TMI Blog2011 (5) TMI 465X X X X Extracts X X X X X X X X Extracts X X X X ..... a transfer within the meaning of section 47(xiv) and the surplus over the net worth is held to be exempt from income tax - Decided in favour of assessee. - 1256 (MAD.) OF 2009 - - - Dated:- 19-5-2011 - DR. O. K. NARAYANAN, HARI OM MARATHA, JJ. Anirudh Rai for the Appellant. Philip George for the Respondent. ORDER Hari Om Maratha, Judicial Member. This appeal of the Revenue, for assessment year 2003-04, is directed against the order of the ld. CIT(A), Coimbatore, dated 11.6.2009. The sections mentioned in this order are that of Income-tax Act, 1961. 2. Briefly stated, the facts of the case are that the assessee namely, Shri Madan Mohan Chandak, filed his return of income for assessment year 2003-04 on 1.12.2005 admitting total income of Rs. 8,55,290. This return of income was processed u/s 143(1) on 25.3.2004. Subsequently, the Assessing Officer noticed that during the previous year relevant to assessment year 2003-04, the assessee had sold a proprietary concern, M/s Maya Agencies as a going concern for a consideration of Rs. 5 crores to M/s Sri Manmaya Textiles Private Ltd., Erode (hereinafter referred to as the 'Company'). The Assessing Officer was of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 47(xiv). According to the ld.DR, it is a case of slump sale covered u/s 50B as has been held by the Assessing Officer. The ld.AR has reiterated the reasons given by the ld. CIT(A) and also further submitted that section 47(xiv) says where sale of proprietary concern is succeeded by a company, this means the company steps into the shoes of the sole proprietor. The succession is to the business qualified by the phrase "as a result of which" - which refers to the 'act of succession'. This 'succession' terminates into 'transfer of the assets, etc." Hence, the succession itself states that the transfer is a result of succession meaning thereby the succession has already taken place and as a result of this the company acquires the assets by way of vesting. There can be no case of any transfer of assets and liabilities preceding the succession. It was argued that succession in itself means the process of succeeding. Therefore, in the case of succession, transfer is simultaneous. 4. We have considered the rival submissions. There is no dispute regarding the factum of sale of proprietary concern and the consideration etc. In fact, the Assessing Officer has tilted towards the provisions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, are current liabilities. This is the well accepted position in accountancy and also has been settled in law by judicial decisions. When the assets and liabilities of the sole proprietary concern have been transferred to the company, there was a clear agreement between the proprietor and the company (both are different legal entities) as to what constitute the assets and liabilities for the purpose of the transfer and what is the "consideration" payable. In determining the liabilities for the purpose of transfer, it has been agreed that the current account balances of the proprietor in the books of the sole proprietary concern will be taken over as a liability on loan account by the limited company and to be discharged as loan as such. Thus, under sub-cl. (a) of the section, such loan has to be necessarily to be transferred as a liability along with all other liabilities to comply with the provisions of sub-cl. (a). This is also a matter of agreement/contract relating to the transfer and also in accordance with well-accepted principles in accountancy. Now, after transferring the liabilities as above, what remains as balance only can be the "consideration" for purpose of the trans ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e sole proprietary concern which is the transferor, for the limited purpose of the transfer envisaged under this section, since the undertaking transferred to the company is that of the sale proprietary concern." 5. In our view, the facts of the above case and the case in hand are exactly identical. The conditions under clauses (a), (b) and (c) of this section stand fulfilled by the assessee. The ld. CIT(A) has found that business purchase agreement revealed that the proprietary concern was taken over by the company as a going concern and this fact has not been disputed by the Revenue. It is also seen that the shareholding pattern of the company from the year 2002-03 to 2007-08, as submitted before the Registrar of Companies shows that the assessee had retained more than 51% of shareholding in the company all through these years as stipulated in section 47(xiv). This fact was verified from the net worth statement of the assessee in which investment in the company is found to be in tact as shareholding and admittedly, no consideration from this company has passed to the assessee other than by way of allotment of shares which is also one of the requirement of section 47(xiv). These ..... X X X X Extracts X X X X X X X X Extracts X X X X
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