TMI Blog2005 (8) TMI 580X X X X Extracts X X X X X X X X Extracts X X X X ..... worked out the capital gain in the return of income on net asset value method and without appreciating the fact that the capital gains on depreciable assets are to be worked out in accordance with the special provisions of section 50 which override the general provision of sections 48, 49 and 55(2)( i ). ( ii )On the facts and in the circumstances of the case the Ld. CIT(A) erred in law in deleting the addition of Rs. 22,11,296 on account of interest paid to other concerns without appreciating the facts mentioned in the assessment order and without giving his own basis for deletion of addition made by the Assessing Officer on this point." 1.1 The cross objection raised by the assessee is as under : "( i )That on the facts and circumstances of the case and in accordance with the provisions of law and contrary to various judicial pronouncements, the Ld. CIT(A), Faridabad erred in not holding, after directing the Assessing Officer to compute the capital gain under section 45 of Income-tax Act with the reference to consideration received from such transfer vis-a-vis the cost of acquisition of undertaking, that the surplus arises on the transfer of undertaking of the company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Taking into account the fact that the buyer had also taken over the liabilities worth Rs. 80,64,499, he computed the total consideration received in respect of assets by adding these liabilities to the consideration of Rs. 7.30 crores received by the assessee and after deducting therefrom the sundry debtors, bank balances, loans and advances and inventories, arrived at the net consideration in respect of plant and machinery at Rs. 7,42,39,883. From this, he deducted the WDV of assets as on 31-3-1994 amounting to Rs. 12,31,946 to arrive at the short term capital gain of Rs. 7,30,07,937 under section 50 of the Income-tax Act and taxed accordingly. 2.1 In appeal, Ld. CIT(A) held that capital gain should be computed under section 45 of the Income-tax Act as a long-term capital gain and not by applying the provisions of section 50 of the Income-tax Act. Accordingly, he directed the Assessing Officer to compute the capital gain under section 45 of the Income-tax Act with reference to the consideration received for such transfer vis-a-vis the cost of acquisition of the under-taking. Not satisfied, both the parties have objected to this decision of CIT(A). 3. We have heard both ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Supreme Court in case of CIT v. B.C. Srinivasa Setty [1981] 128 ITR 294 and several other judgments reiterating the position that in a case where cost of acquisition cannot be computed, no capital gain can be charged. He also relied on the following decisions of Ld. ITAT to the effect that gain arising from the slump sale of an undertaking cannot be charged to capital gain prior to insertion of section 50B w.e.f. 1-4-2000. ( i ) Coromandel Fertilisers Ltd. v. Dy. CIT [2004] 90 ITD 344 (Hyd.). ( ii ) Industrial Machinery Associates v. CIT [2002] 81 ITD 482 (Ahd.) 3.4 The Ld. D.R. on the other hand strongly supported the order of the Assessing Officer. He relied on the judgment of Hon ble Supreme Court in case of CIT v. Artex Mfg. Co. [1997] 227 ITR 260 in support. It was argued by him that section 50 being a special provision will override the other provisions of the Act. 4. We have perused the records and considered the rival submissions carefully. The assessee has transferred the industrial undertaking as a going concern for a lump sum consideration of Rs. 7.30 crores. The sale consideration in respect of each item of asset of the industrial undertak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In the case of Artex Mfg. Co. ( supra ), the partnership firm had been converted into a private limited company as a going concern, for a net consideration of Rs. 11,50,400. The claim of the assessee was that there was no income chargeable to tax either under section 41(2) or under section 45 of the Income-tax Act. The Assessing Officer after noting that plant and machinery had been valued at Rs. 15,87,296, charged the excess over the written down value as business profit under section 41(2). On reference, Hon ble High Court held that section 41(2) was not applicable. On further reference, Hon ble Supreme Court observed that though in the agreement of sale, there was no reference to the value of plant and machinery and dead stock, the information furnished by the assessee showed that the consideration of Rs. 11,50,400 had been arrived at after taking into consideration the value of plant and machinery and dead stock as assessed by the valuer at Rs. 15,87,296. It was, therefore, held that section 41(2) was applicable. Hon ble Supreme Court further held that amount of surplus exceeding the difference between the written down value and actual cost would have to be treated as capital ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er of a business as a whole by a firm to a limited company is, in our opinion, not of much significance because this court in B.M. Kharwar s case (1969) 72 ITR 603, has held that by virtue of the amendment made in section 10(2)( vii ), proviso ( ii ), of the 1922 Act by Act 67 of 1949 even under a "realisation sale" the excess over the written down value not exceeding the difference between the original cost and the written down value is liable to be brought to tax. In Mugneeram Bangur s case (1965) 57 ITR 299, this court has indicated that where there is a slump transaction and the business is sold as a going concern, what is to be seen is whether any portion of the slump price is attributable to the stock in trade and if on the basis of the facts, it can be found that particular price is attributable to a particular item, then the excess amount would be chargeable to tax under section 10(2)( vii ) of the 1922 Act [section 41(2) of the 1961 Act]. In the facts of that case, the court found that it was very difficult to attribute part of the slump price to the cost of the land sold in the realisation sale, since there was no evidence that any attempt was made to evaluate the lan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation of cost of acquisition and cost of improvement of the industrial undertaking and the latter had computed the index cost of acquisition and cost of improvement at Rs. 4,28,71,276. Based on this, the assessee had also declared the long-term capital gain at Rs. 3,01,28,742 in the return of income. Though, we agree with the submission of ld. AR, that taxability of a particular sum has to be decided based on the legal provisions and not merely on the basis what the assessee declared in the return and that the assessee can always change its stand, the assessee cannot change its stand without giving valid reasons. As the CA firm who is a specialist in the matter has computed the indexed cost of acquisition and indexed cost of improvement, it will not be correct to say that the same cannot be determined. 5.1 The argument advanced in favour of the plea that capital gain cannot be charged on transfer of industrial undertaking is that the undertaking also includes intangible assets in respect of which cost of acquisition and cost of improvement cannot be accurately calculated nor it is possible to accurately determine the date of acquisition. The assessee has quoted the decision of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In case, the assessee has incurred expenditure the assessee should be able to give details and the same has to be taken as the cost incurred for that asset. As regards the date of acquisition of the undertaking, the same obviously will be the date on which the undertaking was set up and was in a position to produce goods and services. Similarly the cost improvement can be computed as and when such improvements have been made. In fact, as mentioned earlier, valuer in this case has already computed the cost of acquisition and cost of improvement at the instance of the assessee. 5.3 The argument that in view of specific provisions in section 50B for taxability of capital gain in case of slump sale, which is effective from assessment year 2000-01, capital gain cannot be charged in respect of such sale in the period prior to assessment year 2000-01, is not tenable in our opinion. There is no dispute that the industrial undertaking is a capital asset. Capital gain on the transfer of a capital asset will be chargeable if the cost of acquisition and improvement can be determined. For the period from assessment year 2000-01 onwards, the cost of acquisition and cost of improvement has t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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