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2008 (2) TMI 649 - AT - Income TaxApplicability of section 50 - Capital gains - "slump sale" or "going concern" in the agreement of undertaking - genuineness of the agreement - sale agreement is a colourable device - HELD THAT:- We are unable to agree with this allegation of the ld. DR. The agreement is a valid document which has been acted upon between the parties. The Assessing Officer has also not doubted the genuineness or the validity of the agreement. He has computed the short-term capital gain under section 50 as per the sale consideration mentioned in the agreement. Merely because the agreement to sale is with a subsidiary, it cannot be presumed that it is a colourable device. The agreement has been acted upon between the parties and the units under consideration has been transferred on the basis of the sale agreement. In view of above, we reject the contention of the ld. DR that the sale agreement is a colourable device. We find that the fertilizer business of the assessee has been transferred as a going concern to CCFC. All assets and liabilities relating to fertilizer business has been transferred, only assets excluded are bank balance and the outstanding insurance claim on the date of transfer. Merely because these two assets have been excluded from the assets transferred, it cannot be said that it is not the transfer of the undertaking as a "going concern". Land, building, plant & machinery, raw material, industrial licences, technology, trademark have been transferred to CCFC. The employees of the assessee working in fertilizer business have also been taken over by the CCFC. All current liabilities relating to fertilizer business has been taken over by CCFC. The sale consideration of the undertaking as a whole has been fixed at a "slump price" without specifying any specific value to any asset. The assets transferred includes tangible as well as intangible asset. Moreover, the seller, i.e., the assessee has also agreed for not carrying on the similar business of manufacturing and marketing of urea fertilizer for a period of 10 years. We are of the opinion that it is a case of "slump sale" of undertaking as a going concern and not the sale of depreciable assets within the meaning of section 50 of the Income-tax Act. We, therefore, agree with the ld. CIT(A) that the Assessing Officer was not justified in applying the provisions of section 50 of the Income-tax Act. "slump sale" of undertaking, the capital gain is chargeable on the sale of undertaking as a unit being a capital asset - As per section 48, it is clear that for determining the capital gain, from the full value of the consideration received or accruing as a result of transfer of capital asset, cost of acquisition of asset as well as cost of any improvement of such asset is to be reduced. If cost of improvement of a particular asset cannot be ascertained than capital gain cannot be computed. While taking this view, we derive support from the decision of Hon’ble Apex Court in the case of B.C. Srinivasa Setty [1981 (2) TMI 1 - SUPREME COURT] relied upon by the ld. Counsel for the assessee. The ITAT, Hyderabad Bench in the case of Coromandel Fertilisers Ltd. [2003 (11) TMI 303 - ITAT HYDERABAD-B] held that it is not possible to determine the cost of improvement of an undertaking, specially when undertaking has so many intangible asset, like trademark, licence, goodwill etc. We entirely agree with the above conclusion of the ITAT, Hyderabad Bench. In view of above, we respectfully following the decision of Hyderabad Bench in the case of Coromandel Fertilisers Ltd. (supra) uphold the order of the ld. CIT(A) and dismiss the revenue’s appeal. In the result, revenue’s appeal is dismissed.
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