2011 (5) TMI 331 - HC - Income Tax

Cpital gain under section 50 or 50B - Agreement of sale - Slum sale or not - The impugned transaction is dated 31-1-1990 and therefore provision of section 50B of the Act which has came into effect from 1-4-2000 is not applicable and therefore finding of the Tribunal to that effect cannot be sustained - However on perusal of the order passed by the Appellate Authority and the Tribunal it is clear that they proceeded on the basis that the impugned transaction is a slump sale and there is no finding supported by any reason as to how the impugned transaction would constitute slump sale - It is clear from the order passed by the Assessing Officer that the Assessing Officer has proceeded on the basis presuming that transaction attracts capital gains and treated transaction as short-term capital gains under section 50 of the Act and there is no finding as to whether the impugned transaction is a slump sale which attract capital gains cannot be sustained - Held that the order passed by the Tribunal Appellate Authority and the Assessing Officer is liable to be set aside and requires to be remitted back to the Assessing Officer to find out as to whether the impugned transaction is a slump sale and if so whether it would attracts the provision of section 50 or 50B of the Act as admittedly provision of section 50B of the Act is not applible - Accordingly answer the substantial question of law in favour of the respondent-assessee.

Summary

Issues:
Interpretation of sections 50 and 50B of the Income-tax Act in the context of a transaction dated 31-1-1990.

Detailed Analysis:
The High Court considered the substantial question of law regarding the applicability of sections 50 and 50B of the Income-tax Act to a transaction dated 31-1-1990. The respondent had sold two factories under an agreement dated 31-1-1990, which was treated as a slump sale by the Appellate Authority and the Tribunal. The Assessing Officer imposed tax on short-term capital gains under section 50 of the Act, leading to an appeal. The Appellate Authority overturned the Assessing Officer's decision, stating it was a slump sale and did not attract capital gains. The Tribunal upheld this view, applying section 50B instead of section 50. The issue revolved around whether the transaction constituted a slump sale and which section of the Act should apply for calculating capital gains.

The Court noted that section 50B, effective from 1-4-2000, was not applicable to the 31-1-1990 transaction. The Appellate Authority and the Tribunal considered the transaction a slump sale without providing reasoning, leading to a lack of basis for their decision. Mere recitals in the agreement were deemed insufficient to determine if it was a slump sale. The Assessing Officer's order was also found lacking in establishing whether the transaction attracted capital gains. Consequently, the Court held that the orders of the Tribunal, Appellate Authority, and Assessing Officer were not sustainable.

Therefore, the Court set aside the orders and remitted the matter back to the Assessing Officer to determine if the transaction was a slump sale and which section of the Act should apply for calculating capital gains. The Court directed the Assessing Officer to make fresh orders within three months, considering the observations in the judgment.

In conclusion, the High Court clarified the application of sections 50 and 50B of the Income-tax Act to the specific transaction dated 31-1-1990, emphasizing the need for proper reasoning in determining whether a transaction constitutes a slump sale and the appropriate tax implications under the Act.