TMI Blog2012 (2) TMI 327X X X X Extracts X X X X X X X X Extracts X X X X ..... Mr.Suresh Kumar for appellant. Mr.J.D.Mistri, Senior Advocate with Ms.Aasifa Khan for respondent. ORAL JUDGMENT (PER DR.D.Y.CHANDRACHUD, J.) : This appeal by the Revenue under Section 260A of the Income Tax Act, 1961 arises from an order of the ITAT dated 22 May 2007 in relation to the Assessment Year 19941995. The appeal gives rise to the following substantial question of law: Whether in the facts and circumstances of the case and in law, the Tribunal is right in holding that the capital gains are not applicable in view of the fact that the IMFL business has been transferred as going concern and therefore a slump sale? The appeal is admitted on this question. With the consent of the counsel appearing on behalf of the Revenue and the assessee the appeal is taken up for hearing and final disposal. 2. The assessee is a company which at the material time was inter alia engaged in the business of manufacture and sale of liquor. An agreement was entered into by the assessee on 24 March 1994 with International Distillers (India) Pvt. Ltd. by which the assessee agreed to sell to the purchaser the undertaking / business together with its assets and liabilities a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assets transferred to the purchaser was Rs.3.48 crores. The Commissioner held that the net worth of the unit was ascertained by evaluating each asset and liability and the sale price being determined on the basis of each asset and liability it could not be asserted that the assets were not acquired at any cost. In appeal before the Tribunal the case of the assessee was that what was transferred to the purchaser was the entire business and undertaking of the IMFL unit on the basis of a slump sale. On this basis, reliance was sought to be placed on a judgment of a Division Bench of this Court in Premier Automobiles Ltd. v. Income Tax Officer (2003) 264 ITR 19. The Tribunal accepted the submission of the assessee that in the present case the entire business of the undertaking was transferred as a going concern together with all fixed assets and intangibles for a lump sum consideration without a separate valuation of the assets sold. The Tribunal held that this was, therefore, not a sale of itemized assets. The Tribunal came to the conclusion that it was not possible to ascertain the cost of the capital asset viz. the IMFL undertaking / business or the cost of the improvements there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sferred included, besides the land, building and fixed assets, the benefit of all pending contracts, all licenses, permissions and approvals received from the Central and the State Governments, distribution network, intangible assets including rights in intellectual property and workforce employed in the undertaking; (iii) In such a situation it is evident that prior to the insertion of Section 50B into the provisions of the Income Tax Act, 1961 in a case such as the present the computation provisions for computing capital gains would break down since no cost can be attributed to the intangibles which formed subject matter of the transfer. In this regard, reliance has been placed on the decision of the Supreme Court in the case of PNB Finance Ltd. Vs. CIT [2008] 307 ITR 75]. 6. In the present case, while we deal with the submissions which have been urged on behalf of the Revenue and the assessee it would, at the outset, be necessary to advert to the salient provisions of the agreement dated 24 March 1994 in pursuance of which the IMFL undertaking came to be transferred by the assessee. The agreement makes it clear both in its recitals and in clause 1.1 of the contract that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ole comprising of but not limited to the land, building and fixed assets. Among the assets that were transferred included the benefit of the existing contracts, licenses which the assessee held entitling it to manufacture and sell Indian Made Foreign Liquor, intangibles including the right to utilize trade marks and the labor force which was being transferred to the purchaser. The transaction involved a slump sale. There was no itemized valuation of the fixed assets and other assets which formed part of the undertaking. What was sold comprised of the undertaking and the business as a whole. 8. The Judgment of the Division Bench of this Court in Premier Automobiles Ltd. Vs. Income Tax Officer (Supra) contains an elucidation of the distinction between a slump sale agreement and an agreement for the transfer itemwise of the fixed assets of an undertaking. In the case of a slump sale the sale is for a lump sum price and there is a transfer of the entire business for a fixed price. The sale consideration is, in other words, not attributable to the individual assets of the assessee. Both in the case of a slump sale as well as in the case of itemized assets a transfer of land, building, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fact that when a transfer takes place as in the present case of the whole business and undertaking of the assessee and the transfer involves not only fixed assets such as land, building and machinery but other component elements such as the benefit of existing contracts, licenses and approvals and intangibles including intellectual property and transfer of the work force of the undertaking or business, it would be impossible in a case such as the present to attribute or allocate the sale consideration as between the fixed assets on the one hand and the intangibles on the other. 10. It must be emphasized that in the present case the Court is dealing with the position as it existed prior to the insertion of the provisions of Section 50B by the Finance Act of 1999. As a result of the provisions of Section 50B which have been inserted with effect from 1 April 2000 any profits or gains arising on a slump sale effected in the previous year are to be chargeable to income tax as capital gains arising from the transfer of long term capital assets and are to be deemed to be the income of the previous year in which the transfer took place. Under the Proviso capital gains are to be treated a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g upon the decision of the Supreme Court in CIT Vs. Artex Manufacturing Company[1997] 227 ITR 260 (SC). The Supreme Court in appeal held that the decision in Artex dealt with the provisions of Section 41(2) and was, therefore, not applicable to the case at hand which dealt with the issue of capital gains. The Supreme Court enunciated that as regards the applicability of Section 45 three tests are required to be applied. First, both the charging Section and computation provisions are inextricably linked. Second, the test of allocation / attribution must be applied, the object being to determine whether the slump price was capable of being attributable to individual assets. Third, there is a conceptual difference between the undertaking and its components. In that context the Supreme Court held as follows: ...there is a conceptual difference between an undertaking and its components. Plant, machinery and dead stock are individual items of an Undertaking. Business Undertaking can consist of not only tangible items but also intangible items like, goodwill, man power, tenancy rights and value of banking licence. However, the cost of such items (intangibles) is not determinable. In t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Court nonetheless remanded the proceedings back to the Assessing Officer in order to determine the capital gains that had arisen with reference to provisions of Sections 45 to 50. Hence, the same course should be followed. This submission, on a close reading of the decision in Premier Automobiles, is lacking in substance. It must be noted that in Premier Automobiles, the Assessing Officer, Commissioner (Appeals) and the Tribunal, in a majority judgment, had come to the conclusion that the sale was of itemized assets. The questions of law that were framed for decision of the Division Bench were (i) whether the Tribunal was justified in holding that the transaction of sale was not a slump sale; (ii) whether the Tribunal was justified in holding that the lump sum consideration was apportionable to different assets; and (iii) whether the apportionment of the consideration by the transferee for its accounting purposes should be taken by the Assessing Officer for working out the depreciation allowable to the assessee. The Division Bench answered the first two questions in the negative, in favour of the assessee and against the Revenue. The third question was answered by holding that th ..... 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