TMI Blog2008 (2) TMI 649X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee has been transferred as a going concern to CCFC. All assets and liabilities relating to fertilizer business has been transferred, only assets excluded are bank balance and the outstanding insurance claim on the date of transfer. Merely because these two assets have been excluded from the assets transferred, it cannot be said that it is not the transfer of the undertaking as a going concern . Land, building, plant machinery, raw material, industrial licences, technology, trademark have been transferred to CCFC. The employees of the assessee working in fertilizer business have also been taken over by the CCFC. All current liabilities relating to fertilizer business has been taken over by CCFC. The sale consideration of the undertaking as a whole has been fixed at a slump price without specifying any specific value to any asset. The assets transferred includes tangible as well as intangible asset. Moreover, the seller, i.e., the assessee has also agreed for not carrying on the similar business of manufacturing and marketing of urea fertilizer for a period of 10 years. We are of the opinion that it is a case of slump sale of undertaking as a going concern a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sment year under consider-ation the assessee sold two of its units viz. fertilizer unit for a consideration of Rs. 70 crores and the fibre units for the consideration of Rs. 15 crores. In the return of income furnished by the assessee it claimed long-term capital loss under section 48 of the Income-tax Act on the sale of those units. The Assessing Officer was of the view that there was sale of depreciable assets and therefore section 50 was applicable. Since the assessee did not give the break-up of sale consideration, he treated the entire sale consideration towards the sale of depreciable asset and worked out the short-term capital gain under section 50 of the Income-tax Act amounting to Rs. 8,13,92,981. On appeal, the ld. CIT(A) held that there was a slump sale of two units as a going concern. Therefore, section 50 was not applicable. He also held that such sale consideration is also not chargeable to capital gain tax under section 45 read with section 48. While taking this view the ld. CIT(A) relied upon the decision of ITAT, Hyderabad, B Bench in the case of Coromandel Fertilisers Ltd. v. Dy. CIT [2004] 90 ITD 344 . He contended that the argument of the revenue is two- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mitted that on the facts of the case the decision of I.T.A.T., Hyderabad Bench in the case of Coromandel Fertilisers Ltd. s ( supra ) is squarely applicable. 4. He further submitted that for determining the capital gain under section 45 read with section 48 not only the cost of acquisition of undertaking is to be ascertained but also the cost of improvement is required to be ascertained that the improvement of the undertaking, i.e., its goodwill, trademark etc. takes place on day-to-day basis. Therefore, it is not possible to determine the cost of the improvement. Once the cost of the improvement cannot be determined the capital gain cannot be worked out. He stated that the Hon ble Apex Court in the case of CIT v. B.C. Srinivasa Setty [1981] 128 ITR 294 1 held that the computation is an integral part of taxing provision. If a computation provision cannot be applied then capital gain tax cannot be levied, in view of the above, he submitted that the order of the ld. CIT(A) is quite justified and the same should be sustained. 5. We have carefully considered the arguments of both the sides and perused the material placed before us. The first question is whether it is a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r comprising a Guest House on the ground floor and 3 residential flats on the first floor; ( iv )plant and machinery relating to the Fertiliser Business including the Ammonia manufacturing plants, the Captive Power Plant and all other movable capital assets including vehicles, furniture, air-conditioners, stand-by systems, pipelines, railway siding etc., as on the Transfer and wheresoever situate, all of which relate exclusively to the Fertiliser Business and are owned and in the possession of ICI or are by ICI but in the lawful possession of any third party for and on behalf of ICI. ( v )all stocks of raw materials, finished and semi-finished goods, work in process, stores, spares, packaging material, loose tools and other stocks of all kinds whatsoever belonging to and owned by ICI and relating exclusively to the Fertiliser Business; ( vi )all other current assets including cash in hand, book debts, outstanding monies, receivable deposits, claims, bills and loans and advances relating exclusively to the Fertiliser Business but excluding book debts and/or receivables on account of Retention Price Support and Freight Subsidy; ( vii )all industrial licences, import licences ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rice which has been fixed at Rs. 70 crores (Rupees Seventy Crores only) subject to adjustments by way of additions to the said sum of Rs. 70 crores as are to be made in accordance with the provisions of this Agreement. The slump price of Rs. 70 crores does not include the value of the Net Current Assets being : ( a )value of raw materials, work-in-progress finished and semi-finished goods, stores, spares, packaging, loose tools and components and other stocks as on the Transfer Date including those in transit or in the hands of ICI for processing and conversion on the Transfer Date, and ( b )value of all other current assets including loans and advances made by ICI to its customers in the ordinary course of business, book debts and receivables (but excluding book debts and/or receivables on account of Retention Price Support and Freight Subsidy), loans and advances made to employees, any pre-payment for expenses and any deposit made by ICI with any suppliers, statutory authorities or other parties, as reduced by value of all agreed current liabilities including trade creditors (but excluding creditors on account of Retention Price Support), bills payable, statutory liabilit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by CCFC. The sale consideration of the undertaking as a whole has been fixed at a "slump price" of Rs. 70 crores without specifying any specific value to any asset. The assets transferred includes tangible as well as intangible asset. Moreover, the seller, i.e., the assessee has also agreed for not carrying on the similar business of manufacturing and marketing of urea fertilizer for a period of 10 years. This is evident from Para 4 of Chapter VIII of the Agreement, the same is reproduced as under : "ICI further agrees for a period of 10 years from the Transfer Date not to manufacture, market, distribute, sell or otherwise deal in India in urea fertilizer or ammonia for conversion into urea either on its own account or through any of its subsidiaries and/or other group companies, without obtaining the prior written consent of CCFC." This clause is of the nature of non-competing agreement for which no separate consideration is charged but it is also considered in the lump sum consideration of Rs. 70 crores. Considering the totality of the above facts, we are of the opinion that it is a case of "slump sale" of undertaking as a going concern and not the sale of depreciable asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... capital asset, and the assessee should be allowed proportionate exemption from capital gains under section 54E of the Act and deduction under section 48(2) should be allowed after considering the exemption under various provisions contained in sections 53 to 54G of the Act. In further appeal the Tribunal held that the sale in question was not as a running business, and hence the sale attracted capital gains. However, the Tribunal was of the view that the finding of the CIT(A) were well reasoned and required no interference. On appeal to the Hon ble High Court by the revenue Their Lordships held "dismissing the appeal, that there was no doubt that the sale was done through two separate documents in respect of movable and immovable assets, but this was done only because immovable property could only be sold through a registered sale deed. Land is not a depreciable asset. Once the land forms part of the assets of the undertaking and the transfer was of the entire undertaking as a whole, it was not possible to bifurcate the sale consideration to a particular asset. Section 50 of the Act only applies when depreciable assets alone are transferred. It could not be said that the Tri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... einafter referred to as "the Tribunal") by a majority of 2 : 1 the Tribunal held by its decision dated 4-1-1982, that as there was a slump sale, there was no question of assessing the profits under section 41(2) of the Act and, secondly, that since there was no scope for including the total income, the income by way of balancing charge under section 41(2), the Appellate Assistant Commissioner was not justified in setting aside the assessment. On reference by the revenue Their Lordships of Hon ble Gujarat High Court held : "that in CIT v. Artex Manufacturing Co. [1997] 227 ITR 260, the Apex Court has held that even if in the agreement there is no reference to the value of the plant, machinery and dead stock, if on the basis of the information that is made available to the Income-tax Officer, it becomes evident that the plant, machinery and dead stock was sold at a price higher than the book value of the plant, machinery and dead stock, the provisions of section 41(2) of the Act are applicable. As rightly noted by the Income-tax Officer and the Appellate Assistant Commissioner, when the undertakings in question like Swastik Oil Mills were incurring huge losses, its units could ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the aspect of the actual cost of acquisition could be expressed because none of the authorities below having undertaken that exercise, the issue was neither raised nor did it arise out of the order of the Tribunal. This issue had to be re-examined by the Tribunal or at its instance by the Income-tax Officer in the light of the decisions of Apex Court in CIT v. Artex Manufacturing Co. [1997] 227 ITR 260 and the settled principles of valuation. The assessee having exercised the necessary option for adoption of the fair market value as on 1-1-1954, within the meaning of section 55(2) of the Act, could justifiably contend that such option should be effective only if the cost of acquisition was determined and found to be lower than the fair market value as on 1-1-1954." 6.6 The above decision of Hon ble Delhi High Court would be directly applicable to the case under consideration before us and we will revert back to this case with reference to the facts of the assessee s case after considering the decisions relied upon by the ld. Counsel. 7. The ld. Counsel, on the other hand, has not seriously disputed that the business undertaking itself is a capital asset and therefore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... service staff and expenditure on maintenance, the expenses on which are all written off year after year by debiting to the Profit Loss Account. We are of the view that an undertaking and goodwill of a business are both capital assets having the same fluctuating features." Further observation in this regard are at para 116, i.e., at page 441 of the ITD, which reads as under : "We have indicated hereinabove, a number of decisions in which the Courts have held that the computational provisions failed in respect of levy of capital gains tax on the transfer of capital assets like route permits, goodwill, import entitlements, tenancy rights, trees of spontaneous growth etc. An undertaking involves a number of such items. When some of these items are not amenable for the levy of capital gain tax, as per the court rulings, there is all the more reason to hold that an undertaking, which comprises so many such items, is also not amenable to levy of capital gains tax, as the requirements of computational provisions of section 48 are not satisfied." 8.1 The above observations of ITAT would be squarely applicable in the case under consideration before us because in this case also t ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
