TMI Blog2006 (9) TMI 221X X X X Extracts X X X X X X X X Extracts X X X X ..... manufacturing various electrical equipments like transformers, switches, switchgears, bulbs, lamps and tubes, etc. It was having various factories at various places in the country. The company had set up its lamp division for manufacturing of lamps and bulbs, etc. at Sonepat (Haryana). It wanted to transfer this factory and for this purpose, it entered into an agreement with M/s Osram India (P) Ltd. for sale of this factory/unit. For effecting sale, an agreement dt.20th May, 1998was executed. The sale consideration for the transfer of the entire unit was fixed at Rs. 42.50 crores. The board passed a resolution in the meeting dt.28th Aug., 1998to execute the conveyance deed and such other documents, as may be required in connection with the transfer of the unit. The sale was effected through delivery of possession and receipt of full consideration paid by M/s Osram India (P) Ltd. In this regard, two conveyance deeds dt.9th Oct., 1998were also executed. 3.2 The assessee filed return for asst. yr. 1999-2000 and in the computation for the purposes of capital gain, it showed cost of lamp division at Rs. 59.33 crores against the sale consideration of Rs. 42.50 crores. The balance of R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that under the agreement dt. 20th May, 1998, the assessee company had received a lump sum amount of Rs. 42.50 crores as consideration of all tangible and intangible assets including customer relations, royalty fee, use of trade-mark 'ECE' for five years, labour contracts and rental agreements etc. and as the entire lamp division was transferred as a going concern for a lump sum consideration and further as no part of this consideration was apportioned or was attributable to any particular asset, the transaction of sale was purely as a slump sale. 3.8 The assessee placed reliance on the following decisions for supporting its contention. (i) CIT vs. Mugneeram Bangur Co. (Land Department) (1965) 57 ITR 299 (SC); (ii) CIT vs. Artex Mfg. Co.; (iii) Sarabhai Chemicals (P) Ltd.; (iv) CIT vs. F.X. Pereira Sons (Travancore) (P) Ltd. (1991) 94 CTR (Ker) 176 : (1990) 184 ITR 461 (Ker); and (v) CIT vs. West Coast Chemicals Industry Ltd. (1962) 46 ITR 135 (SC). The assessee also made reference to the facts that the newly inserted s. 50B related to the computation of capital gains in the case of slump sale and submitted that prior to the insertion of s. 50B indexing was allo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee that slump sale could not be taxed prior to1st April, 2000, i.e. prior to the insertion of s. 50B. 3.12 After considering various issues raised before her in connection with the charge ability of taxable capital gain, etc., the learned CIT(A) has drawn following conclusions: "(a) The appellant had merely made a 'unit sale', i.e. sale of its lamp division which was a part of its overall business concern; and that the appellant company ECE Industries Ltd. still continues as a business concern. (b) The balance sheet of the appellant indicates that the appellant was not treating this unit a separate and independent business, but as part of the integrated whole business of the appellant. (c) Therefore, this unit sale of the lamp division was not in the nature of a 'slump sale' as a going concern. (d) The Supreme Court in Commonwealth Trust Ltd. has settled the legal question that s. 50 would apply to sale of depreciable assets, in favour of Revenue. (e) It is reasonable to conclude that there would be a financial break up of the sale consideration between tangible and intangible assets and therefore the appellant's contention that no break up is possible is not sustaina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a 'slump sale'. She illegally and wrongly presumed that for a 'slump sale' there should be the sale of the entire business or a whole business, meaning thereby the sale of all the units, even though they may be independent and self-contained units. 4. The learned CIT(A) has misinterpreted and misapplied various decisions relied on by the appellant before her or quoted by herself to arrive at a predetermined notion that the appellant's was not the case of a 'slump sale' or 'sale of a going concern' and subjected the appellant with an extremely high burden of tax which was neither justified on facts, nor in law, nor on equity and justice. 5. The learned CIT(A) while coming to the above conclusion wrongly and illegally, without appreciating the basic issue, relied on the entries in the balance sheet of the appellant ignoring the principle laid down by the Supreme Court in Kedarnath Jute Mfg. Co. Ltd. vs. CIT (1971) 82 ITR 363 (SC) and Sutlej Cotton Mills Ltd. vs. CIT 1978 CTR (SC) 155 : (1979) 116 ITR 1 (SC) that the entries in the books of account are not decisive or conclusive in the matter. 6. The learned CIT(A) has also erred in holding that the provisions of s. 50 of the ab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... additional grounds admitted by the Bench revolves around the decision regarding the nature of the transaction of Sonepat division of the assessee, we consider it proper to decide all these grounds together. 6. Learned counsel for the assessee, Shri Ajay Vohra, after narrating the background of the case and supporting the grounds of appeal, submitted that vide agreement dt. 20th May, 1998, the assessee had sold its business undertaking, After making reference to the dictionary meaning of 'slump' and after referring to ss. 293 and 394 of Companies Act relating to reconstruction and amalgamation of companies, he argued that a company may have plurality of undertakings and in view of provisions contained under s. 394 of Companies Act, it is possible to transfer even a part of the undertaking. He also made reference to the provisions of s. 80HH and 80-I to contend that the losses of one undertaking cannot be set off against the profits of another undertaking which also shows that each undertaking has to be treated as a separate and independent unit. Learned counsel also made reference to the provisions contained under s. 2(42C) of IT Act and submitted that undertaking means 'a unit' o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s has to be transferred including all assets and liabilities. The next submission of the learned Departmental Representative was that even if the transaction is treated to be slump sale, it is not impossible to work out capital gain. Learned Departmental Representative made reference to the printed accounts of the assessee and submitted that the assessee had made valuation of closing stock After making reference to Item No. 15, he pointed out that all the assets were not sold. He made reference to Item No. 15 and pointed out that the assessee had retained certain items and also liabilities and that the entire unit was not transferred, locked, stocked and barrel. In support of his arguments, the learned Departmental representative placed reliance on the following decisions: (i) (1997) 141 CTR (SC) 290 : (1997) 227 ITR 260 (SC); (ii) Syndicate Bank vs. Addl. CIT (1985) 45 CTR (Kar) 68 : (1985) 155 ITR 681 (Kar); (iii) PNB Finance Ltd. vs. CIT (2001) 168 CTR (Del) 509 : (2001) 252 ITR 491 (Del). 8. In rejoinder, the learned counsel submitted that the term 'undertaking' is different from the company or business of the company and, therefore, even if one undertaking is sold out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... les of association of the company and subject to other permissions and approvals as may be required, consent is being accorded to the board of directors of the company, to transfer, sell and/or dispose of the undertaking of the company manufacturing GLS Bulbs, Fluorescent Tubes, Filaments, Glass Shells and other miscellaneous items situated at Sonepat (Haryana) and including its sales division as a going concern or otherwise at such price and on such terms and conditions as may be decided by the board of directors with power to the board of directors or a committee of directors appointed for the purpose to finalise and execute necessary documents including agreements, deeds of assignment/conveyance and other documents and to do all such other acts, deeds, matters and things as may be deemed necessary and expedient on their discretion for completion of transfer/sale of the said undertaking." 12. In pursuance to the above resolution, an agreement was entered into on 20th May, 1998 between the assessee company and the transferee company i.e. Osram India (P) Ltd. The preamble of the agreement discloses the intention of the parties in following terms: "Whereas ECE intends to sell al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nership of all machinery and equipment existing and/or used by ECE in its entire lamp business operation and located at third parties or outside the site listed in Annex. 1, hereinafter jointly referred to as "lamp equipment outside Sonepat". Enclosed Annex. 3 lists the equipment outside Sonepat, indicating the address and (where applicable) name of the third party being in possession at the closing date. 2.3 ECE warrants and represents that the Sonepat lamp equipment and the lamp equipment outside Sonepat to be transferred according to Chapters 2.1 and 2.2, hereinafter jointly referred to as "lamp equipment" fully represent the assets used by ECE in the entire business for the manufacture of lamps to be manufactured and sold by Osram and thus puts Osram in the position to continue this business on an ongoing basis without any disruption. The lamp equipment is in normal working condition as on the closing date. Chapter 3-Transfer of intangible assets/goodwill ECE as on the closing date shall transfer to Osram all goodwill of ECE's lamp business by transferring the ownership and the benefit of: 3.1 all past, present and prospective customer relationship (address, contracts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs, officers, employees and agents. Disputes, if any, of such nature shall be referred by Osram to ECE for its dealing with the matter and Osram agrees to fully co-operate with ECE in resolving such matters. 7.2 Osram will be accountable for collecting receivables as they fall due for invoices effected by ECE before closing date and would hand over the proceeds as agreed." 15.1 From the above, it is clear that the liabilities excluded were past liabilities and did not have any direct relationship with the running of the smooth functioning of the business of the concern. It may be pointed out that there is no exclusion of any statutory liability or liability on account of running of the business, which stood transferred with the unit. It is also clear that the transferee undertook all liabilities in relation to the employees also. 16. It is to be observed that for ensuring that the concern remained fully functional in the hands of the transferee, the employees were also transferred as has been provided in Chapter 8, which is as under: "Chapter 8- Transfer of employees 8.1 Annex. 6 lists all employees of ECE who shall be transferred to Osram. 8.2 Osram represents that i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agreeable price to allow it to remain competitive in the said business." 17.1 From the above, it is further clear that the transferor took all steps for enabling the transferee to carryon the entire business in full form without there being any obstruction on account of any conduct of the assessee. Details of plant and machinery are given in Annex. 2 annexed with the agreement which is part of the agreement and which is available at pp. 13 to 16 of the paper book. In the list of items included in these annexures, no price or valuation of any item has been mentioned. This also shows that all the assets were included in the total price attributed to the entire unit and no price was allotted to any particular asset or property. 18. In view of the resolution of the meeting of the general body of the company and the agreement dt.20th May, 1998, a resolution was adopted in the meeting of board of directors on28th Jan., 1998, which is as under. "that the company be and is hereby authorised to sell/dispose off and/or transfer the lamp division of the company at Sonepat as a going concern to M/s Osram India Ltd. for a consideration of Rs. 42.5 crores subject to verification of assets ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Osram), on this the 9th day of October, 1998 the possession, occupation and title of its immovable and movable plant and machinery furniture, fittings, office equipments, computers, vehicles etc. as itemized in Schs. 1 and 2 attached against full consideration paid by Osram and received by ECE in terms of the sale and purchase agreement dt.20th May, 1998and the supplemental agreement to the sale and purchase agreement dt.9th Oct., 1998and the two conveyance deeds dt.9th Oct., 1998. ECE confirms that it has hereafter no claim, right, title or interest whatsoever in the above said assets." 20.1 From the above certificate, it is clear that the possession, occupation and title of movables and immovables, plant and machinery along with all assets were transferred to the transferee, which again establishes the fact that the entire undertaking was transferred as a going concern. 22. On the basis of the transactions carried out through the documents and covenants, referred to above, the assessee showed the capital loss of Rs. 16.83 crores in the return of income filed by it. The working given by the assessee in this regard is as under: "5. The details of the long-term capital loss ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... attract capital gain on the basis of computation of fair market value on the date of sale and indexed in accordance with the provisions of IT Act, 1961. Indexed cost of lamp division which was sold during financial year 1998-99 worked out to Rs. 59.33 crores against the sale consideration of Rs. 42.50 crores only leaving a balance of Rs. 16.83 crores towards long-term capital loss to be adjusted against the profits for the current year." 24. The AO did not accept the stand of the assessee and required the assessee to show cause as to why computation of short-term capital should not be made in thefo1l9wing manner: "Computation of short-term capital gain on sale of lamp division at Sonepat as per s. 50(2) Sale consideration received on transfer of lamp division at Sonepat 42,50,00,000 Less: WDV of the lamp division as on 1-4-1998 5,05,91,167 Addition made during the year 13,90,440 ------------- 5,19,81,607 Short-term capital gain 37,30,18,393" 25. Against the show-cause notice of the AO, the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the Supreme Court in a recent decision in CIT vs. Artex Mfg. Co. (1997) 141 CTR (SC) 290 : (1997) 227 ITR 260 (SC). 6. If no part of sale consideration can be attributed to any asset including depreciable asset, then s. 50 as pointed out in your show-cause notice, will have no application to our case. To clarify, we may state that if no part of sale consideration can be separately attributed to the block of assets, there is no question of any separate determination of any income on their sale/transfer. On that basis there will also be no question of treating any such non-determinative income as short-term capital gain." 26. The assessee also pointed out that even in the form for obtaining certificate under s. 230A(2) of IT Act, the assessee, in the column relating to particulars of company, nature has described the sale transaction as that of slump sale. A copy of the application form has been filed on pp. 124 to 126 of the paper book. Relevant information given in column 16 is as under: "16. The lamp unit of the company at Sonepat is being sold as slump sale on a going concern basis and entire assets of the company including land, building, plant and machinery, electric ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... full as it shows that the total purchase consideration of Rs. 42.50 crores related to all the tangible and intangible assets as well as contracts and rights to be sold and transferred according to Chapters 1, 2 and 3 of the aforesaid agreement as well as any goodwill, know-how or benefit connected therewith." It was specifically pointed out by the assessee before the learned CIT(A) that as no part of the consideration was attributed to any particular asset including depreciable asset, provisions of s. 50 cannot be applied. In support of this plea, the assessee placed reliance on various authorities. 31. The learned CIT(A) has of course considered various authorities cited on behalf of the assessee but he has not properly examined the conveyance deeds and replies of the assessee submitted before the AO and before him. 32. On the application of s. 50, the specific submission of the assessee was that since depreciable assets alone were not transferred, short-term capital gain did not arise from the transfer. The learned CIT(A) has rejected this plea and has observed as under: "24. From a reading of the above sections, it is clear that s. 50 is a special provision relating to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndertaking. (ii) There was no separate sale of building or plant or machinery nor any price was attributable to land, building or immovable properties. (iii) At the time of transfer, the employees along with statutory liabilities relating to them, were transferred. (iv) There is no evidence or material on record to show that any part of the sale consideration was attributed to depreciable assets or any other asset. (v) The learned AO as well as learned CIT(A) have attributed the entire sale consideration only to depreciable assets and land for working out capital gain. There is no basis for such approach in absence of any material on record; (vi) Sec. 50 of IT Act cannot be attributed to the facts of the present case because the title of this section is "a special provision for computation of capital gains in the case of depreciable asset". As pointed out above, the agreement to sell was not for transferring depreciable assets only but for transferring the entire unit as a whole and the sale consideration settled between the parties was not only for depreciable assets but for all the tangible and intangible assets including goodwill, licenses and liabilities. (vii) As p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e case of the assessee. (xii) The unit of the assessee was formed and established for a very long time and in any case, for more than 36 months immediately preceding the date of transfer and hence, profits arising therefrom is long-term capital gain or loss and not short-term capital gain. (xiii) Sec. 48 of IT Act provides mode and method of computation of capital gain. Second proviso to s. 48 is as under: "Provided further that where long-term capital gain arises from the transfer of a long-term capital asset, other than capital gain arising to a non-resident from the transfer of shares in, or debentures of, an Indian company referred to in the first proviso, the provisions of cl. (ii) shall have effect as if for the words "cost of acquisition" and "cost of any improvement", the words "indexed cost of acquisition" and "indexed cost of any improvement" had respectively been substituted." The above proviso is fully applicable to the facts of the present case and computation of capital gain/loss shall be worked out as per this proviso. (xiv) Sec. 50B of IT Act which deals with the case of slump sale has been introduced w.e.f.1st April, 2000and does not apply retrospectively ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re adjustment of business operation of the partners. Department placed reliance on the decision of Privy Council of Doughty vs. Commr. of Taxes (1927) AC 327 (PC) to hold that the transfer was a transfer of all assets to a company and thus, the transfer was a capital sale. The Hon'ble Supreme Court, after examining the issue, held that the sale was the sale of the whole concern and no part of the slump price was attributable to the cost of land. After placing reliance on the decision in the case of Doughty vs. Commr. of Taxes and the decision in the case of CIT vs. West Coast Chemicals Industries Ltd., theHon'ble Courtheld that no part of the slump price was taxable. 39. In the instant case also, the transfer is to be treated as a sale of the undertaking as a going concern because there was no separate sale of the stock and no valuation of the stock or any other asset was done. In the case of Doughty vs. Commr. of Taxes, it was observed that where a slump price is paid and no portion of it is attributable to stock-in-trade it may not be possible to hold that there is a profit other than what results from the appreciation of capital. 40. CIT vs. F.X. Periera Sons (Travancore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndicate the amount payable on transfer or acquisition. It might be the book value or other value but it is not indicative of the amount payable on anyone of the heads. On the other hand on behalf of the Revenue, it was contended that the price of land can be ascertained from the balance sheet and having admitted the valuation, the assessee firm cannot contend that the valuation is different from what has been shown in the balance sheet and, therefore, if that amount is deducted from the price received, the balance would be the amount received on account of depreciable assets and then the calculation is to be followed by computing the difference of book value and written down value and, therefore, the excess receipt comprising the book value would be chargeable to capital gains. In support of his argument, the learned counsel for the assessee placed reliance on the decision of Hon'ble Supreme Court in the case of CIT vs. Artex Mfg. Co. After considering the award, theHon'ble Courtobserved that it is not possible to hold that any amount was attributable for the land as per the contents of the award. According to theHon'ble Courtuntil and unless there are materials to determine the va ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red in detail by Hon'ble Bombay High Court in a recent decision in the case of Premier Automobiles Ltd. vs. ITO. The facts of the case are as under: 42.1 Premier Automobiles Ltd. (in short PAL), a company registered under Companies Act, 1956 was engaged in the business of manufacture and sale of two cars, viz., Padmini and Premier 118NE. For manufacturing of 118NE, PAL had a plant and machinery at Kurla (gear box) and Pune (machining). It had manufacturing facility of Padmini at Kurla. The manufacturing units of 118NE were styled as "Kalyan Undertaking". 42.2 PAL entered into a MoU dt. 11th March, 1993 with Automobile Peugeot (AP for short) to establish a joint venture company known as Kalyan Motor Company Ltd. (KMCL) for manufacture and distribution of Peugeot cars throughout India. Later on, PAL agreed to sell and assign to the joint venture company, namely, Kalyan Motor Company Ltd. its Kalyan Undertaking "as a going concern" on "as is where is" basis. The price fixed for the Kalyan Undertaking was at Rs. 217 crores. As pointed out above, the Kalyan Undertaking consisted of plant and machinery for 118NE at Kalyan, Kurla (gear box) and machining at Pune. 42.3 On 30th Nov., ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at under the said agreement, all assets and liabilities of Kalyan Undertaking stood transferred; (iii) That apart from the fixed assets, PAL also transferred licences, permits, quota, intellectual property, technical know-how, contract with customers and suppliers, network of dealers and repairers as also labour for a sum of Rs. 210 crores; (iv) In view of the scheme of agreement, the AO was not justified, in attributing price only to building, plant, machinery etc (v) Under the slump sale agreement, the stamp duty was payable by KMCL i.e. transferee which was subsequently known as PPL because immovable property could not be transferred without a conveyance; (vi) That the AO was not justified in holding that short-term capital gains had accrued to PAL on sale of building, plant and machinery as Kalyan Undertaking was a capital asset and since it was held by PAL for more than three years and, therefore, what was transferred ,was a long-term capital asset; (vii) That the AO was not justified in deriving the sale values from the books of PPL (formerly known as KMCL). It was contended that for tax purposes, every assessee has to value its assets and every buyer values the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p sale. It was held that merely because a conveyance of land and building came to be executed subsequently it cannot be said that there was no slump sale The Hon'ble High Court also took into consideration the definition of capital asset as given under s. 2(14) of IT Act and held that word "properties" in the definition of capital assets under s. 2(14) would include an undertaking acquired as a whole. According to the Hon'ble High Court, the Kalyan business acquired as a whole by PPL constituted property in the definition of assets. The Hon'ble High Court, after holding that it was a case of slump sale, directed the AO to compute the quantum of capital gains under ss. 45 to 55 of IT Act by observing as under: "39. In this case, we have hold that sale of Kalyan business was for a slump price. In this appeal, we were only required to consider whether the transaction was a slump sale and having come to the conclusion that there was a sale of business as a whole, we have to remand the matter back to AO to compute the quantum of capital gains. For that purpose, the AO will have to decide the cost of the undertaking for the purposes of computing capital gains that may arise on transfer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t distinguished the decisions on which reliance was placed by the Revenue and upheld the order of the Tribunal, by observing as under: " Held , dismissing the appeal, there was no doubt that the sale was done through two separate documents in respect of movable and immovable assets, but this was done only because immovable property could only be sold through a registered sale deed. Land is not a depreciable asset. Once the land forms part of the assets of the undertaking and the transfer was of the entire undertaking as a whole, it was not possible to bifurcate the sale consideration of a particular asset. Sec. 50 of the Act only applies when depreciable assets alone are transferred. It could not be said that the Tribunal had reversed the finding of the CIT(A) who had held that it was a transfer of the entire business undertaking as a whole. The finding of the CIT(A) was not set aside by the Tribunal. All that the Tribunal had held was that the business of the bakery was closed when it was sold. Therefore, the CIT(A) rightly directed that the profit on sale of the bakery had to be assessed as long-term capital gains thereby granting exemption under s. 54E." 46. The above decisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the compensation with respect thereto, no capital gain could be determined. The Tribunal on further appeal held that even on the assessee's own showing, by letter dt.17th July, 1972, the fair market value of the undertaking as on1st Jan., 1954, was determinable. According to the Tribunal, the valuation had to be of the entire business enterprise of the undertaking as a unit. The Tribunal finally set aside the order of the AAC and remanded the matter to the AO to recompute the capital gains. Regarding cost of acquisition, theHon'ble Courtobserved that no opinion can be expressed on this issue because none of the authorities below has undertaken this exercise. Therefore, the issue was remanded to the Tribunal for re-examination. 49. In view of the judgment of PNB Finance Ltd., the sale of undertaking is to be taken as capital and capital gain under s. 45 of IT Act has to be charged to tax. 50. Delhi Bench of Tribunal has considered a similar issue in the case of Salora International Ltd. vs. Jt. CIT (2004) 88 TTJ (Del) 53 : (2003) 129 Taxman 68 (Del)(Mag). In that case, the assessee company which was engaged in the business of manufacturing television and components decided to st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the matter in the case of Dy. CIT vs. Mahalasa Gases Chemicals (P) Ltd. (2004) 84 TTJ (Bang) 992. In that case, the assessee sold its business undertaking for a slump price. Vide agreement dt.9th Feb., 1998with Praxair Carbon Dioxide (P) Ltd., the company's manufacturing and distribution business was transferred for a sum of Rs. 3,40,29,332. The AO was of the view that assets sold were depreciable assets and the written down value should be the cost of acquisition. Therefore, he computed the value of capital gain under s. 50 of IT Act. Learned CIT(A), on the other hand, held that the entire business of the assessee was sold as a going concern and not just depreciable assets. In appeal before the Tribunal, it was vehemently contended by the Revenue that the claim of the assessee about the slump sale was totally incorrect. It was pointed out by the learned Departmental Representative that as held by the AO, as three of the assets, namely, sundry debtors at Rs. 12,97,150, land at Rs. 97,000 and vehicle at Rs. 4,35,029 was not sold as part of the going concern and, therefore, it could not be said that the agreement entered into by the buyer was a sale of an undertaking as a going con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al gain on the basis that this is a case of slump sale and the AO has to follow the directions contained in the various judgments cited above and especially the one by the jurisdictional High Court at Bangalore.With this direction, the conclusion drawn by the learned CIT(A), is modified to the extent indicated above" 54. Delhi Bench of Tribunal has considered the issue in a recent decision in the case of Jt. CIT vs. Steri Sheets Ltd. vide order dt.12th May, 2006rendered in ITA Nos. 546 and 547/Del/2000. In this case, as per agreement entered into with Kelvinator of India Ltd. on 30th Aug., 1994, the assessee company agreed to sell its entire undertaking as a going concern As per the agreement, the undertaking was to be transferred for a total consideration of Rs. 6.30 crores. In its return, the assessee declared a long-term capital gain of Rs. 4,29,38,582 arising from the said transfer. The AO applied the provisions of s. 50 and worked out short. term capital gain at Rs. 5,81,11,261 by reducing the written down value of block of assets amounting to Rs. 48,88,739 from the sale consideration of Rs. 6,30,00,000. 55. The assessee submitted before the CIT(A) that since it had transf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on by the assessee company was not liable to tax. Accordingly, we allow the cross-objection filed by the assessee. 12. In view of our aforesaid decision on the cross-objection of the assessee holding that the gains arising from the slump sale of the manufacturing division were not liable to tax, the issue raised by the Revenue in its appeal for asst. yr. 1995-96 in ground Nos. 1 and 2 has become infructuous. The same is accordingly dismissed." 58. Now we proceed to consider the authorities on which specific reliance was placed by the learned senior Departmental Representative. 59. The first decision on which reliance has been placed by the learned Departmental Representative is in the case of CIT vs. Artex Mfg. Co. In that case, it was found by the AO that for the purposes of determination of purchase consideration, the assets were sold at Rs. 41,73,973 out of which the plant, machinery and dead stock, as revalued by the H was Rs. 15,87,296. The liabilities were shown at Rs. 30,23,573 and the balance amount of Rs. 11,50,400 was shown as purchase consideration. In view of these bifurcated and specified prices of various assets and after taking into consideration, the WDV of de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Rs. 5 lakhs in addition to payment of royalty of Rs. 12 per 100 cubic feet of clay extracted subject to a maximum of Rs. 60,000 per year. The ITO construed the lease deed as transferring a leasehold interest in the land in favour of the company and came to the conclusion that the transfer was assessable to capital gains tax. AAC held that the cost of the acquisition of the assets could not be determined. It was thus held that the cost for the purposes of ascertaining the capital gains would be the total price of land paid by the assessee. The Tribunal confirmed the order of AAC. On appeal, the Hon'ble High Court held that there was a transfer of capital asset and in further appeal, the Hon'ble Supreme Court held that so far as the apportionment of cost of acquisition is concerned, it is a question of fact to be determined by the ITO in each case on the basis of evidence. It was observed that the determination of cost of the right to excavate land in terms of money may be difficult but nonetheless money value of the same can be determined. This ratio of this case is again not applicable to the present case because in the present case, it is not the stand of the assessee that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he above, grounds Nos. 1 to 8 stand allowed and are decided accordingly for statistical purposes In view of our findings on ground Nos. 1 to 8, the additional grounds do not require any specific adjudication and are disposed off accordingly. 66. Ground No. 9 runs as under: "The learned CIT(A) has further erred in holding that the income form capital gains, computed by the learned AO at Rs. 36,89,23,393 should form part of profit for the purposes of computing book profit under s. 115JA of IT Act, 1961." 67. The learned counsel for the assessee has filed a detailed synopsis in relation to this ground and submitted that in view of the provisions contained in paras II and III of Sch. VI of Companies Act, 1956, the capital gain is not to be included in the book profit under s. 115JA. In support of his contentions, he placed reliance on the decision of Special Bench of Tribunal in the case of Sutlej Cotton Mills Ltd. vs. Asstt. CIT (1993) 46 TTJ (Cal)(8B) 310 : (1993) 199 ITR 164 (Cal)(AT) and also on the decision of Tribunal in the case of Oswal Agro Mills Ltd. vs. Dy. CIT (1994) 51 ITD 447 (Del) and the decision of Tribunal Delhi Bench in the case of Dy. CIT vs. Sutlej Industries ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Revenue and against the assessee by observing as under: " Held , allowing the appeal, that according to s. 115J of the Act, in the case of an assessee being a company, if the total income is less than 30 per cent of its book profits then the total income of such company shall be deemed to be an amount equal to 30 per cent of such book profit and such income shall be chargeable to tax. The important thing to be noted is that while calculating the total income under the IT Act, the assessee is required to take into account income by way of capital gains under s. 45 of the IT Act. In the circumstances, while computing the book profits under the Companies Act, the assessee has to include capital gains for computing the book profits under s. 115J. Even under cl. 3(xii)(b) of Part II of Sch. VI to the Companies Act, 1956, profits or losses in respect of transactions or transactions of an exceptional or nonrecurring nature are to be disclosed. This shows clearly that capital gains should be included for the purposes of computing book profits." 70. In the instant case, the assessee has prepared P L a/c which has been filed in the printed annual report for asst. yr. 1998-99. In this P L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dition of Rs. 35,04,794 was made to the income of the assessee by rejecting its claim. The issue has been considered in paras 3 to 6.6 of the order. The Tribunal, after considering the aforesaid order of Tribunal for asst. yr. 1998-99 and after making reference to the decision reported in CIT vs. Ferozepur Finance (P) Ltd. (1980) 18 CTR (P H) 227 : (1980) 124 ITR 619 (P H) and other decisions, has deleted the addition. Respectfully following the above referred decision, we delete the addition and consequently allow ground Nos. 10 and 11. 73. Ground No. 12 runs as under: "The learned CIT(A) has also erred in disallowing the expenditure of Rs. 21,70,165 being 1/5th of total payment made in previous years and already allowed in previous assessment years under Voluntary Retirement Scheme (VRS) treating it as capital expenditure. She failed to consider that claim was in accordance with the decision of her predecessor CIT(A) in the asst. yr. 1998-99 which was binding on her. In any case, it was a revenue expenditure and not of capital nature having been incurred wholly and exclusively for the purposes of the appellant's business and in accordance with law, was an allowable deduction. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e expenses because these are allowable expenses. The only issue is whether it should have been allowed in one year or in five years. Since the appellant spread it over five years, I do not find any reason to interfere with the method followed by the appellant. The disallowance made of Rs. 9,55,643 is hereby deleted.' 16.3 These findings could not be controverted by the learned Departmental Representative. Therefore, on the reasoning given by CIT(A), we confirm his order on this issue." 76. As the identical issue is involved in this year, respectfully following the order of the Tribunal, we delete the addition. Ground No. 12 is, therefore, allowed in favour of the assessee. 77. Ground Nos. 13 and 14 are general in nature and therefore do not require for adjudication. 78. In the result, appeal of the assessee (ITA No. 2564/Del/2003) is allowed partly for statistical purposes and as above. ITA No. 5508/Del/2003 79. The assessee has taken following grounds in this appeal: "1. The learned CIT(A)-III,New Delhihas erred in not allowing/setting off the carried forward business loss of the asst. yr. 1999-2000, amounting to Rs. 4,70,40,396 from the income of the assessment ye ..... X X X X Extracts X X X X X X X X Extracts X X X X
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