TMI Blog2000 (8) TMI 276X X X X Extracts X X X X X X X X Extracts X X X X ..... troduced by Taxation Laws (Amendment) Act, 1986, w.e.f. 1st April, 1988. The AO noted that the WDV of the assets sold was Rs. 25,06,672. Applying the provisions of s. 50, he assessed a sum of Rs. 32,93,028 (Rs. 58 lakhs minus Rs. 25,06,672) as short-term capital gains. Consequently, he denied deduction under s. 54E of the Act. 3. On appeal, the learned CIT(A) confirmed the action of the AO holding that special provisions of s. 50 which were brought on the statute book w.e.f. 1st April, 1988, were applicable to the case of the assessee. According to the CIT(A), the assessee had only sold block of assets pertaining to Chemical division. The current assets and liabilities had not been transferred to M/s Hindustan Polyamides Fibres Ltd. as the same had been taken over by the Food division of the assessee-company. Therefore, according to the learned CIT(A), it could be said to be a case covered by s. 50 of the Act. He further held that the mere fact that the assessee had given a consolidated price of Rs. 58 lakhs does not take the case out of the ambit of s. 50 of the Act. The assessee had already claimed depreciation on the assets of Chemical division to the extent of Rs. 43,44,875 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mphasising the proposition that if the entire undertaking is transferred, then such undertaking itself is a capital asset distinct and separate from the assets comprised in the said undertaking. According to the learned counsel, admittedly the undertaking of the assessee to manufacture OPD was held for more than three years and, therefore, it was long-term capital asset within the meaning of s. 2(42A) r/w s. 2(29A) of the Act. The learned counsel further emphasised that what was sold by the assessee in the given case was not individual items forming part of the aggregate unit but the capital asset consisting of business of the whole undertaking. According to the learned counsel, the assessee had sold the unit or undertaking as a whole which is a capital asset as a whole, such asset was not a depreciable asset and no depreciation had been allowed on this particular asset and, therefore, provisions of s. 50 are not applicable. According to the learned counsel, s. 50 creates a fiction as it uses the word "such excess shall be deemed to be the capital gains." And that section is limited to the purpose for which it is created and cannot be extended beyond the legitimate field. In suppor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ustan Polyamidas Fibres Ltd. Agreement was executed on 18th June, 1988, As per Director's report attached with the Annual report for the year, it is seen that: During the month of June, 1988, the current assets and liabilities of the erstwhile Chemical division were transferred to the Food division of the company. Chemical division's accounts including bank account have been closed." Further, as per the details submitted by the assessee during the assessment proceedings, the written down value of the assets sold was Rs. 25,06,672. Thus, according to the learned senior Departmental Representative the Chemical division was sold not as a going concern, but only some of the current assets of the Chemical division were sold. He further submitted that even though there was no sale value pertaining to each fixed asset, yet it is not a pre-condition for evoking the provisions of s. 50. Since only the fixed assets of the Chemical division had been sold during the year and current assets and liabilities had been retained with the Food division of the company and no employee of the Chemical division had been transferred to the new buyer, therefore, it is not a case of slump sale of a goin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lusion that the provisions of s. 50 being specific provisions would apply. As to the argument of the learned counsel that since the entire sale proceeds had been deposited in the assets as specified in s. 54E and, therefore, no capital gain can be levied on the assessee, the learned Senior Departmental Representative submitted that as per s. 50 of the Act, capital gains have to be treated as short-term capital gains and hence the provisions of s. 54E are not available to the assessee. In support of this contention, he placed reliance on the judgment of the Supreme Court in Commonwealth Trust Ltd. vs. CIT (1996) 132 CTR (SC) 230 : (1996) 220 ITR 1 (SC). As regards the reliance placed by the learned counsel on the direct decision of Bombay Tribunal in the case of ACE Builders (P) Ltd. vs. Asstt. CIT, the learned Senior Departmental Representative submitted that "With due respect, I have to submit that the Hon'ble Tribunal has not considered the decision of the Supreme Court in (1996) 132 CTR (SC) 230 : (1996) 220 ITR 1 (SC), in its right perspective. The true significance of s. 50 has not been properly understood by the Members while deciding the said issue. Once it is found that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transferred inasmuch as current assets were kept by the assessee itself. This fact is corroborated by the report of the Directors wherein it has been clearly stated that "the current assets and liabilities of the chemical unit were transferred to Food division." Had there been a sale of going concern, no prudent businessman would have purchased it, even for a consideration of Re. 1 in view of the huge liability in the balance sheet of the Chemical division. Further, there was no transfer of goodwill in the sense that the name and style under which the Chemical unit was being carried on was kept with the assessee and not transferred to the vendee. Therefore, in our opinion, the present case cannot be considered as transfer of going concern and the case does not fall within the definition of 'slump sale'. We accordingly reject the first contention of the learned counsel. 13. We, however, find force in the first alternative contention of the learned counsel that s. 54E is not controlled by any other section and is not subjected to the provisions of s. 50 and accordingly, the assessee is entitled to deduction under s. 54E. Sec. 45 provides for the charge of capital gains. It states ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... within that block of assets, acquired by the assessee during the previous year and the income received or accruing as a result of such transfer or transfers shall be deemed to be the capital gains arising from the transfer of short-term capital assets." There is no dispute in this case that the capital asset, namely, the Chemical unit held by the assessee was a depreciable asset within the meaning of s. 50. This section provides, as aforesaid, for a special treatment for the depreciable asset and as the title of the section indicates, the speciality is only for computing the capital gains. The provisions of this section are made notwithstanding anything contained in cl. (42A) of s. 2. This means that irrespective of the period of holding the asset, the provisions of this section would apply, i.e., whether the asset is a long-term capital asset or a short-term capital asset. On a further reading of this section, it becomes evident that by this section, the provisions of ss. 48 and 49 are to be read with some modification stated therein. One such modification is regarding determination of the cost of acquisition of the asset and the second is of the deductions to be allowed in comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in connection with the transfer and the cost of acquisition of the asset and the cost of improvement thereto. If the gain arises from the transfer of a long-term capital asset, then sub-s. (2) thereof provides for certain other deductions for computing the income chargeable under the head 'capital gain'. Sec. 49, on the other hand, provides for the determination of cost of the acquisition in cases where the capital asset has been acquired otherwise than purchase by the assessee. There is no dispute in this case as regards the cost of acquisition either under s. 48 or under s. 49. The fiction thus created under s. 50 for deeming any gain arising on transfer of a depreciable asset as short-term capital gain is for the purposes of s. 48 only. In our view, it cannot extend to other provisions dealing with the exemptions provided in charging the long-term capital gain by prescribing a different method for computing the capital gains on fulfilment of certain conditions and one such exemption is in s. 54E. Accordingly, we hold that notwithstanding the special provisions of s. 50, the assessee is entitled to exemption under s. 54E as after the sale of the asset, i.e., Chemical division th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thday of the chairman of the company Shri S.P. Malhotra who is also the founder of the company. The assessee held a get-together to which its constitutents, distributors and stockists were also invited. Therefore, we hold that the get-together was not only to felicitate the chairman Shri S.P. Malhotra, but also to promote the business. Accordingly, we hold that such expenses were in the nature of business expenses and deserve, to be allowed in view of the above decisions. This ground accordingly succeeds. 21. The next grievance of the assessee is that the authorities below are not justified in disallowing Rs. 37,914 as entertainment expenses under s. 37(2A). The assessee incurred expenses of Rs. 37,914 on account of club bills of the directors. The AO disallowed the same as entertainment expenses. On appeal, the CIT(A) went through details of these expenses and noted that these bills were of Poona Club and Diners Club. He noted that some of the expenses were reimbursed by the directors, but he confirmed the action of the AO. 22. Shri Khandelwal, the learned counsel for the assessee, drew our attention to the details of these expenses placed at pp. 18 to 26 of the paper book and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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