9911796707
TMI Blog2003 (11) TMI 303X X X X Extracts X X X X X X X X Extracts X X X X ..... It set up a cement unit in 1984. The said cement unit was sold as per an agreement executed on 9th June, 1990 between the assessee-company and a Madras based company, the India Cements Ltd., for a consideration of Rs. 105,69,54,104 and this consideration comprised of Rs. 105.30 crores for fixed assets and Rs. 39,54,104 for net current assets. It is this transaction of sale which has given rise to the above mentioned cross-appeals. 3. The question arising in these cross-appeals is whether the sale of the cement unit in question is a slump sale or an itemised sale and, in either case, what are the tax consequences, thereof. 4. The case of the Department is that it is an itemised sale. The case of the assessee is that it is a slump sale. The case of the Department is that, as it is an itemised sale, tax under the head 'short-term capital gains' on the transfer of depreciable assets is leviable in terms of s. 50 of the IT Act. The case of the assessee is that, as it is a slump sale, the provisions of s. 50 are not attracted. Assuming it is a slump sale, and that the capital asset transferred is that undertaking itself, and not the separate assets thereof, the further questio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e for computation of capital gains under the provisions of s. 45. I am, therefore, obliged to allow those deductions which are permissible under s. 45 of the IT Act. The following deductions are being allowed Total sale consideration 105,69,54,104 Less 64,82,98,196 40,86,55,988 Less 2,47,58,188 38,38,97,728 Only two deductions are admissible out of the deductions claimed by the assessee and no other deduction is possible as the assets are depreciable assets. Therefore, net capital gain works out to Rs. 38,38,97,728, which ought to have been included in the total income of the assessee." 7. Even though the AO computed the profit under the head capital gains, as mentioned above at Rs. 38,38,97,728, he did not levy any tax on this amount. On the other hand, he proceeded to compute the capital gains under the head 'short-term capital gains' leviable under the provisions of s. 50 of the Act. He noticed that the assessee had executed a separate sale deed dt. 20th Nov., 1990 for the transfer of land of more than 2,000 acres for a consideration of Rs. 2,87,00,000. He also noticed that the tax written down value of the depreciable assets was Rs. 46,45,55,3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gave directions for the working out of the cost of acquisition and cost of improvement of the undertaking for the purpose of ascertaining the quantum of capital gains that can be brought to tax on the sale of the undertaking in terms of s. 45 of the Act. 11. As already mentioned, the Department is aggrieved by the finding of the CIT(A) that the sale was a slump sale and not an itemised sale; and so, tax under s. 50 of the Act is not leviable. The assessee's appeal is on the issue that, even assuming that it is a slump sale, there can be no capital gain on the sale of the undertaking. ITA No. 253/Hyd/1995 filed by the Revenue : 12. The grounds taken by the Revenue read as under : "(i) The CIT(A) should have held that even if it is used as a transit accommodation, it is still a guest house and that the expenditure relating thereto is not allowable within the meaning of s. 37(4) of the IT Act. (ii) The CIT(A) erred in stating that the entire unit should be treated as one capital asset. (iii) The CIT(A) erred in treating the entire unit as long-term capital asset. (iv) The CIT(A) ought to have upheld the action of the AO in bifurcating the land as long-term capital asset ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... chase of the undertaking comprising the cement division of Coromandel Fertilisers Ltd. (hereinafter referred to as "CFL") shall be subject to the terms and conditions set out below. 2.0 It is agreed and understood that the undertaking comprises the operations and activities of the cement division of CFL as a going concern. This includes, inter alia the cement plant with all and together with buildings, structures, housing colony thereon, monies and mining leases, all plant, machinery, equipment, capital work-in-progress, vehicles, furniture, fixtures therein at Chilamkur Village, Cuddapah District in the State of Andhra Pradesh, and plant and machinery, office equipment, furniture fixtures at the divisional office at Secunderabad, at the marketing offices at Secunderabad, Madras, Bangalore and Ernakulam and at warehouses in the States of Andhra Pradesh, Tamilnadu, Karnataka and Kerala. Net current assets as specified in paragraph 4 below, industrial and other licences, trade mark and brand name, goodwill and other intangible assets, all relating or pertaining to the operations and activities of the cement division of CFL but expressly excluding the office premises at Secunderabad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The value of the current liabilities and provisions shall be as per CFL's books of accounts duly verified by M/s A.F. Ferguson & Co. and the value so determined shall be final and binding. However, liabilities in respect of statutory levies such as sales-tax, excise, customs, octroi, mineral rights tax, and liabilities appertaining to pending legal cases upto the date of transfer of the undertaking shall be and remain the liability of CFL. Similarly, any benefits or credits relating to the aforesaid statutory levies which accrue after the date of transfer of the undertaking and which relate to the period upto the date of transfer of the undertaking shall belong solely to CFL. Any possible or potential liability arising out of orders made under the Jute Packaging Materials (Compulsory Use in Packing Commodities) Act, 1987 and the Rules framed thereunder, upto the date of transfer of the undertaking shall be that of the prospective buyer and shall not be adjusted against the value of the current assets. 5.0 All employees of CFL employed in the operations and activities of the undertaking at all locations of the undertaking including Secunderabad on the date of its transfer sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reement for sale, pay to CFL 10 (Ten) per cent of the agreed price for purchase of the undertaking excluding the price determined as aforesaid to be payable for net current assets as and by way of earnest money. Interest will not accrue on the earnest money so paid. 9.0 In the event of the prospective buyer failing or neglecting for any reason to comply with the terms of paragraph 8.0 above, CFL shall be entitled without prejudice to its other rights or remedies at law, to revoke and cancel its acceptance of the offer of the prospective buyer by notice in writing to the prospective buyer and upon such revocation and cancellation, CFL shall stand discharged and released from any obligation to sell or transfer the undertaking to the prospective buyer. 10.0 Within 90 days of the date of execution of the said agreement for sale or such further period as may be mutually agreed upon (time in this respect being of the essence) the prospective buyer and CFL shall respectively obtain at their respective cost all sanctions or approvals necessary or required for sale and purchase of the undertaking. In this regard, both parties will mutually assist in obtaining all such sanctions or appro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CFL. 2. We are pleased to make our offer as hereunder subject to the terms and conditions stipulated herein: 3.1 Our offer is for the purchase of the undertaking as going concern comprising the cement division and its activities which includes, inter alia, the cement plant with all land together with buildings, structures, housing colony thereon, mines and mining leases, all plant machinery, equipment, capital work-in-progress, vehicles, furniture, fixtures therein at Chilamkur Village, Cuddapah District in the State of Andhra Pradesh and plant and machinery, office equipment, furniture, fixtures at the divisional office at Secunderabad, at the marketing offices at Secunderabad, Madras, Bangalore and Ernakulam and at warehouses in the States of Andhra Pradesh, Tamil Nadu, Karnataka and Kerala, industrial land other licences, trade mark and brand name, goodwill and other intangible assets, all relating or pertaining to the operations and activities of the cement division of CFL but expressly excluding the office premises at Secunderabad. 3.2 This offer is on as is where is basis, except that the value of any fixed assets which have been sold, discarded or otherwise disposed of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y M/s A.F. Ferguson & Co. and ICL's auditors and as adjusted for any bad or doubtful debts/advances/debit balances : 6.1 The scope of current liabilities as mentioned in para 4.2 of your letter cited is acceptable. However, the value of the current liabilities and provisions as on the date of transfer of the undertaking shall be duly verified by ICL's auditors along with M/s A.F. Ferguson & Co. and the value so jointly determined shall be the value of the current liabilities and provisions to be taken over by ICL. The value so determined shall be deducted from the value of the current assets to be determined as per the procedure detailed in para 5 and the same shall be the value of the net current assets to be taken over by ICL and shall form the purchase consideration therefor. 6.2 If any liability arises upto the date of transfer of the undertaking but is not reflected either in full or in part in the books of CFL, ICL shall have the right to claim the same from CFL within a period of three years from the date of transfer of the undertaking as and when such liability comes to light. 6.3 Statutory liabilities and liabilities under any pending legal cases upto the dat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he requisite approvals from the shareholders/Governmental authorities under the Companies Act/MRTP Act and/or any other law. 10. The purchase price for the fixed assets mentioned in para 3.3 above will be paid by ICL by taking over the liability of CFL to the financial institutions in respect of various secured loans as on the date of the transfer of the undertaking. This amount as of 30th Sept., 1989 was Rs. 78.13 crores. 11.1 ICL is willing within 30 days of the date of receipt by it of acceptance of the offer by CFL or within such extended time mutually agreed upon, to enter into an agreement for sale with CFL which will set out the terms and conditions of sale and purchase of the undertaking including those mentioned above and such other terms and conditions applicable to a transaction of this nature. All terms and conditions of the said agreement should be mutually acceptable to both the parties. 11.2 Inasmuch as payment of the purchase consideration is to be effected by taking over the secured loans, ICL will be depositing only 10 per cent of the balance amount payable to CFL. 12.1 ICL agrees that it shall endeavour to obtain all requisite sanctions and approvals with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eeting of the committee of directors held on 3rd May, 1990 at 8.30 a.m. at Secunderabad. Present Mr. P. McCrea Mr. T.R. Bailek Mr. M.V. Subbaiah Mr. N.C. Roy Present : Mr. N.C. Roy The committee discussed in detail the terms and conditions of the purchase price offered by the two highest bidders namely, the India Cements Ltd. and Gujarat Ambuja Cements Ltd. At 9.30 a.m. discussions were held with the managing director of India Cements Ltd. and his team regarding the terms and conditions offered by them. It was also indicated that the purchase price offered was lower than our expectations. After the discussions it was agreed that India Cements Ltd. would submit their final revised offer by 10.00 a.m. on 4th May, 1990 at the registered office of the company at 'Coromandel House', Sardar Patel Road, Secunderabad-500 003. Similarly, at 11.30 a.m., discussions were held with the managing director of Gujarat Ambuja Cements Ltd. and his team regarding the terms and conditions offered by them. It was also indicated that the purchase price offered was lower than our expectations. After discussions it was agreed that Gujarat Ambuja Cements Ltd. would submit t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e then evaluated the terms and conditions of the final two revised bids and submitted its recommendation to the board that the highest bid of India Cements Ltd. should be accepted." 20. The terms of the sale were reduced into an agreement dt. 9th June, 1990 and the said agreement may be seen at pp. 1 to 53 of the assessee's paper book No. 1. The said agreement is crucial for deciding the issue raised in this appeal. The relevant portion of the said agreement reads as under : "Agreement This agreement made this ninth day of 1st June, 1990 between Coromandel Fertilisers Ltd., a company incorporated under the Companies Act, 1956 and having its registered office at Coromandel House, 1-2-10 Sardar Patel Road, Secunderabad'500003 (hereinafter referred to as "the vendor" which expression shall include, unless repugnant to the context or meaning thereof, its successors) of the one part and the India Cements Ltd., a company incorporated under the Indian Companies Act, 1913 and having its registered office at Dhun Building, 827, Anna Salai, Madras'600002 (hereinafter referred to as "the purchaser" which expression shall include, unless repugnant to the context or meaning ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he operations and activities of the vendor's cement division; (v) Net current assets of the vendor as hereinafter defined relating or pertaining to the operations and activities of the vendor's cement division; (vi) all the industrial and other licences held by the vendor relating or pertaining to the operations and activities of its cement division; (vii) trade mark and brand name owned by the vendor relating or pertaining to the operations and activities of its cement division; (viii) The goodwill and other intangible assets of the vendor relating or pertaining to the operations and activities of its cement division; and (ix) At the purchaser's option to be exercised not later than 31st July, 1990, but except as provided in cl. 10 herein, all the benefits and obligations of all current and pending contracts including that of purchase, selling, leasing, hire purchase, maintenance and such other contracts, policies, agencies, permits, orders, registration and other agreements relating or pertaining to the operations and activities of the cement division of the vendor, to the extent that all or any of the foregoing are capable of being transferred or assigned f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... chaser has on or before the execution of this agreement (a) paid to the vendor the sum of Rs. 5.27 crores (Rupees five crores and twenty seven lakhs only) by demand drafts the receipt whereof the vendor doth hereby admit and acknowledge, and (b) furnished to the vendor the guarantee dt. 9th June, 1990 of Citi Bank N.A. for a sum of Rs. 5.26 crores (Rupees five crores and twenty six lakhs only) in a form agreed with the vendor, as and by way of earnest money. Save as provided in cl. 21 herein, interest shall not accrue to the purchaser on the earnest money deposited with the vendor. 4. (A) The purchaser agrees and undertakes to pay to the vendor on or before the execution of the deed of transfer hereunder mentioned (time in this respect being of the essence) : (i) the balance of Rs. 100.03 crores (Rupees one hundred crores and three lakhs only) as reduced by the amount of the secured loans outstanding as of the transfer date transferred by the vendor to and taken over by the purchaser with the approval of the public financial institutions and banks; and (ii) 90 per cent of the value of the net current assets as per the vendor's books of accounts made up as of the last date ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uctures thereon more particularly described in the first schedule hereto and on the other immovable assets of the vendor, present and future, relating to the undertaking and a charge by way of hypothecation of all movable assets relating to the undertaking (save and except book debts) to secure the repayment of the secured loans granted by the public financial institutions and banks to the vendor; (ii) it has issued privately placed tax mortgage debentures to the UTI, the redemption whereof is secured by the said mortgage and charge by way of hypothecation; (iii) Out of the secured loans, more particularly described in the third schedule, a loan of Rs. 32.67 lakhs is due and payable by the vendor to HDFC as on 9th June, 1990, which loan is intended to be secured by the vendor creating in favour of HDFC a mortgage by deposit of title deeds in respect of : (a) land admeasuring approximately 1.28 acres within the land, hereditaments and premises; more particularly described in the first schedule hereto; and (b) the dwelling units constructed by the vendor thereon land constituting the housing colony in the undertaking. The vendor undertakes to create the aforesaid security i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all have no unfulfilled levy obligation pertaining to the period upto and including 28th Feb., 1989, as of the transfer date. Should such obligation be reintroduced by the Government of India at any time between the date of this agreement and the transfer date, the vendor shall compensate the purchaser such amount as is mutually agreed upon between them in writing in respect of any such obligation on the part of the vendor remaining unperformed or unfulfilled by the vendor as of the transfer date. 9. Notwithstanding anything to the contrary herein contained or implied, it is expressly agreed and declared that: (A) All inventories of raw materials, goods-in-process, finished goods, stores, spares, fuel and packing material as of the transfer date shall be physically verified jointly by authorised representatives of the vendor and purchaser respectively along with authorised representatives of their said auditors. The value of the inventories so jointly verified shall be thereafter determined jointly by the said auditors of the vendor and the purchaser on a going concern basis in accordance with the principles previously followed by the vendor in the preparation of its own balanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... done or services rendered by them under or pursuant to this agreement shall be shared equally by the vendor and the purchaser. (I) Any income-tax or surtax liability relating to the period preceding and upto and including the transfer date shall be the sole liability of the vendor, and (J) The purchaser shall incur no liability for any income-tax, surtax or such related levies on the sale and transfer by the vendor to the purchaser of the undertaking pursuant to this agreement or on the consideration agreed to be paid by the purchaser to the vendor hereunder. 10 (a) The purchaser shall take into its service as from the transfer date all the employees of the vendor employed by it as of the transfer date in the operations and activities of the undertaking at all locations of the undertaking including Secunderabad without any break or interruption in their service with the vendor upto the transfer date, upon terms and conditions of employment (including retirement benefits) not in any way less favourable than those applicable to the immediately before the transfer date. The vendor has, at the request of the purchaser, provided to the purchaser a list of all its aforesaid employ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e purchaser to comply with its obligations under this clause. 12. The vendor shall bear and pay all assessments, rents, rates, taxes, outgoings and impositions of whatsoever nature relating or pertaining to the operations and activities of the undertaking (save as provided in cl. 9(F) (herein) upto and including the transfer date and if any such payments relate to the period after the transfer date, the same shall be apportioned between the vendor and the purchaser. The vendor shall, save as provided in cl. 9(F) herein, be liable and responsible for all obligations or liabilities arising from or in respect of the operations and activities of the undertaking upto and including the transfer date. The vendor shall indemnify and at all times keep the purchaser fully indemnified from and against all claims, demands, actions, proceedings, costs, charges, expenses or other liabilities made or brought against, suffered or incurred by the purchaser by or as a consequence of the failure, refusal or neglect on the part of the vendor to comply with its obligations under this clause. 13. The vendor shall retain for a period of at least 8 years from the transfer date all books of accounts an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s under : "....... 2..... 3. Resolved that subject to the approvals of public financial institutions, and banks and all other authorities as required by or under any applicable law, consent of the company be and is hereby accorded pursuant to the provisions of s. 293 of the Companies Act, 1956 to the board of directors of the company selling, transferring or disposing of as a going concern, the whole of the undertaking comprising the company's cement division at Chilamkur Village, Cuddapah district in the State of Andhra Pradesh and other locations more particularly described in the agreement for sale dt. 9th June, 1990 entered into by the company with the India Cements Ltd., a copy whereof is placed before this meeting, at the price and upon and subject to the terms, provisions and conditions therein contained. And resolved further that the directors be and are hereby authorised to execute all such documents and writings and to do all such other acts, deeds, matters or things necessary, proper or usual for the purpose of effectually transferring, selling and disposing of the said undertaking to or in favour of the India Cements Ltd. in pursuance of the said agreement f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stimate of the capital gains exigible to tax on the sale of the cement unit, and the said estimate reads as under : "Tentative estimate of deemed capital gain on account of cement unit sale (Rs. In crores)" Sale consideration 105.30 Less: Land value (estimated surplus) 2.87 Balance consideration 102.43 Less: WDV of depreciable assets 34.22 Less: Additions during 1990-91 13.59 Deemed net capital gains 54.82 Notes :.......... ." Sd/- 29th November, 1990'.." 24. After having obtained the certificate under s. 230A, the assessee executed a sale and transfer deed dt. 29th Nov., 1990 in favour of India Cements conveying the title to the land of over 2,000 acres and certain buildings. The said deed may be seen at pp. 19 to 126 of the Department's paper book. The relevant portion of the said deed reads as under : "Deed of sale and transfer This deed of sale and transfer made at Cuddapah, Andhra Pradesh, this 29th day of November one thousand nine hundred and ninety between Coromandel Fertilisers Ltd., a company incorporated under the Companies Act, 1956 and having its registered office at "Coromandel House", 1-2-10, Sardar Patel Road, Secunderabad-500 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in Chilamkur, Kalamallal and Chinnadandulur Villages, Cuddapah District in the State of Andhra Pradesh (hereinafter referred to as "the said land"); 5. The Government of Andhra Pradesh executed a mining lease dated the 25th day of Feb., 1984 in favour of the vendor (hereinafter referred to as "the mining lease") covering an extent of about 1487.29 acres of land in Chilamkur Village, Cuddapah District, Andhra Pradesh, which forms part of the said land, more particularly described in part 'A' and part 'C' of the schedule hereunder written. Pursuant to the GO No. 326 dt. the 22nd May, 1981 issued by the Dy. Secretary to the Government of Andhra Pradesh, Industries and Commerce (Mines III) Department and the Order No. 2306/M(III)/81 dt. the 25th Feb., 1984 issued by the Asstt. Director of Mines and Geology, Cuddapah, which mining lease the vendor, has requested the Government of Andhra Pradesh, to transfer to the purchaser for the residue of the unexpired period of the term reserved thereunder; 6. by an agreement dt. 9th June, 1990 (hereinafter called "the said agreement") made between the vendor and the purchaser, the vendor agreed, subject to such consents and ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transfer applicable thereto; 12. it is intended that only the immovable assets and properties comprised in the said undertaking shall be governed under and by this deed of sale and transfer, the market value whereof for the purpose of stamp duty chargeable on this deed of sale and transfer has been determined by a Government approved valuer engaged by the purchaser at Rs. 20.07 crores (Rupees twenty crores and seven lakhs only); 13. the vendor has obtained prior to the execution of these presents the requisite certificate from the IT authorities under s. 230A of the IT Act, 1961; 14. in pursuance of the said agreement, the vendor has at the request of the purchaser agreed to execute these presents. Now therefore this deed witnesseth that 1. In pursuance of the said agreement and pursuant to the aforesaid sum of Rs. 20.07 crores (Rupees twenty crores and seven lakhs only) having been paid by the purchaser to the vendor on or before the execution of these presents (which the vendor hereby admits and acknowledges of having received), the vendor both hereby grant, sell, convey, transfer, assign and assure unto the purchaser forever and absolutely on and from the date hereof ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vertheless to the payment of rents, rates, taxes, assessments, dues and duties now chargeable upon the same or which may hereafter become payable to the Government, municipality or any other local or public body or authority in respect thereof and subject to all such payments as are mentioned in the said agreement and subject also to the right of way as aforesaid. 2. And the vendor both hereby covenant with the purchaser that'." In the schedules to the above mentioned deed, the value of the lands is shown at Rs. 2,60,49,640 in Parts A to Part D-1 and the value of the buildings was shown in Part-E at Rs. 17,46,446. 25. It is mentioned by the learned counsel for the assessee that the market value of the land was estimated by the Government approved valuer at the instance of the purchaser. 26. It may be observed that, as per cl. 12 of the above transfer and sale deed, only the immovable assets and properties comprised in the cement unit, are governed by the said deed of sale and transfer, and as per cl. 11, the movable assets were neither included nor intended to be conveyed by the said deed of sale and transfer. It may also be observed that, as per cl. 10 of the said sale an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to know that the cement division of Coromandel Fertilisers Ltd. was for sale. Also there was an invitation to bid from Coromandel Fertilisers Ltd. Based on this, we have submitted a final offer price of Rs. 105.30 crores excluding the value of net current assets. The bid submitted by us in writing which is being furnished for your reference. 6. How the price of Rs. 105.30 crores was arrived at and is there any specific appraisal report or valuation report by any technically competent person of your company or from outside? Ans. I submit herewith that no detailed asset wise valuation has been done prior to the acquisition of the plant and the valuation of the land and building has been done by the Government approved valuers after the agreement for purchase was executed. The valuation report is furnished herewith for your reference. For the plant and machinery no item wise valuation has been done either prior or after the acquisition. However a technical team, from the company visited the plant to inspect the condition of assets and the potential of the plant. 7. Before acquiring this plant, anybody from your company had visited for inspection of the plant? If so, please give ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orate Affairs) Mr. V.M. Mohan, General Manager ( Corporate Finance) 13. You have stated that there is no separate valuation for plant and machinery but for the purpose of claim of depreciation. How the consideration was split up in terms of land and building and plant and machinery. Ans. Since there was a valuation report only for land and building the balance amount was treated as the value of plant and machinery and other assets which was considered for the purpose of claiming depreciation in our books of accounts. 14. Is there any valuation report of your own submitted to your financial institution and to the board of directors? Ans. There is no such asset wise valuation report made by us. The valuation was based on setting up a plant of similar capacity and also the likely synergy the acquisition will bring to the India Cements Ltd. The board has authorised the chairman and the managing director to decide the bid price and accordingly the bid price of Rs. 105.30 crores was determined. Other than India Cements, the following companies seem to have submitted bid for the plant and we understand the bid details are as under: Gujarat Ambuja Cement Ltd. for about Rs. 95 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cquisition have been repaid and at present there are no term loans taken over from the financial institutions or any other banks outstanding against this plant. We have recently valued the plant entire land and building and plant and machinery by approved valuer for our internal purpose. A copy of this report is enclosed'''" 29. Similarly, the Department has recorded a deposition dt. 8th March, 1999 from Shri P. Nagarajan, Vice President, Finance of the assessee-company, which is contained in the additional evidence sought to be introduced by the assessee. It reads as under : "..... Q. 1. Please give the complete details of the sale of cement division of Coromandel Fertilisers Ltd. (hereinafter referred to as CFL) to M/s India Cements Ltd. (hereinafter referred to as ICL) like details of sale offer, details of negotiations, valuations if any done, 230A certificate, if any, obtained, proposals to banks and financial institutions and also show the correspondence in relation to all the points referred to above including the relevant resolutions and discussions held by the board and any committees constituted by the board. Ans. The board of directors of CFL at thei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eement for sale is filed before you now. Thereafter, CFL approached various financial institutions banks and various other authorities of Government of India and Government of Andhra Pradesh for their approvals to effect the sale of the cement division. After receiving all the approvals, a deed of sale and transfer was executed on 29th Nov., 1990 before the Joint Sub-Registrar, Cuddapah, for transfer of the immovable properties connected with the cement undertaking to ICL. Simultaneously, agreements were executed for transfer of the movable properties as well as for transfer of all the loan liabilities entered into by CFL with various financial institutions and banks to the ICL. On execution of these agreements CFL received the balance sale consideration on 29th Nov., 1990. As may be seen from the documents produced, the entire process was based on bids received from the parties concerned and the highest bid was accepted after negotiations with the parties concerned. The company did not carry out any valuation for the purpose of arriving at the sale price. Q. 2 Please state whether you are aware of the facts of the above transaction? Also state whether any technical persons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the meeting of the committee of directors held on 9th March, 1990, there is a remark regarding proposed valuation of the cement unit. The minutes of the said meeting read as under: "Coromandel Fertilisers Ltd. Strictly confidential 20th March, 1990 Minutes of the meeting of the committee of directors held on 9th March, 1990 at Madras. PRESENT Mr. M.V. Subbaiah Mr. N.C. Roy The committee noted that discussions had been held at Hyderabad with M/s Gujarat Ambuja Cements Ltd., Larsen & Turbo Ltd., and India Cements Ltd. when detailed operating, financial and other information as required had been provided. Plant visits by teams from the above three prospective purchasers were planned to commence from 14th March to be completed by end of March, 1990. There has been no further communication from Mysore Cements Ltd. after the preliminary information had been provided as required by them. A telex message had been sent to the chairman and managing director of Cement Corporation of India Ltd., in response to a telex enquiry from their general manager at Yerraguntla Plant, asking for his confirmation whether there was serious interest. There has been no reply to the messa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , there is suppression of material facts on the part of the assessee. It is claimed that it is improbable that the unit which was actually sold was not valued, though its valuation was contemplated, while the fertiliser unit which was not contemplated for sale was actually got valued by an approved valuer. He further pointed out that as per the minutes of the committee of the directors of the assessee-company held on 3rd May, 1990, a copy of which is available at p. 53 of the Department's paper book, the directors were of the view that the purchase price offered by one of the bidders, i.e. M/s Gujarat Ambuja, Cements was lower 'than our expectation' and such a remark from the directors, according to the learned standing counsel, would be possible only if the cement unit was otherwise got valued. In other words, the plea of the learned standing counsel is that there would be no criterion for the directors to judge the adequacy or otherwise of the purchase price offered by the bidders, if they did not have a valuation report in their hands. He pleaded that as such, there is suppression of material facts by the assessee. In this context, he also pleaded that it is a case w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the agreement of sale dt. 9th June, 1990. We have also extracted the relevant portion of this agreement in this order. The learned standing counsel referred to the clauses of the said agreement, like sub-cl. (B) of cl. (4), as per which different types of assets have to be got valued separately as under. 31.4. Net current assets are differently valued by an independent team of auditors and paid for separately. As per cl. (1) (ix)(c) such current assets include raw material, goods-in-process, finished goods, stores and spares, bad debts, loans and advances, deposits and the like. Even while evaluating such current assets, debts, loans and advances which are determined bad or doubtful shall be excluded. Defective, obsolete or unusable inventory is to be excluded from the ambit of transaction of sale [cl. 9(a) of the sale agreement]. In terms of cl. 9(e) of the agreement, statutory rates for the anterior period were agreed to be responsibility of the assessee. In terms of cl. 9(g), contingent liabilities continued to be fastened on the assessee, if contingency arises six months after sale and in terms of cl. 9(f), levy obligations as on the date of transfer of undertaking shall be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed, as already mentioned, that the balance of consideration of about Rs. 85 crores, viz. (Rs. 105 crores'27.07 crores) represents the sale proceeds of plant and machinery as adopted by the AO in his assessment order, while invoking the provisions of s. 50 of the IT Act. 31.7. The learned standing counsel further mentioned that in the case of the India Cement Ltd. it was held by the Tribunal vide its order dt. 31st Dec., 2002 in ITA No. 1890/Mad/1997 for the asst. yr. 1991-92, that Coromandel Fertilisers had no goodwill as it was incurring losses and so, the vendee-company was entitled to claim depreciation on the entire sale consideration of Rs. 105.30 crores, minus land value as the eligible amount without any deduction for goodwill. So, it is claimed that the above amount of Rs. 85 crores is allocable to depreciable assets, as held by the AO for the purpose of levy of capital gains under s. 50. The learned standing counsel pointed out that, for a sale to fall within the concept of slump sale, there should be no piecemeal or itemised sale of assets and it should be sale of an undertaking as a whole lock, stock and barrel. According to the learned standing counsel, the ideal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the apex Court in the case of CIT vs. Artex Manufacturing Co. (1997) 141 CTR (SC) 290 : (1997) 227 ITR 260 (SC). It is further pointed out that simply because a round figure of sale consideration is mentioned in the agreement for sale, the sale does not become a slump sale. If there is material even outside the agreement to prove separate valuation of the assets, it ceases to be a slump sale, as held by the apex Court in the said case of Artex Manufacturing Co. 31.10. It is further pointed out that so far as the levy of short-term capital gains on depreciable assets is concerned, it is the ratio of the decision of the apex Court in CIT vs. B.M. Kharwar (1969) 72 ITR 603 (SC) that holds the field and not the earlier decisions of the apex Court in the case of CIT vs. Mugneeram Bangur & Co. (1965) 57 ITR 299 (SC) and CIT vs. Ajax Products (1965) 55 ITR 741 (SC). In this context, he referred to the observations of the apex Court in the case of Kharwar (supra), which are as under: "The High Court observed that it was not possible to say that the entire business carried on by the firm at Surat, namely, the manufacturing of art silk ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... c Control Gear Manufacturing Co. (supra) is contrary to the decision in Kharwar (supra), it should be regarded as a decision rendered per incurium or sub silentio. It is however, agreed that the universally applicable law on the question of slump sale and the tests to be aplied to determine the slump sale are to be found in the following four decisions : (a) CIT vs. Mugneeram Bangur & Co. (supra) (b) CIT vs. B.M. Kharwar (supra) (c) CIT vs. Artex Manufacturing Company (supra) (d) CIT vs. Electric Control Gear Manufacturing Co. Ltd. (supra) We may mention even at this stage that the learned counsel for the assessee, Shri Dastur, also agreed with this proposition. 31.13. The learned standing counsel pointed out that the assessee itself knew that a substantial portion of sale consideration of Rs. 105.3 crores is apportionable to depreciable assets, as is evident from the calculation of short-term capital gains given in the context of application for certificate under s. 230A. 31.14. Apart from relying on the decision of the apex Court in the case of Kharwar (supra) and Artex Manufacturing Co. (supra), Shri Ashok also relied on the decision of the Tribunal in the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 1990. (4) Contents of the sale agreement dt. 19th June, 1990; (5) The resolution passed by the extra-ordinary general meeting of the assessee-company, etc. and pleaded that there is not even a shred of evidence in the whole material to indicate that either the land and building or the depreciable assets were separately valued by the assessee-company when it accepted the offer made by India Cements Ltd. of Rs. 105.3 crores, exclusive of net current assets. 32.3. Shri Dastur also took us through the statements recorded from Shri Mohan, general manager finance of India Cements, which we have extracted hereinabove, and pleaded that this statement was recorded behind the back of the assessee in the course of survey and even then Shri Mohan had only confirmed the position that the land and depreciable assets were not separately valued. He took us through the statement of Shri Nagarajan, Vice President (Finance) of the assessee-company, also which we have extracted hereinabove and pleaded that even Shri Nagarajan confirmed the same position. He further pleaded that the estimate of short-term capital gains assessable under s. 50, which was given by the assessee before the AO in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... effected only by registered document, in which values have to be assigned for the property transferred for the purposes of stamp duty, and that is how a portion of the sale consideration was reflected as values of the land and buildings in the transfer deed dt. 29th Nov., 1990, relevant portion of which we have extracted hereinabove. He further pleaded that the fact that a conveyance was executed in which value was ascribed for stamp duty purposes to the immovable property conveyed, does not militate against the transaction being regarded as a slump sale of an undertaking as a going concern for a lumpsum consideration. For this proposition, he relied upon the decision of the Bombay High Court in Premier Automobiles Ltd. vs. CIT (supra) with particular attention to pp. 60, 71, 78 and 79 of the said decision. He further explained that this principle is now recognised in Expln. (2) to s. 2(42C), which reads as under : "(2)'' (42C) "Slump sale" means the transfer of one or more undertakings as a result of the sale for a lumpsum consideration without values being assigned to the individual assets and liabilities in such sales. Expln. 1''. Expln. 2 - For the remo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hered about the values stated in the receipt. 32.11. It is pleaded that, if the pleas taken by the learned standing counsel for disqualifying a sale from being treated as a slump sale are accepted, there cannot be any slump sale because in every case, there will be allocation of values in the books of the transferee-company; there will be assignment of values in respect of immovable properties in the registered documents; and special procedures for the valuation of ancillary items of assets/liabilities which stand excluded from the sale consideration specified. It is stressed that, as already mentioned, what has to be seen is whether the undertaking is substantially transferred as functional unit for a lumpsum consideration. 32.12. The learned counsel for the assessee, Shri Dastur invited our attention to the report of the valuer, Shri B. Jagannadha Rao and associates dt. 6th Nov., 1990 and mentioned that the said report was sent to India Cements Ltd. and not to the assessee-company because the properties were got valued by the former company only for the purposes of payment of stamp duty. 32.12A. Referring to the contention of the learned standing counsel that the liability ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fact that, in a slump sale, there is no tax on the transfer of individual assets or a block of assets. Shri Dastur further pointed out that there are more individual sales than slump sales. 32.15. Shri Dastur also explained that simply because the written down value of certain items, like vehicles and furniture is not substantial, it does not follow that the consideration of Rs. 105.30 crores is allocable to depreciable assets. An undertaking consists of various assets like goodwill, brand name, licence, man-power and such other intangible assets like trade marks, mining rights, etc. and it does not mean the sale consideration can be allocated to separate assets simply because the written down value of some of the tangible assets reflected in the balance sheet is low. 32.16. It is further pleaded that, if the Revenue seeks to assert that the transaction is contrary to that evidenced by the terms of the agreement of sale, it is for the Revenue to establish that, in fact, there is an itemised sale of assets, with different values ascribed to each asset that is transferred, and that the values were so ascribed on the date when the agreement was arrived at. It is pleaded that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the apex Court held that the provisions of s. 10(2)(vii) of the Indian IT Act, 1922 were attracted. As heavy reliance is placed by the Department on this decision, we find it worthwhile to reproduce the comments of the learned counsel for the assessee on this decision, as given in his written submissions. They are as under : "1. CIT vs. B.M. Kharwar (1969) 72 ITR 603 (SC) In this case the assessee, a firm, engaged in business of manufacturing, purchasing and selling cloth, closed the manufacturing activity, and transferred the machinery to a private limited company in the share capital of which the partners of the firm had the same interest as they had in the assets and property of the partner. It was contended that as the firm and the company were in substance one entity only, there could be no liability to tax under the second proviso to s. 10(2)(vii) of the 1922 Act. Two contentions were raised before the Supreme Court. The first was that as the transfer had taken place between two entities, which were in substance the same, no liability to a balancing charge arose. The Supreme Court dealt with this argument at p. 608 of the report and held that the company was a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0(2)(vii) be attracted the business should have been carried on by the assessee for at least a part of the previous year, the machinery should have been used for the said business and machinery should have been sold when the business was being carried on and not for the purposes of closing it down. In that case as the machinery was sold after the business was closed down it was held that the provisions of s. 10(2)(vii) would not apply. The lacuna was plugged by the Amendment Act of 1949. Therefore, the Supreme Court in CIT vs. Ajax Products Ltd. (1965) 55 ITR 741 (SC) held that the amendment made in 1949 only removed one of the conditions for the exigibility of the balancing charge to tax, viz., that the asset should have been sold when the business was carried on. Therefore, all that B.M. Kharwar's case lays down is that after the Amendment Act, 1949 referred to earlier even if plant and machinery is sold as a part of a realisation sale the provisions of the second proviso to s. 10(2)(vii) would be attracted. It proceeds on the assumption that the sale price for the transfer of the assets is known. A slump sale undoubtedly would be a realisation sale but all realisat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al assets then, what is transferred is the business as such and there would be no liability to tax computed on the basis of a transfer of individual assets. If, however, as in the case of Artex Manufacturing Company, the price for the transfer is determined as of the transfer date having regard to the individual values of the various assets transferred, then, even though the business as a whole may be transferred the tax consequences flow as if there was a transfer of individual assets. A valuation report valuing the individual assets or a schedule to an agreement listing out individual values would have no relevance unless the lumpsum consideration has been determined on the basis of such itemised values." 32.21. It is also pointed out that the subsequent decisions in the case of Artex Manufacturing Co. (supra) and Electric Control Gear Manufacturing Co. (supra) are in no way contrary to the principles laid down in the case of B.M. Kharwar (supra). It is further pointed out that both the cases of Artex Manufacturing (supra) and Electric Control Gear Manufacturing (supra) which involved similar issues also lay down the same ratio, even though, on facts, the conclusions drawn were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent of the third condition mentioned hereinabove for attracting s. 50. 32.26. Under s. 10(2)(vii) of the Indian IT Act, 1922 and under s. 41(2) of the IT Act, 1961, the excess of the sale consideration received over the written down value of the asset upto the specified extent, i.e., the difference between the original cost and the written down value, is brought to tax as business profit. The excess over the original cost is brought to tax separately under the head 'capital gains'. In terms of s. 50, which was introduced in the present form by the Taxation Laws (Amendment and Miscellaneous Provisions) Act, 1986 w.e.f. 1st April, 1988, the excess of the sale consideration received over the written down value is brought to tax exclusively under the head 'short-term capital gains', and no portion of such excess is brought to tax under the head 'business', but the pre-condition for attracting both s. 50 and s. 41(2) is that a part of the sale consideration has to be relatable to the transfer of a depreciable asset. Otherwise, neither s. 41(2) nor s. 50 is attracted. As, in a slump sale, no portion of the sale consideration is relatable to the transfer of a spe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... form came w.e.f. 1st April, 1988 are attracted because the excess depreciation granted to the assessee by the Department has to be withdrawn. In the case of a slump sale, there would be no liability under s. 41(2) or the analogous provision of s. 50 upto the asst. yr. 1988-89 in the light of the decision of the apex Court in the case of Mugneeram Bangur (supra) and Electric Control Gear Manufacturing Co. (supra). Similarly, there would be no liability under s. 50 w.e.f. 1st April, 2000 i.e., from the asst. yr. 2000-2001 because of the provisions of s. 50B which came into effect from 1st April, 2000, and as s. 50 and s. 50B are mutually exclusive. But there would be liability under s. 41(2) or s. 50 in the intervening period, i.e. from asst. yr. 1989-90 to asst. yr. 1999-2000. It is pleaded that there is no warrant for accepting such a plea which leads to an odd interpretation. 33. The learned standing counsel for the Revenue, Shri Ashok assisted by Shri Jayashankar, CIT, in his rejoinder, pointed out that, as per the earlier decision of the Tribunal in India Cements Ltd., some of the so-called intangible assets like goodwill, brand name, trade marks, mining rights were held to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unsurmountable difficulty of evaluating assets, like secret reserves, etc. as in a bank, there may be slump sale, but not in a case where there are only few assets of minor value like one or two vehicles, little furniture and the remaining assets comprise only plant and machinery. He pointed out that the ratio of the decision of the apex Court in the case of Srinivasa Shetty (supra) cannot be interjected here and as there is no goodwill and the value of the other intangible assets is also nominal, the assessee is free to furnish their values if they have any, and a suitable deduction for such intangible assets can be given and the remaining sale consideration has to be regarded as allocable to plant and machinery which is the main asset. If the assessee does not co-operate and give such value, it is stressed that the Tribunal is free to resort to a suitable estimate. He pointed out that, whatever is the method of sale the assessee adopts, it is the obligation of the assessee to pay capital gains under s. 50 r/w s. 43(6)(c) of the IT Act. 33.4. Shri Ashok also pointed out that an assessee cannot be allowed to get away with such ruses. Hypothetically, an assessee owning two buses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unit involved huge machinery and also substantial acreage of land exceeding 2000 acres. These tangible assets are spread over different places like Cuddapah and Secunderabad in Andhra Pradesh and Madras, Bangalore, Ernakulam, etc. When tangible assets situated at far-flung areas are involved, it would be nitpicking to say, on the basis of the valuation of a few ancillary items, that the sale is not a slump sale. The entire manpower of the assessee-company has been taken over by India Cements Ltd. Financial liabilities are taken over. What is to be seen is whether the cement unit as a functional productive unit has been transferred for a lumpsum price. We are of the view that it was so transferred. 35. In the case of Premier Automobiles vs. CIT (supra), the Hon'ble Bombay High Court, while considering the sale of an undertaking where sizeable chunk of the business was not involved in the sale observed that one has to adopt commercial principles for interpreting such transactions and held that the sale was a slump sale. We are of the view that the case of the assessee is on a far better footing than the case considered and decided by the Hon'ble Bombay High Court. 36. The l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er appointed by the vendee and not the approved valuer appointed by the assessee-company. 39. Reliance placed by the learned standing counsel for the Revenue on the decision of the apex Court in the case of B.M. Kharwar (supra) is misplaced. In that case, what was transferred was only an item of machinery, and the item was transferred for a specific price. So, the apex Court held that the provisions of s. 10(2)(vii) of the Indian IT Act, 1922 corresponding to s. 41(2) of the 1961 Act were attracted. The said decision in no way overrules the decision of the apex Court in the case of Mugneeram Bangur, as explained by the learned counsel for the assessee. The decision of the apex Court in the case of B.M. Kharwar (supra) operates in a different field, whereas the other three decisions of the apex Court, i.e. Mugneeram Bangur (supra), Artex Manufacturing Co. (supra) and Electric Control Gears Manufacturing (supra) are concerned with the transfer of an undertaking as a going concern. The ratio of all the three decisions is more or less the same, even though Artex Manufacturing Co. (supra) went against the assessee and the decisions in the other two cases went in favour of the assessee. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompensation has been determined the difference between the book value of the assets and the liabilities as per the books of the assessee, he proceeded to determine the cost of the undertaking which has been transferred by taking the book value of the assets and deducting depreciation which had been allowed on the depreciable assets so as to arrive at the written down value as adjusted for purposes of s. 50''" 41. It may be observed that the Hon'ble High Court held that lumpsum compensation received for the entire undertaking cannot be cut up and attributed to the cost of various individual assets. In the light of the explicit comments of the Hon'ble High Court in this case on this issue, we are of the view that the lumpsum consideration received in a slump sale, as the present one, cannot be cut up and allocated to depreciable assets. Similar are the observations of the Hon'ble Karnataka High Court in the case of Syndicate Bank vs. Addl. CIT (supra) in which the Hon'ble High Court was considering the question of capital gains on the transferred entire undertaking being a banking concern. The relevant portion of head note reads as under: "If there is a tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he same are embedded in the ground or not. This is a question of fact, which, to our mind, cannot be raised for the first time before the Tribunal. The contracting parties appear to have taken the plant and machinery as movable assets, which could be transferred by simple delivery, i.e. without a registered deed, and that is how, the assessee obtained a receipt in proof of the delivery given. It was for the registration authority to have questioned the transfer, if it had any doubt in mind. At any rate, at least, it was for the AO to have raised this issue, if he doubted the validity of the transfer. The Revenue cannot have it both ways. They cannot compute the liability to tax under s. 50 on the assumption of a valid transfer, and, at the same time, question that there was no valid transfer. If there is no valid transfer, there should be no liability under s. 50. Having determined the liability under s. 50, we are of the view that it is too late in the day for the Revenue to raise the question of validity of the transfer for the first time before the Tribunal. 45. Further, if there is any suppression of materials, it is for the Revenue to establish the same. They have conducted a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the apex Court in the case of McDowell (supra) is attracted. We do not find merit in this contention also. It could be that the assessee deliberately resorted to a slump sale for the purpose of avoiding tax liability under s. 50. That, by itself, to our mind, does not attract the ratio of the decision of the apex Court in the case of McDowell (supra). To invoke the ratio of that decision, the Revenue has to prove that the transaction in the form in which it was entered into is a sham transaction which is not done. In this context, it is also necessary to bear in mind the remarks of the apex Court in the case of Union of India vs. Azadi Bachao Andolan (2003) 184 CTR (SC) 450 : (2003) 263 ITR 706 (SC), in which as per the relevant portion of the head-note, it has been observed at pp. 758-759 as under : "We may in this connection usefully refer to the judgment of the Madras High Court in M.V. Valliappan vs. ITO (1988) 67 CTR (Mad) 289 : (1988) 170 ITR 238 (Mad) which has rightly concluded that the decision in McDowell (supra) cannot be read as laying down that every attempt at tax planning is illegitimate and must be ignored, or that every ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere relatable to transfer of specific assets. That is why the case was decided in favour of the Revenue. That is not the position in the present case. There is no evidence of valuation of specific assets either in the agreement or in any schedule attached to the agreement. Actually, there is no schedule to the agreement. No such proof of valuation of specific assets is available even in the material obtained from the assessee before the AO, or located during the survey by the Department on the premises of the contracting parties. In the circumstances, we are driven to the conclusion that the sale in question is a slump sale. We are also fortified in our conclusion by the unreported decision of the Bombay High Court in the case of Premier Automobiles (supra); and the decisions of the apex Court in the case of Mugneeram Bangur (supra) and even Artex Manufacturing (supra). Lots of other decisions were cited by both the parties. As it is the admitted position of both the parties that the applicable law in the context of slump sale has to be ascertained from the four decisions of the apex Court mentioned above, we do not find it necessary to deal with the other decisions cited by the pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etc. and other such intangible assets had any determinable cost of acquisition or not, becomes irrelevant. Your appellant submits that all the above intangible assets relating to cement unit taken over by the purchaser are valuable assets without which no buyer would purchase the cement unit. The cost and dates of acquisition of such intangible assets taken over being indeterminate the computational machinery provided in s. 48 of the Act fails rendering the section inoperative even if it be possible to take the view that the cost of acquisition of the undertaking is the sum total of the cost of each of the assets transferred as a part of the undertaking. Ground No. 3 (a) Without prejudice to ground Nos. (1) and (2) above, having held that the sale is of the cement undertaking, a distinct capital asset, the CIT(A) erred in directing the Dy. CIT to consider the written down values of the assets which have been allowed depreciation in determining the cost of acquisition of the part of the cement undertaking having failed to appreciate that s. 50 of the Act has application only where capital gains has to be determined on the sale of assets and the actual cost of assets comprisin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the value on 31st March, 1990 having failed to appreciate that these were transferred on a subsequent date on the basis of an inventory taken on that date because of which shortage of Rs. 12,70,672 against book value were determined and an excess of Rs. 25,25,604 was similarly determined and that, therefore, the net amount taxable would be the difference between the excess and the shortages aforesaid to be treated as long-term capital gains. Ground No. 5 The learned CIT erred in enhancing the quantum of capital gains which would arise on the basis set out in his order as against the amount adopted by the learned Dy. CIT having failed to appreciate that an opportunity of being heard on such an enhancement should have been provided to the appellant before directing an increase in the quantum of capital gains so determined. Ground No. 6 (a) The CIT(A) erred in directing the Dy. CIT to allow investment allowance of Rs. 5,02,16,945 relating to the fertiliser unit under s. 32A(3)(II) of the Act only in case there is a surplus income under the head "income from business" on the basis of the fresh computations to be made for giving effect to this order, having failed to appreci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he own case of your appellants for the asst. yrs. 1982-83 and 1983-84 reported in IAC vs. Coromandel Fertilizers Ltd. (1989) 29 ITD 455 (Hyd) has held that the cement and fertiliser activities are the same business and interest is deductible under s. 36(1)(iii) of the Act. Ground No. 9 Your appellants submit that the learned CIT(A) having held there is no sale or transfer of any individual asset or a block of assets ought to have held that the learned Dy. CIT erred in not allowing depreciation having failed to appreciate that under the new scheme of the Act a block of assets continues to be entitled to such depreciation irrespective of whether the assets continue to exist or not, now that there was no credit to be given to any block on a transfer of the undertaking. Your appellants crave leave to add to, alter or amend the aforesaid grounds of appeal or any of them as they may be advised from, time to time." 58. At the outset, we may note that the learned counsel for the assessee, at the time of hearing on this appeal, has not pressed grounds Nos. 5, 6 and 8. They are accordingly rejected. 59. In the course of hearing before us, the learned counsel for the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing regard to the principles laid down in a number of decisions, it must be held that the cost of acquisition and cost of improvement of the cement business is not ascertainable, and so, the computational provisions of s. 48 fail and so, there can be no question of levy of tax under the head 'capital gains' under s. 45. In this context, the learned counsel has relied on a number of decisions, some of which are as under : (1) CIT vs. B.C. Srinivasa Setty (1981) 21 CTR (SC) 138 : (1981) 128 ITR 294 (SC) (2) Evans Fraser & Co. Ltd. (In Liquidation) vs. CIT (1981) 25 CTR (Bom) 128 : (1982) 137 ITR 493 (Bom) (3) Addl. CIT vs. Ganapathi Raju Jegi, Sanyasi Raju (1979) 119 ITR 715 (AP) (4) Addl. CIT vs. Ganpathi Raju Jogi (1993) 200 ITR 612 (SC) (5) Bawa Shiv Charan Singh vs. CIT (1985) 47 CTR (Del) 12 : (1984) 149 ITR 29 (Del) (6) CIT vs. Markapakula Agamma (1987) 63 CTR (AP) 108 : (1987) 165 ITR 386 (AP) (7) CIT vs. Clive Mills Co. Ltd. (In Liquidation) (1983) 36 CTR (Cal) 300 : (1984) 148 ITR 14 (Cal) (8) CIT vs. Suman Tea & Plywood Industries ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ational provisions of s. 48 failed. They were all capital assets and, technically, tax under the head 'capital gains' is chargeable on their transfer in terms of s. 45, but only because their cost of acquisition and their cost of improvement in terms of s. 48 was not ascertainable in respect of these assets, no capital gains tax was chargeable on the transfer of these assets. An artificial definition deeming the cost of acquisition to be nil had been provided for in respect of the above assets by the legislature by successive amendments noted above. It is further pleaded that when the cost of acquisition and the cost of improvement of such assets which are relatively simple in nature had been held by the Courts to be unascertainable, there is all the more reason to hold that the cost of acquisition and the cost of improvement of an industrial undertaking like the cement unit in question, which comprises so many such assets is also unascertainable. 65. It is further pleaded that it is because of this lacuna in respect of the levy of capital gains under s. 45 on the slump sale of an industrial undertaking like the cement unit in question that the legislature has w. e. f. ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned. 68. In support of the proposition that the cost of acquisition of an undertaking cannot be ascertained, he relied upon the decision of the Ahmedabad Bench of the Tribunal in the case of Industrial Machinery Associates (supra), and also decision of the Madras High Court in the case of CIT vs. P.V.K. Shaikh Mohammed Rowther & Co. (1985) tax LR 675). 69. It is further pleaded that if the cost of acquisition of the undertaking is held to be ascertainable, then question of the modus of its ascertainment would arise. The CIT(A) held that the cost of acquisition of the undertaking has to be determined with reference to the various assets reflected in the balance sheet, and he held that the depreciable assets should be taken at their written down value. It is pleaded that the written down value is not the same as cost. Relying on the dictionary meaning of the term 'cost' as "what is laid out or suffered to obtain anything", he pleaded that it is what the assessee has, in fact, expended and laid out for the purposes of acquiring the asset, that has to be regarded as the cost of acquisition thereof. In this context, he placed reliance on the decision of the Hon'ble Bombay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the cement unit from the block, the learned counsel for the assessee in the written submissions, separately filed in the context of assessee's appeal, mentioned as under : "Ground No. 9 It is submitted that having regard to the finding given by CIT(A) that what was transferred was the cement undertaking as a going concern and there as no identifiable consideration relatable to the various assets that were transferred, the CIT(A) ought to have directed the AO to allow depreciation on the written down value of the assets of Rs. 46,47,65,108. Under s. 32 depreciation is allowed on the written down value of the block of assets. The term "written down value" is defined in s. 43(6). It is submitted that having regard to the said definition written down value can only be reduced by the money payable in respect of the asset that was transferred by way of sale or exchange. If, therefore, an asset is transferred by a sale or exchange and an identifiable price is determined for such transfer, only then can an adjustment as contemplated by s. 43(6)(c)(i)(B) be made. As admittedly there is no price paid by India Cements Ltd. for acquiring the individual assets of the assessee the adj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... : Sec. 32(1)'. (2) Where in the assessment of the assessee full effect cannot be given to any allowance under cl. (ii) of sub-s. (1) in any previous year owing to there being no profits or gains chargeable for that previous year or owing to the profits or gains being less than the allowance, then, the allowance or the part of allowance to which effect has not been given (hereinafter referred to as unabsorbed depreciation allowance) as the case may be : (i) shall be set off against the profits and gains, if any, of any business or profession carried on by him and assessable for that assessment year; (ii) if the unabsorbed depreciation allowance cannot be wholly set off under R cl. (i), the amount not so set off shall be set off from the income under any other head, if any, assessable for that assessment year; (iii) if the unabsorbed depreciation allowance cannot be wholly set off under cl. (i) and cl. (ii), the amount of allowance not so set off shall be carried forward to the following assessment year and' (a) it shall be set off against the profits and gains, if any, of any business or profession carried on by him and assessable for that assessment year; (b) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e asst. yr. 1982-83 and 1983-84 in which it was held that the cement and fertiliser units represented one and the same business, and so, the interest on the capital borrowed for setting up the cement unit was deductible under s. 36(1)(iii) of the IT Act as revenue expenditure, without its being capitalised. 77. On the various issues elaborately raised in ground No. 4, the learned counsel for the assessee in the above written submissions mentioned as under : "Ground No. 4 ........................It is submitted that the CIT(A) has directed that the legal fees, consultancy fees etc., if actually incurred, can form part of the business expenditure and a provision in respect thereof is not allowable. It is submitted that this expenditure was incurred in connection with the transfer of the cement undertaking and therefore, would be allowable under s. 48(i) as expenditure incurred wholly and exclusively in connection with the transfer. Even assuming that the amount has to be allowed as a deduction in computing the business income as the assessee admittedly follows the mercantile method of accounting, the same has to be allowed even if a provision for a liability has been made and ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Tribunal has been holding that, at least, 25 per cent of the entertainment expenditure (claimed at 50 per cent in the grounds) has to be treated as relatable to the employees and hence, allowable as business expenditure. 80. The learned standing counsel for the Revenue, argued, firstly, that it is futile to argue that the cost of acquisition of an undertaking cannot be computed. For any undertaking, cost can be computed, as it is reflected in the books of account. Further, in the case of the assessee, it is stressed that it is a simple affair to calculate its cost, as it has no intangible assets. He invited our attention to the order of the Madras Bench of the Tribunal in the case of India Cements Ltd. wherein it was held that there was no goodwill for the assessee-company and so the consideration paid by the India Cements could be allocated to depreciable assets for the purposes of grant of depreciation without reducing it by the cost of the goodwill. It is pleaded that the finding given by the Tribunal in the case of the vendee company is also applicable, if not binding on the Tribunal for deciding the present appeal. 81. In support of the contention that the assessee has n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 55, as per which the cost of acquisition of the assets like goodwill has to be taken as nil. It is pleaded that the provision of s. 55(2)(a) can be relied upon and held that the cost of acquisition of such intangibles is nil. It is further pleaded that prior to insertion of s. 50B, it is not as though the slump sale was exempt from tax under the head capital gains. It is pleaded that the said provision is clarificatory. It is also pleaded that the said provision is retro-active though not retrospective. When asked to explain the distinction, the learned standing counsel said that the said provision can be invoked in pending proceedings, even though it cannot be invoked to unsettle the completed assessments. He further explained that it is analogous to the provisions of r. 1BB of the WT Act, relating to the valuation of residential properties, which has been held by the various Courts as being procedural, and so applicable for pending proceedings of even earlier years. 84. It is further pleaded that, as the case of the assessee is that he has sold the entire undertaking, it is not permissible for the assessee to argue that, as the cost of some of the individual items like goodwill ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ued that, if liquor is taxable, the subject cannot escape tax simply because the assessee puts it in a tub and sells it. The plea taken is that as clearly capital gains is leviable on the sale of plant and machinery, the same would still be leviable even if the machinery is not sold piece meal, and the entire undertaking including the machinery is sold. 88. Referring to the decision of the Hon'ble Madras High Court in the case of P.V.K. Shaikh Mohammed Rowther & Co. (supra), the learned standing counsel pleaded that the decision was rendered in the light of a concession given by the learned counsel who appeared before it that the matter should be decided against the Department because of the decision of the Supreme Court in CIT vs. Sreenivasa Setty's case (supra). So, it is more an order than a judgment. So, it is pleaded that it need not be preferred to the decisions of the other High Courts like that of the Bombay High Court in the case of Premier Automobiles referred to above. 89. On the question of grant of depreciation raised in ground No. 9 above, it is pleaded that it is imperative for the grant of depreciation in terms of s. 32 of the IT Act that the asset is both ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cts, there would be losses in the initial years and profits in subsequent years, but irrespective of the profit or loss of the year, the undertaking can have goodwill. 92. Referring to the decision of the Calcutta High Court in the case of Saharanpur Light Railway Co. vs. CIT (supra) it is mentioned that the said decision is distinguishable. In that case, what was involved was the valuation of a particular machinery. It could not be valued because it was transferred, and the Valuation Officer could not inspect it for the purpose of valuation. It is pleaded that simply because of a particular difficulty, the cost could not be ascertained in that case. Unlike the present one, that is not a case where the cost is inherently unascertainable irrespective of facilities available for such ascertainment. Shri Dastur also took cudgels with the proposition that s. 50B is only a procedural provision and is retro-active. He mentioned that s. 50B is a charging section and not a procedural section. The language of s. 50B is identical with that of s. 45. Before the charge was imposed by s. 50B on a slump sale, the charge could not be imposed at all. As it is a charging section, it has no retrosp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he claim upto 31st March, 1990, and so, there is no reason why they should not allow the claim upto November, 1990, i.e., the date of transfer. Regarding the obsolete items written off, it is mentioned that the Department can be given an opportunity to verify whether they are capital items or not and if they are not capital items, they should be allowed, if not as part of the cost of the undertaking in the computation of capital gains, at least, as normal revenue expenditure. 98. On the question of Rs. 12,70,672 claimed as deduction, it is mentioned that, as the Department has taken the amount of Rs. 25,25,604 being the excess of the value at which certain assets were transferred, over their book value as part of sale consideration, the assessee must also get a deduction for Rs. 12,70,672, being the deficit in respect of other assets. In other words, the sale consideration can be increased only by the difference of Rs. 12,54,932. 99. It is also pointed that it is quite erroneous to think that any of the High Courts have held that the cost of acquisition of an undertaking is ascertainable. In the case of Premier Automobiles, the Hon'ble High Court has only remanded the matter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Madras High Court, a banking company was nationalised and it was paid a lumpsum consideration for the entire undertaking of Rs. 2,30,00,000. The only argument that was raised was whether the written down value of the assets could be the basis for determining the cost of the undertaking. The Court decided that the cost of acquisition of the undertaking could be determined by applying the provisions of s. 55(2) r/w ss. 48, 49 and 50, as they stood during the relevant period. 102. Sec. 50 during the relevant period stood as under' "Sec. 50. Special provision for computing cost of acquisition in the case of depreciable assets - Where the capital asset is an asset in respect of which a deduction on account of depreciation has been obtained by the assessee in any previous year either under this Act or under the Indian IT Act, 1922 (XI of 1922) or any Act repealed by that Act, or under executive orders issued when the Indian IT Act, 1886 (II of 1886), was in force, the provisions of ss. 48 and 49 shall be subject to the following modifications:' (1) The written down value, as defined in cl. (6) of s. 43, of the asset, as adjusted, shall be taken as the cost of acquisition of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... like the following : (a) CIT vs. Narkeshari Prakash Ltd. (supra) (b) CIT vs. F.X. Periera & Sons (Travancore) (P) Ltd. (1991) 94 CTR (Ker) 176 : (1990) 184 ITR 461 (Ker). (c) CIT vs. Hindustan Co-operative Insurance Society (1992) 107 CTR (Cal) 323 : (1994) 72 Taxman 259 (Cal). 105. We have also referred to some of these decisions in the context of Department's appeal in ITA No. 253/Hyd/1995 hereinabove. The learned counsel for the assessee has not denied that the undertaking is a capital asset and that, in principle, capital gains tax is chargeable on the transfer of an undertaking in terms of s. 45 of the IT Act. The only plea is that the computational provisions of s. 48 fail, and so, on the transfer, levy of capital gains tax has to fail. In other words, the situation is the same as on the transfer of goodwill or other self-generated assets like route permits, tenancy rights, import entitlements. This issue was not considered by the Hon'ble Kerala High Court or any of the other High Courts in the abovementioned order. 106. In the case of Killick Nixon & Co. & Ors. vs. CIT (1963) 49 ITR 244 (Bom), referred to by b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the said question is, therefore, in the affirmative." It may be observed that in this decision, the question whether the cost of an undertaking is ascertainable was not argued. The assessee opted for the market value of the asset as on 1st Jan., 1939, as he was entitled to in terms of third proviso to s. 12B(2) of the 1922 Act as it stood during the relevant time. So, the question before the Tribunal was as to how the market value as on 1st Jan., 1939 was to be ascertained. The other question as to whether the cost of the acquisition of the undertaking could be ascertained at all was neither raised nor considered. It requires to be remembered that the assessee is entitled to substitute the market value of the asset as on 1st Jan., 1939 in the place of the cost of acquisition. 107. If the cost of acquisition is not ascertainable, no capital gains tax could be levied even if the market value of the separate asset or of the undertaking as a whole as on 1st Jan., 1939 could be determined. In this context, a reference may be made to the decision of the apex Court in the case of CIT vs. Official Liquidator, Palai Central Bank (supra) in which, it was held that a levy of super profit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion given by the Hon'ble Bombay High Court in the case of Premier Automobiles (supra). The final comments and the directions of the Hon'ble High Court in that case are as under : "Accordingly, we set aside the order of the Tribunal. We make it clear that s. 45 of the IT Act applies in this case. This is on the footing that Kalyan Unit constituted the capital asset which has been transferred to PPL and on that basis the AO will have to apply the parameters under ss. 45, 48 etc., and decide on remand whether any capital gains tax liability arises, and, if so, what is the amount thereof." The above directions show conclusively that the matter is left open in this case also and the High Court did not give any finding that the cost of acquisition of an undertaking is ascertainable. 112. We may also mention that no case has been brought to our notice by the Department, where it has been held by any High Court or the Tribunal that the cost of the acquisition of an undertaking is ascertainable and that the computational provisions of s. 48 can be met in the case of transfer of an undertaking as a going concern. 113. On the other hand, the learned counsel for the assessee has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng section and the computation provisions together constitute an integrated fiscal code. In the present case, computation provisions contained under s. 48 fail and, therefore, slump sale is not intended to fall within the purview of charging section. Sec. 45 is a charging section. For the purpose of imposing the charge, Parliament has enacted detailed provisions in order to compute the profits or gains under that head. No existing principle or provision at variance with them can be applied for determining the chargeable profits and gains. All transactions encompassed by s. 45 must fall under the governance of its computation provisions. A transaction to which those provisions cannot be applied must be regarded as never intended by s. 45 to be the subject of the charge. This inference flows from the general arrangement of the provisions in the IT Act where under each head of income the charging provision is accompanied by a set of provisions for computing the income subject to that charge. A business undertaking as a going concern includes all rights, assets, contingent or definite, corporeal and incorporeal and all interest in advantage, present or future. It also includes the mana ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sly be contrary to the computation provisions contained under ss. 48 and 49. Regarding date of acquisition, this essential fact is truly unascertainable and understandably no attempt has been made by AO to identify the same. The AO has sought to overcome the difficulty by treating the surplus realisation as attributable to stock-in-trade and treating the same as short-term asset. The entire approach of the AOP is contrary to computation provisions contained under ss. 48 and 49 and amply demonstrate the inherently unworkable nature of these provisions in relation to slump sale. What has been sold is the entire business undertaking as a going concern. Cost of acquisition, cost of improvement as well as date of acquisition of the going concern are not capable of determination. Hence computation provisions fail and no capital gain would be chargeable under s. 45. If the law fails to bring the subject within its letter, the Department cannot succeed with the argument that the subject falls within the spirit of the law. Conclusion : Sec. 50B introduced for levy and computation of capital gains in the case of slump sale is effective from asst. yr. 2000-2001 and would not apply to earl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt in the case of Evans Fraser & Co. Ltd. (supra), observed, as per the relevant portion of the head note, as under : "Goodwill is a property or asset of a business. It is a capital asset. But merely because it is a capital asset, gains arising on its transfer would not automatically be liable to tax. Even if the moment of acquisition of goodwill and its cost of acquisition can be pinpointed, its cost of improvement cannot be precisely ascertained in terms of money. It differs from a tangible asset such as an immovable property of a share in a joint stock company which retains its shape and form but of which the market value fluctuates. The market value of goodwill also fluctuates but it fluctuates because of its fluid nature. Goodwill built up over the years can be destroyed in a matter of days. Merely because the goodwill of a business, which had been started by some one else, had been acquired and at the time of acquisition its value ascertained, it does not mean that some time or some years later the goodwill enjoyed by that business in the hands of the purchaser is qualitatively the same goodwill which had been enjoyed at the moment of sale by the vendor. The income chargeab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ether, on the facts and in the circumstances of the case, the Tribunal was right in cancelling the penalty of Rs. 4,75,000 levied under s. 271(1)(c) of the Act for asst. yr. 1972-73?" 3. The Tribunal following the ratio laid down by this Court in CIT vs. K. Rathnam Nadar (supra), found that the assessment to capital gains on the facts of the case was not justified and accordingly, deleted the addition of Rs. 4,75,000. It is now fairly stated that the judgment of this Court in (1969) 71 ITR 433 (supra) was subsequently confirmed by the Supreme Court in CIT vs. B.C. Srinivasa Setty (supra). In view of the admitted position, we answer the first question referred to us in the affirmative and against the Revenue. Consequently, the second question is also answered against the Revenue. No costs. Reference answered in affirmative." 118. It may be observed that the only concession made by the learned counsel for the Revenue was that the judgment of the Hon'ble Madras High Court in the case of CIT vs. K. Rathnam Nadar (supra) was approved by the Supreme Court in Srinivasa Setty's case (supra). It does not follow that the learned counsel for the Revenue conceded that no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the undertaking on the date of transfer is deemed to be its cost of acquisition. The question now to be considered is whether this section has a retrospective or retroactive operation, as claimed by the learned standing counsel. The learned counsel for the assessee argued, as already mentioned, that language of this provision is as close as possible to s. 45, and so, it is a charging section. If the section is construed as a charging section, we are of the view that there would be some anomaly. High Courts like the Hon'ble Karnataka High Court in the case of Syndicate Bank (supra) and the Hon'ble Bombay High Court in the case of Premier Automobiles (supra) have held that tax under the head 'capital gains' is leviable, in principle, on the sale of a capital asset, being an undertaking, in terms of s. 45 of the IT Act. The Hon'ble Bombay High Court have also held that s. 50B is only prospective in operation. It means, if s. 50B is also a section imposing charge on the transfer of an undertaking, by way of slump sale, it means that there are two charging sections viz., s. 45 and s. 50, imposing charge on the same income, which, to our mind, is not correct. Even b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f any recognised modes of ascertainment of cost. So, s. 50B cannot, to our mind, be regarded as a procedural section. While it is not a charging section, it is also not a procedural section. It may have to be regarded only as a substantive provision. So, it has only prospective operation, as held in the cases referred to above. 123. In view of our above findings, the computational requirements of s. 48 are not satisfied, and so, no tax is leviable in terms of s. 45 on the transfer of the cement unit in question. In this context, we also refer to the judgment of the apex Court in the case of CIT vs. Ajax Products Ltd. (supra), in which it was held that the subject is not to be taxed unless the charging provision clearly imposes the obligation. In the present case, the charging provision, i.e., s. 45, is clear, but the computational provisions of s. 48 are not satisfied as held by the apex Court in the case of Srinivasa Setty (supra). In this view of the matter, we accept the contentions of the assessee on this aspect, and hold that no tax is leviable on the transfer of the cement unit in this case, as the requirements of computational provisions of s. 48 are not satisfied. Assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no particular consequence in normal circumstances, cannot be regarded as the correct procedure conforming to the requirements of law. 126. In the present case, the AO presumably treated both the fertiliser and cement business as one unit and so, while computing the short-term capital gains under s. 50, he gave deduction for the WDV of the blocks of both the fertiliser unit and of the cement unit. As we have held in the context of departmental appeals hereinabove that the lumpsum consideration is not allowable to the depreciable assets and so the provisions of s. 50 are not attracted in this case, it makes no difference whether both the units are treated as the same business or they are treated as separate units or businesses. 127. But for the grant of depreciation in subsequent years, the question as to whether the two units constitute one business or not may have some importance. If they are separate businesses or sources or undertakings, it means that all the blocks of the depreciable assets relating to the cement unit have ceased to exist on their transfer to India Cements Ltd. The pre-condition for the grant of depreciation under s. 32 is ownership of assets and their user i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reads as under: "43. In ss. 28 to 41 and in this section, unless the context otherwise requires' (1) to (5) ................................................... (6) "written down value" means' (a) and (b) .......... (c) In the case of any block of assets,' (i) in respect of any previous year relevant to the assessment year commencing on the 1st day of April, 1988, the aggregate of the written down values of all the assets falling within that block of assets at the beginning of the previous year and adjusted,' (A) by the increase by the actual cost of any asset falling within that block, acquired during the previous year; and (B) by the reduction of the moneys payable in respect of any asset falling within that block, which is sold or discarded or demolished or destroyed during that previous year together with the amount of the scrap value, if any, so, however, that the amount of such reduction does not exceed the written down value as so increased; and (C) in the case of a slump sale, decrease by the actual cost of the asset falling within that block as reduced' (a) by the amount of depreciation actually allowed to him under this Act or under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a case where money is receivable on the sale of an asset. It does not cover a situation where, as in the present case, money in lumpsum is received and no part of it is allocable for the depreciable assets. Similarly, if the asset is gifted, no amount is receivable but the asset has ceased to exist and we are of the view that in such a situation also s. 43(6)(c)(ii) is not attracted. We may mention that, to be fair to him, the learned counsel for the assessee himself has given this example of gift even though he did not concede the ground explicitly. As in the case of the assessee the conditions under s. 43(6)(c)(ii) are not satisfied, we are of the view that even without going into the question of source-wise computation of income, the assessee is not eligible for the grant of depreciation without the reduction of WDV of block of assets of the cement unit from the value of the aggregate value of blocks of both the units. In other words, in a situation like that of the assessee, the precondition of ownership and user are required to be satisfied as the lumpsum received is not allocable to depreciable assets and, as such, the procedure stipulated in s. 43(6)(c)(ii) cannot be followe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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