2025 (7) TMI 1673 - AT - Income Tax

Deduction u/s 54EC - assessee company had sold its ongoing business concern being the SEZ unit as a slump sale attracting the provisions of Section 50B - HELD THAT - On a conjoint perusal of Section 50B(1) and Section 54EC of the Act that as the profits/gains arising from the slump sale are held to be capital gains arising from the transfer of a long-term capital asset therefore the pre-condition contemplated in Section 54EC of the Act that the capital gain arises from the transfer of long term capital asset being land or building or both is satisfied to the extent the sale consideration so received on the said slump sale is linked to the book value of the said long-term capital asset i.e. the land or building or both. Although the Pr. CIT has observed that in the case of a slump sale the entire business undertaking is to be considered as an asset for the transfer of capital except instead of considering the individual assets within the undertakings deduction which thus disentitled the assessee company from claiming deduction u/s 54EC of the Act i.e. only when there is transfer of long term capital asset being land or building or both but we are unable to concur with the same. The claim for deduction u/s 54EC pre- supposes the capital gain arising from a transfer of a long-term capital asset being land or building or both . On the other hand the profits/gains arising from the slump sale are chargeable to income tax as capital gains arising from the long-term capital asset except for in a case where the capital asset i.e. undertaking is owned and held by the assessee for not more than 36 months immediately preceding the date of transfer. As the sale of the SEZ unit by the assessee as slump sale in the present case before us included land (book value) as disclosed in Column 6(b) in Form No. 3CA therefore we find no reason as to why the profits/gains from the slump sale though restricted to the extent of the book value of the land is not to be allowed as a deduction to the assessee company under Section 54EC of the Act. We find that the return of income filed by the assessee company in ITR-6 in Column 2 in itself has a provision for claiming deduction u/s 54EC against the full value of the consideration received on slump sale. For the sake of clarity the requisite details filed by the assessee company in its return of income for the year under consideration in ITR-6 is culled out as under We are of the firm conviction that as the slump sale effected by the assessee company during the subject year included the transfer of a long-term capital asset i.e. which as per Form No. 3CA included land with a book value of Rs. 7, 00, 10, 000/- therefore there was no justification for the Pr. CIT to have declined its claim for deduction under Section 54EC of the Act. Now when the legislature in all its wisdom has in the return of income i.e. ITR-6 in itself provided for raising a claim for deduction under Section 54EC from the full value of consideration received on slump sale therefore the said fact in itself establishes beyond doubt that the AO while framing the assessment had based on a plausible view allowed the assessee s claim for deduction u/s 54EC of the Act amounting to Rs. 50 lacs. We unable to persuade ourselves to subscribe to the view taken by the Pr. CIT wherein he had set aside the order passed by the A.O. u/s 143(3) r.w.s. 144B dated 12-09-2022 by holding the same as erroneous insofar as it was prejudicial to the interest of the revenue for the reason that he had wrongly allowed the claim of the assessee company for deduction u/s 54EC of the Act of Rs. 50 lacs and thus vacate his order and restore the order passed by the A.O. Appeal filed by the assessee company

Summary

ISSUES:

Whether the claim for deduction under Section 54EC of the Income Tax Act, 1961 is allowable against capital gains arising from the slump sale of a business undertaking that includes land and building'Whether the Principal Commissioner of Income Tax (Pr. CIT) was justified in revising the assessment order under Section 263 of the Act on the ground that the Assessing Officer (A.O.) erroneously allowed the deduction under Section 54EC'Whether the provisions of Section 50B and Section 54EC can be read conjointly to permit deduction under Section 54EC in case of slump sale involving long-term capital assets such as land or building'Whether the slump sale, defined as transfer of one or more undertakings for lump sum consideration without assigning values to individual assets and liabilities, precludes claiming deduction under Section 54EC for capital gains attributable to land or building included in the undertaking?

RULINGS / HOLDINGS:

The claim for deduction under Section 54EC is allowable to the extent that the capital gains arise from the transfer of long-term capital assets, specifically land or building, included in the slump sale of a business undertaking. The presence of land with a book value in the slump sale satisfies the pre-condition of Section 54EC.The Pr. CIT's revision of the assessment order under Section 263 was not justified as the A.O. had duly considered and allowed the deduction under Section 54EC based on a plausible view and after verification of relevant facts; hence, the order was neither erroneous nor prejudicial to the interest of the revenue.Section 50B treats profits or gains arising from slump sale as capital gains from the transfer of long-term capital assets (except where the undertaking is held for not more than 36 months), and this statutory treatment supports allowing Section 54EC deduction for the capital gains attributable to land or building included in the slump sale.The definition of slump sale under Section 2(42C) does not preclude claiming deduction under Section 54EC for capital gains arising from land or building included in the undertaking, as the capital gains are chargeable as arising from long-term capital assets notwithstanding the lump sum nature of consideration.

RATIONALE:

The Court applied the statutory framework of Sections 50B, 54EC, and 2(42C) of the Income Tax Act, 1961. Section 50B deems profits from slump sale as capital gains from transfer of long-term capital assets where held for more than 36 months. Section 54EC permits exemption of capital gains arising from transfer of long-term capital assets being land or building upon reinvestment in specified bonds within six months.The Court rejected the Pr. CIT's interpretation that the entire business undertaking must be treated as a single asset excluding individual asset consideration for Section 54EC purposes, emphasizing that capital gains attributable to land or building within the undertaking qualify for deduction.The Court noted the legislative intent evident from the design of ITR-6 form, which explicitly provides for claiming deduction under Section 54EC in the context of slump sale consideration, reinforcing the permissibility of such claims.The Court relied on the principle that revision powers under Section 263 cannot be exercised merely on a change of opinion where the original order is based on a plausible view and proper application of mind by the A.O.No dissenting opinion was recorded. The decision reflects a doctrinal clarification that slump sale capital gains attributable to land or building are eligible for Section 54EC deduction, aligning statutory provisions and administrative practice.