the Tribunal. Issues Involved:1. Whether the Tribunal's finding that the Assessee is entitled to claim exemption regarding capital gains under Section 10(23G) of the Income Tax Act is sustainable in law.2. The applicability of Section 10(23G) concerning investments made prior to 01.04.1998.3. Interpretation of amendments to Section 10(23G) and their retrospective or prospective application.4. The burden of proof and interpretation of exemption notifications.Detailed Analysis:Issue 1: Tribunal's Finding on Exemption Under Section 10(23G)The primary question was whether the Tribunal's decision to allow the Assessee to claim an exemption for capital gains under Section 10(23G) was legally sustainable. The Tribunal had ruled in favor of the Assessee, allowing the exemption for long-term capital gains from the sale of shares in Andhra Pradesh Gas Power Corporation Ltd. The Tribunal found that the gains were exempt based on the provisions of Section 10(23G) as they existed before the amendments made by the Finance (No.2) Act, 1998.Issue 2: Applicability of Section 10(23G) for Pre-1998 InvestmentsThe appellant argued that the exemption under Section 10(23G) should not apply to investments made before 01.04.1998. The respondent countered this by stating that the exemption was applicable since the shares were part of an infrastructure facility, as defined under the law prior to the amendments. The Tribunal observed that the Assessee's investment in Andhra Pradesh Gas Power Corporation Ltd. qualified as an infrastructure facility, thus making the capital gains eligible for exemption.Issue 3: Interpretation of Amendments and RetroactivityThe Tribunal and the court examined the amendments to Section 10(23G) and their implications. The appellant contended that the amendments should be interpreted prospectively, meaning the Assessee would not be eligible for exemptions for investments made before the amendments. However, the Tribunal, supported by the respondent, argued that the amendments had a retroactive effect, allowing for exemptions on investments made before 01.06.1998. The Tribunal relied on legal principles stating that explanatory or declaratory statutes are generally retrospective unless explicitly stated otherwise.Issue 4: Burden of Proof and Interpretation of Exemption NotificationsThe appellant cited various Supreme Court judgments to argue that the burden of proving eligibility for exemption lies with the Assessee and that exemptions should be interpreted strictly. However, the Tribunal and the court found that the provisions of Section 10(23G) as they stood before the amendments clearly exempted the income in question, and the CBDT's clarifications supported this interpretation. The court concluded that the Assessee had met the burden of proof by demonstrating that the capital gains qualified for exemption under the law as it existed at the time of the investment.Conclusion:The court dismissed the appeal, affirming the Tribunal's decision to allow the Assessee's claim for exemption under Section 10(23G). The court held that the amendments to Section 10(23G) did not alter the Assessee's entitlement to exemption for investments made prior to 01.06.1998, as clarified by the CBDT. The court emphasized that the exemption was applicable to the infrastructure facility-related capital gains, and the Assessee's transactions fell within the ambit of the pre-amendment provisions. The appeal was dismissed with no order as to costs, and any pending miscellaneous applications were closed.