1986 (12) TMI 74 - AT - Income Tax

Summary

Issues Involved:
1. Taxability of Rs. 5 lakhs received by the assessee.
2. Claim of loss amounting to Rs. 1,90,162 due to the sale of factory land and building.

Detailed Analysis:

1. Taxability of Rs. 5 lakhs Received by the Assessee:

The primary issue revolves around whether the sum of Rs. 5 lakhs received by the assessee is taxable as revenue receipt or capital gains.

Factual Background:
The assessee, a corporate body, had an agreement with a firm to manufacture bidies. This agreement was terminated, and the assessee sold its bidi manufacturing business to the firm for Rs. 5 lakhs as a slump price.

IAC's View:
The IAC (Assessment) considered the Rs. 5 lakhs as taxable under section 28(ii)(c) of the Income-tax Act, 1961, arguing it was compensation for the termination of an agency. Alternatively, the IAC viewed it as a revenue receipt for the termination of a contract in the ordinary course of business.

Commissioner (Appeals)' View:
The Commissioner (Appeals) disagreed with the IAC, stating there was no termination of an agency. He suggested the receipt should be treated as capital gains.

Tribunal's Analysis:
The Tribunal analyzed the agreements and concluded:
- The transaction was between principals on a commercial basis, not an agency relationship.
- The Rs. 5 lakhs was received from the sale of a going concern, not for termination of an agency or contract.
- Referencing Supreme Court cases (West Coast Chemicals & Industries Ltd. and Mugneeram Bangur & Co.), the Tribunal held that in a slump sale, no part of the price is attributable to individual assets, and thus, no capital gains or revenue receipt arises.

Conclusion:
The Tribunal reversed the Commissioner (Appeals)' decision, holding that Rs. 5 lakhs received in a slump transaction is not taxable either as revenue receipt or capital gains.

2. Claim of Loss Amounting to Rs. 1,90,162 Due to the Sale of Factory Land and Building:

The second issue concerns the assessee's claim of a loss of Rs. 1,90,162 due to the sale of factory land and building.

Factual Background:
The assessee had a license agreement with Maharashtra Industrial Development Corporation (MIDC) to build a factory. The factory was sold to D.K. Foods & Chemicals (P.) Ltd., but the IAC disallowed the loss claim, arguing the transaction was incomplete as the final sale deed was not registered during the relevant year.

Commissioner (Appeals)' View:
The Commissioner (Appeals) upheld the IAC's view, stating the transaction required registration under section 17(1)(b) of the Indian Registration Act, 1908, which was not done within the relevant year.

Tribunal's Analysis:
The Tribunal considered:
- The assessee was a mere licensee under the agreement with MIDC.
- The transfer required MIDC's consent, which was granted upon payment of a transfer fee.
- The tripartite agreement dated 18-1-1982 finalized the transfer of rights, and the assignment was executed on 22-3-1982.
- The factory building was completed by the end of 1978, and the transfer occurred in January 1982, beyond the statutory period of 36 months for short-term capital loss.

Conclusion:
The Tribunal upheld the Commissioner (Appeals)' decision, rejecting the assessee's claim for short-term capital loss, as the transaction did not occur within the statutory period.

Final Judgment:
- The appeal of the revenue is dismissed.
- The appeal of the assessee is partly allowed, specifically regarding the Rs. 5 lakhs received, which is not taxable.
- The claim of loss amounting to Rs. 1,90,162 is rightly rejected.