TMI Blog2010 (12) TMI 946X X X X Extracts X X X X X X X X Extracts X X X X ..... ose. The depreciable properties were sold and that was not a case where the entire undertaking as a going concern with locked stock barrel was sold by the assessee - Decided in favor of the assessee - ITA No. 417 of 2007 and ITA No. 1069 of 2007 - - - Dated:- 24-12-2010 - A.K. Sikri, Suresh Kait, JJ. Prem Lata Bansal, Adv. for the Appellant Ajay Vohra, Kavita Jha, and Somnath Shukla, Advs. for the Respondent JUDGEMENT A.K. Sikri, J. 1. Between common parties, identical issues arise for determination in these two appeals; albeit for two assessment years, viz., Assessment Years 1999-2000 and 2000-01. ITA 1069 OF 2007 relates to Assessment Year 1999-2000 and since it is prior in point of time, we have taken note of the facts of this appeal to understand the issues involved and to answer the same. 2. For this year, the respondent assessee filed the return declaring a loss of Rs.4,70,40,396. During the assessment proceedings, the Assessing Officer (AO) noticed that the assessee had sold its Lamp Division at Sonepat to M/s. Osram India (P) Ltd. for Rs.42.50 crores on 09.11.1998. In the computation of capital gain, the assessee showed cost of Lamp Divis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Sonepat Unit as a separate and independent business but was treating it as a part of the integrated whole business and therefore, the sale of Lamp Division was not in the nature of a "slump sale" as a going concern. The CIT(A) further observed that the judgment of the Supreme Court in the case of Commonwealth Trust Ltd., Calicut, Kerala v. Commissioner of Income-tax Kerala II, Ernakulam [228 ITR 01], squarely applied to the present case in which it was held that the provisions of Section 50 of the Act would apply to sale of depreciable assets. The CIT(A) also rejected the contention of the assessee that no break-up of sale consideration between tangible and intangible asset was possible and even if the sale was to be treated as slump sale, the gain would be taxable as laid out by the Supreme Court in the case of Commissioner of Income-tax, Gujarat II v. B.M. Kharwar [72 ITR 603] and in the case of Commissioner of Income-Tax, Bombay City v. Bipinchandra Maganlal and Co. Ltd. [41 ITR 290]. 4. Aggrieved by the order of the CIT (A), the assessee filed an appeal before the Income Tax Appellate Tribunal (hereinafter referred to as 'the Tribunal'), who held that the transaction o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pugned sale transaction is to be treated as transaction of slump sale, we direct the Assessing Officer to recomputed the capital gain as per the relevant provisions of law and in the light of our observations made above. While doing so, the Assessing Officer shall also take into consideration the computation of capital gain furnished by the assessee which has been reproduced above after due verification and shall decide the issue after providing full opportunity of being heard to the assessee and as per law." 6. Challenging this view taken by the Tribunal and the nature of directions issued consequent thereto by the Tribunal, present appeals are admitted on the following substantial questions of law: "(1) Whether ITAT was correct in law in holding that the profit arose on transfer of Sonepat Unit by the assessee was to be treated as long term capital gain and not the short term capital gain as treated by the Assessing Officer? (2) Whether ITAT was correct in law in holding that the transaction of sale of Sonepat Unit was a transaction in the nature of slump sale of a going concern or its was a transaction of sale of depreciable asset? (3) Whether provisions of Secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Capital Gain of Sale of Lamp Divsiion as Per Section 50[2] Sale consideration received on transfer of lamp division at Sonepat Rs.42,50,00,000/- WDV of lamp division Rs.5,15,75,131/- Less: Value of land Rs.17,93,417/- Rs.4,97,81,714/- Add: Indexation of land: 1793417x351 100 Rs.62,94,893/- Rs.5,60,76,607/- Capital Gain: Rs.36,89,23,393/-" 9. Learned counsel for the Revenue submitted that whether it was a slump sale or not was of no consequence and therefore, various case laws cited by the assessee in support of this proposition were not applicable. The learned counsel referred to the judgment in the case of Commonwealth Trust Ltd., Calicut, Kerala vs. Commissioner of Income-tax Kerala II, Ernakulum [228 ITR 1] for this purpose. She also submitted that the assessee had itself taken the position that it was a case of long term capital gain which was clear from the ground of appeal before the Tribunal and in case of slump sale, no question of any capital gain would arise as held in Brindavan Beverages Limit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsfer of assets inter alia will include Land and Building, Plant and Machinery - both immovable and movable, Furniture/Fixtures, Fittings, office Equipments, Computers, Vehicles and all other movable and balance intangible assets." 13. His submission was that in the light of the aforesaid facts appearing on record, the learned Tribunal had rightly appreciated that the provisions of Section 50 were not attracted and instead Section 50B was applicable. Leaned counsel pressed his strong reliance upon the reasoning given by the Tribunal and also pressed into service various judgments which are taken note of the Tribunal in this behalf. Particular reference was made to the following judgments: (1) R.C. Cooper vs. Union of India [AIR 1970 SC 564]; (2) Premier Automobiles Ltd. vs. Commissioner of Income Tax [264 ITR 193 (Bom)]; (3) Commissioner of Income Tax vs. Max India Ltd. [319 ITR 68 (P and H)] (4) Commissioner of Income Tax vs. Narkeshwari Prakashan Ltd. [196 ITR 438 (Bom.)] 14. We have given our due consideration to the aforesaid submissions made by counsel for the parties on either side. Before we embark on the discussion on the issue that qua for considera ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee is whether or not effected in his business or profession. Certain assets are, however, specifically excluded from the definition of capital asset and these are: (a) Any stock in trade simply stocks or raw material held for the business or profession; (b) Presently, agricultural land in India (excluding land situates at certain places specified in the provision. 16. Special provisions are made for computation of capital gain in certain circumstances. We are concerned herein with two such events and to decide as to whether which of the two is applicable. First stage is provided in Section 50 which deals with computation of capital gains in case of depreciable assets. Other special provision is contained in Section 50B which provides for computation of capital gains in case of slump sale. We may point out at this stage that insofar as the AO is concerned, he had only considered the Section 50 of the Act and held that to be applicable. While doing so, he had also observed that the assessee had not furnished the details of consideration received on loan and therefore, capital gain was computed on the block of assets as a whole. However, he neither considered the conveya ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act cannot be attributed to the facts of the present case because the title of this section is "a special provision for computation of capital gains in the case of depreciable asset". As pointed out above, the agreement to sell was not for transferring depreciable assets only but for transferring the entire unit as a whole and the sale consideration settled between the parties was not only for depreciable assets but for all the tangible and intangible assets including goodwill, licenses and liabilities. (vii) As per the terms of transfer, since no part of consideration was attributable even to land and building, plant or machinery hence it was a case of slump sale and not a case of sale of separate asset or piecemeal sale. (viii) The approach adopted by the learned CIT(A) for rejecting the version of the assessee regarding the slump sale on the reasoning that for a slump sale there should be sale of entire or whole business of the assessee including all the undertakings even though they may be self-sufficient and independent units, is not correct because the word "slump sale" as interpreted by various authorities and as defined in Section 2(42C) means "transfer of one or m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company referred to in the first proviso, the provisions of Clause (ii) shall have effect as if for the words "cost of acquisition" and "cost of any improvement", the words "indexed cost of acquisition" and "indexed cost of any improvement" had respectively been substituted. The above proviso is fully applicable to the facts of the present case and computation of capital gain/loss shall be worked out as per this proviso. (xiv) Section 50B of IT Act which deals with the case of slump sale has been introduced w.e.f. 1st April, 2000 and does not apply retrospectively. Prior to this provision, there was no provision in the Act dealing with the cases of slump sale. Learned CIT(A) was not justified in applying logic on the basis of this provision to the case of the assessee. (xv) Exclusion of some of the liabilities in the agreement does not in any way effect the smooth transfer of the going concern as held in the case of Premier Automobiles Ltd. (supra). (xvi) It is to be pointed out that for effectuating and executing the intention of parties to the sale transaction and for enabling the transferee to carry on the running business of the undertaking, the assessee even in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act, 1967 (sections 4(1), 5(1)(2). By the word 'undertaking is meant the entire organisation. These provisions indicate that the company whether it has a plant or whether it has an organisation is considered as one whole unit and the entire business of the going concern is embraced within the word 'undertaking'. In the case of sale of an undertaking as happened in Doughty v. Lomagunda Reefs, Ltd. (1902) 2 Ch. d. 837 the purchaser was required to pay all debts due by and to perform outstanding contracts comprised in the entire undertaking. The word 'undertaking' is used in the Indian Electricity Act, the Air Corporation Act, 1953, the Imperial Bank of India Act, 1920 (sections 3, 4, 6 and 7), the State Bank of India Act, 1955 [Section 6(1)(g)], the State Bank Subsidiaries Banks Act, 1959 [Section 10(1)], the Backing Regulation Act. 1949 [Section 36AE(1)] and there have been legislative provisions for acquisition of some of these undertakings." 18. Taking note of the various pronouncements in Para 164, the Supreme Court further held that the undertaking is an amalgam of all ingredients of property and is not capable of being dismembered. That would destroy the essence and innate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tive." 21. In Premier Automobiles Ltd. (supra), a Division Bench of Bombay High Court (Per Hon'ble Mr. Justice H.S. Kapadia, as his Lordship then was) categorically held that when there was a sale of entire undertaking of a going concern and there was continuation of business, it could not be treated as sale of itemized assets and such transaction clearly amended to a slump sale. In such a case, capital gains were to be computed on the basis of slump sale. That was a case where the assessee was engaged in manufacturing of two cars, viz., Padmini and Premier 118 NE, at Kurla and Kalyan, respectively. PAL had plant and machinery for 118 NE at Kalyan, Kurla (gear-box) and Pune (machining) ("Kalyan undertaking"). PAL had manufacturing facility for Padmini at Kurla. PAL entered into a MOU on March 11, 1993 with Automobile Peugeot (AP) to establish a joint venture company known as Kalyan Motors Co. Ltd. (KMCL) for manufacture and distribution of 60,000 Peugeot cars throughout India. Under the MOU, it was agreed that PAL would contribute to the equity of the joint venture company -KMCL to the extent it was engaged in the manufacture and sale of 118 NE cars. PAL also entered into a sup ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tation of terms and conditions of the entire arrangement but also on the manner in which the gain was accounted for by PPL in its books of account. It was clear that PAL had not accounted for profits on itemized assets. The sum of Rs.81.31 crores was the book profit on the slump sale. The AO would have to compute the quantum of capital gains under Sections 45 to 50. 22. Likewise in Narkeshwari Prakashan Ltd. (supra), where the assessee, a publishing house had two branches and one of the branches along with its assets and liabilities were sold as a whole as a going concern, it was treated as slump sale. To the same effect was the judgment of the Punjab and Haryana High Court in the case of Max India Ltd. (supra). In that case a division of the assessee was sold on slump sale and the assessee claimed a loss under the head "Long-term capital loss" by deducting from the sale proceeds, the cost of acquisition of the division and its improvement. The Assessing Officer rejected the claim of the assessee and held that in accordance with Sections 50 and 50A of the Act were not applicable. On further appeal, the Revenue contended that the sale was a sale of block of assets, the gain from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... set(s) so transferred and the actual cost thereof. 16. In the case of Artex Manufacturing Co. (supra) this Court found, that a valuer was appointed, that valuer submitted his valuation report in which itemized valuation was carried out and on that basis the consideration was fixed at Rs.11,50,400.00. Therefore, the sale consideration had been 0 arrived at after taking into account the value of plant, machinery and dead stock as computed by the valuer and, consequently, it was held that the surplus arising on the sale was taxable under Section 41(2) of the Act and not as capital gains. In the circumstances, the judgment of this Court in the case of Artex Manufacturing Co. (supra) was not applicable to the present case. Further, this Court in the case of CIT v. Electric Control Gear Manufacturing Co. [1997] 227 ITR 278 (SC) has held that whether the business of the assessee stood transferred as a going concern for slump sale price, in the absence of evidence on record as to how the slump price stood arrived at, Section 41(2) had no application. It is interesting to note that the judgment in the case of Electric Control Gear Manufacturing Co. (supra) is given by the same Bench whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sfer of a capital asset in terms of appreciation of capital value of that asset. In the said judgment, this Court held that the "asset" must be one which falls within the contemplation of Section 45. It is further held that, the charging section and the computation provisions together constitute an integrated Code and when in a case the computation provisions cannot apply, such a case would not fall within Section 45. In the present case, the Banking Undertaking, inter alia, included intangible assets like, goodwill, tenancy rights, man power and value of banking licence. On facts, we find that item-wise earmarking was not possible. On facts, we find that the compensation (sale consideration) of Rs.10.20 cr. was not allocable item- wise as was the case in Artex Manufacturing Co. (supra). 18. For the aforestated reasons, we hold that on the facts and circumstances of this case, which concerns assessment year 1970-71, it was not possible to compute capital gains and, therefore, the said amount of Rs.10.20 cr. was not taxable under Section 45 of the 1961 Act. Accordingly, the impugned judgment is set aside." 24. When the matter is considered in the aforesaid perspective, one c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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