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2007 (5) TMI 614 - AT - Income TaxApplicability of u/s 50 and 50A - Slump sale - long-term capital gain - cost of acquisition - disallowance of depreciation as a result of reduction of block of assets - Whether CIT(A) has erred in holding that the sale of Betalactum Division by the assessee company is a slump sale on which ss. 50 and 50A are not applicable and long-term capital gain has to be computed by indexing the cost of acquisition - HELD THAT:- It is evident that for a sale to be termed as a 'slump sale', it is not essential that all the assets and liabilities must be transferred. Even if some assets and liabilities are retained by the transferor, the sale would not lose the character of being a slump sale, if the transfer is of a going concern, on that basis and the transferee is in a position to carry on the business without any interruption. In the present case, the right to use the technical know-how developed by the assessee was granted by the assessee to the transferee against the payment of a separate consideration. The proprietary rights therein were retained till 30th June, 2000. On facts, in view of the above numerous judicial pronouncements, it cannot be said that what the transferee acquired was not a going concern. Rather, after the transfer, the transferee carried on the business without any disruption therein. In CIT vs. West Coast Chemicals & Industries Ltd. (In Liquidation)[1976 (9) TMI 37 - MADRAS HIGH COURT], CIT vs. F.X. Periera & Sons (Travancore) (P) Ltd[1989 (12) TMI 40 - KERALA HIGH COURT], Premier Automobiles Ltd. vs. ITO & Anr. [2003 (4) TMI 43 - BOMBAY HIGH COURT], and Asstt. CIT vs. Raka Food Products [2005 (6) TMI 25 - MADRAS HIGH COURT] amongst others, it has been held that in the case of a sale of an undertaking as a whole, on a going concern basis, if some assets are retained by the transferor or some liabilities are not taken over by the transferee, this fact does not render the slump sale as not a slump sale. A similar view has been expressed by the Delhi Bench of the Tribunal for asst. yr. 1999-2000 and 5507/Del/2003, for asst. yr. 2000-01, in the case of M/s ECE Industries Ltd., [2006 (9) TMI 221 - ITAT DELHI-D]. Therefore, the findings of the learned CIT(A) in this regard are upheld. Further, s. 50B of the IT Act has correctly been held by the learned CIT(A) as having no applicability to a slump sale, as in the present case. It is significant that this section was inserted in the Act by the Finance Act, 1999 w.e.f. 1st April, 2000. It has not been stated to be applicable retrospectively. In the absence of any such specific statement, it can only apply prospectively. Thus, we hold that there is no force in the grievance of the Department, by way of ground No. 1, that the CIT(A) has erred in holding that the sale of the Betalactum Division of the assessee company was a slump sale and ss. 50 and 50A of the Act are not applicable and that the long-term capital gain has to be computed by indexing the cost of acquisition. Ground No. 1 is therefore, rejected. Addition on account of expenses incurred for revaluation of the fixed assets - HELD THAT:- The facts are that the revaluation was got done on 31st March, 1997 and the sale took place on 1st July, 1997. It is evident that the assessee got the revaluation done for the purpose of the sale. The assessee has contended that this exercise was carried out in routine in order to secure finance from financers/financial institutions, for the business needs of the assessee. However, it is seen that such revaluation is not a regular feature of the assessee. At least no other such instance of revaluation, at any other point of time, has come on record. Moreover, the assessee has also not placed on record any material to show that any finance was secured from the financial institutions/financers in pursuance of the said revaluation. Anyhow, the alternative contention of the assessee appears to be right and is accepted as such. This expenditure will be allowed to be deducted in computing the capital gain/loss on the transfer of the Betalactum Division, since this expenditure was incurred in connection with the said transfer. Ground No. 3 is, as such, accepted in the above terms. Non-compete fee received by company that is "capital or revenue receipts"- HELD THAT:- We find that the assessee is correct when it contends that the issue of taxability of non-compete fee being a legal one, even if the assessee did not press it before the AO, it could well have been pressed before the learned CIT(A), as was done. Further, it is also correct that all the facts being before the AO, the CIT having powers co-terminus with those of the AO, was not incorrect in not remitting the issue to the AO for decision. Moreover, evidently, the AO duly represented the case of the Department before the learned CIT(A) and no objection was raised regarding the assessee having not pressed the issue before the AO. On merits, evidently, there has been no transfer of assets as envisaged u/s. 45 of the Act r/w s. 2(47) of the Act. The AO, pertinently, had agreed that the fee in question represented a capital receipt and not a business receipt. By signing the negative covenant, the assessee undertook not to carry out manufacture or trade of the products for a period of time. That being so, this act amounted only to a self-imposed restriction and not a transfer within the meaning of the Act. It was neither the sale or exchange or relinquishment of the asset, nor was any right therein extinguishable, the right to manufacture or trade remaining intact after the period for which the negative covenants were signed. Thus, we hold that the learned CIT(A) was justified in deciding the issue on merits in favour of the assessee. Such finding of the learned CIT(A) is, therefore, hereby upheld. Ground No. 4 is thus rejected. In the result, the appeal of the Department stands partly allowed.
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