TMI Blog2006 (2) TMI 503X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT(A) erred in not holding that since the cost of acquisition and/or cost of improvement of the industrial undertaking could not be ascertained, the machinery provisions for computation of capital gains were not applicable and, therefore, the gain arising on sale of industrial undertaking was not chargeable to tax as capital gain. (4)Without prejudice to the above the learned CIT(A) further erred in holding that the industrial undertaking was a short-term capital asset. The appellant submits that since the industrial undertaking was a capital asset held for more than 3 years the same was a long-term capital asset. The gain arising on sale of the undertaking was, therefore, long-term capital gains and was chargeable to tax accordingly. (5)The learned CIT(A) erred in not holding that the profits and gains on the sale of the undertaking had arisen during the course of business and was, therefore, taxable as "Income from business". (6)The learned CIT(A) erred in not holding that the profits and gains (whether "capital gains" or "Income from business") arising on sale of the undertaking was not eligible for deduction under sections 80HH and 80-I of the Income-tax Act. (7)The l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d property as from 1st April, 1990. The purchaser has been authorized by vendor to use the said property at its risk and costs. Pending all the formalities as may be necessary, the vendor will supply raw material required for the manufacture of peptizing agents for being processed by the purchaser. The terms and conditions on which purchaser will process the material of vendor will be agreed by and between the parties from time to time and shall be regarded as temporary arrangement till all the formalities required for the undertaking are completed. The Assessing Officer held that the gain arising on the transfer of the undertaking is a short-term capital gain and computed the same as under : Rs. Total slump price 20,00,000 Less : W.D.V. of block of assets as on 1-4-1990 2,92,658 Balance 17,97,342 5. Before the CIT(A), the assessee relying on the decision of the Hon ble Karnataka High Court in the case of Syndicate Bank Ltd. v. Addl. CIT [1985] 155 ITR 681 1 and jurisdictional High Court in the case of Evans Fraser Co. Ltd. v. CIT [1982] 137 ITR 493 2 submitted that the lump sum conside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the case of Killick Nixon and Co. v. CIT 49 ITR 244 which was affirmed by the Supreme Court in 66 ITR 714 has held that the sale of business as a whole includes the sale of capital assets of the business and the gain arising on such a sale attributable to the capital asset is a capital gain. As there is a direct decision of the Bombay High Court which is affirmed by the Supreme Court, other decisions cited by the appellant are not applicable and immaterial in the case of the appellant. . . ." 6. The alternate plea of the assessee that the profits arising on sale of the undertaking is to be treated as long-term capital gains was also held to be not correct in view of section 50 of the I.T. Act and the CIT(A) held that the surplus if any is to be taxed as short-term capital gains. Assessee is aggrieved and hence this appeal. 7. The learned A.R. for the assessee vehemently argued that the assessee had sold its Chemical manufacturing unit as a going concern and on the sale of the said unit the profits are not taxable as the said sale is a slump sale. Strong reliance was placed on the decision of Hyderabad Bench in the case of Coromandel Fertilizers Ltd. v. Dy. CIT [ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtaking of Chemical Division for a total consideration of Rs. 20 lakhs. That as per the terms of agreement entered between the parties, the assessee had agreed to sell and the purchaser had agreed to purchase the business undertaking as a going concern including leasehold land, building, plant and machinery, electrical fittings, furniture, dead stock and vehicles along with all its assets and liabilities, rights and obligations, current assets and current liabilities. The parties entered into an agreement dated 1-4-1990. The perusal of the agreement reveals that the assessee had agreed to sell the business undertaking as a going concern with factory building, plant and machinery, electrical installation, etc., located at Taloja Industrial Estate, Panvel, Maharashtra including all its assets and liabilities, rights and obligations, current assets and current liabilities as per the terms of the agreement entered into between the parties. From the perusal of para 1, the parties agreed that all the contingent liabilities and obligations relatable to rents, rates, taxes, claims duties etc. up to the period prior to the date of agreement shall be the responsibility of the assessee-compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oncern, the agreed price cannot be apportioned among individual items of property and what is sold is an undertaking which is not amenable to levy capital gains taxed. In the facts of the present case, what has been sold is the Chemical Division of the assessee-company as a going concern. The agreement between the parties very clearly shows that for the lump sum price of Rs. 20 lakhs, the leasehold rights of the land, factory building, plant and machinery and electrical installation have been transferred to the subsidiary company i.e., M/s. Shri Anandeya Investments Pvt. Ltd. along with other assets and liabilities including transfer of raw material and other licences, etc. For the transfer of going concern what is material is not only the transfer of movable and immovable properties, but also the assets and liabilities connected with the running of the going concern. In the facts of the present case, the business as a whole has been transferred as a going concern to the subsidiary company Shri Anandeya Investments Pvt. Ltd. 13. In terms of provisions of section 50 of I.T. Act where the sale value of consideration received is in excess of the W.D.V. the block of assets at the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... what was transferred by the assessee was the cement unit as a going concern for a lump sum price and so, the sale in question was a slump sale, and so, section 50 was not attracted. (para 43). . . ." 14. Section 50B of the I.T. Act was introduced with effect from 1-4-2000 and in the facts of the present case, the business undertaking was sold on 1-4-1990, i.e., prior to the introduction of the provisions of section 50B of the I.T. Act. Taking into consideration, the facts of the present case in totality, we are of the considered view that no tax is exigible to the gains arising on the transfer of the business undertaking as a going concern by the assessee-company to Shri Anandeya Investments Pvt. Ltd., and the gains on such transfer are not includible in the hands of the assessee as income from short-term capital gains in view of the decision of the Hyderabad Bench in the case of Coromandel Ferlizers Ltd. ( supra ). The assessee had claimed depreciation on assets transferred to the subsidiary company for the period up to the date of transfer. Respectfully following the decision of Hyderabad Bench in the case of Coromandel Fertilizers Ltd. ( supra ), no depreciation is al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essing Officer or by the CIT(A) to prove that the money borrowed by the assessee has been advanced to different parties at reduced rate of interest. Following the principle of natural justice, we deem it fit to restore this issue to the file of the Assessing Officer to deliberate upon and decide the issue of nexus between the borrowed fund and applied funds. In case, nexus is established between the two i.e., the borrowed fund and the applied fund, interest after netting shall not be allowed as a business deduction. But in case the assessee is able to prove that no nexus existed between the two, no disallowance of interest shall be made in the hands of the assessee. Further, there is no merit in treating the interest income of Rs. 3,88,982 received by the assessee during the year under consideration as income from other sources without establishing that such receipts are not part and parcel of business carried on by the assessee. Therefore, the issue is restored to the file of the Assessing Officer to decide the nexus : ( a ) between the borrowed fund and applied fund; ( b ) nature of the interest income of Rs. 3,88,982 received by the assessee. Hence, these grounds of appeal are ..... X X X X Extracts X X X X X X X X Extracts X X X X
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