TMI Blog2012 (4) TMI 402X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee. - IT Appeal No.2544 (Mum.) of 2010 - - - Dated:- 18-4-2012 - D. Manmohan, RAJENDRA, JJ. ORDER Rajendra, Accountant Member In this case the Appellant has challenged the impugned order of the Ld. CIT (A)-5, Mumbai dated 04.01.2010 for the A.Y. 2000-01. The grounds raised by the Appellant in its appeal are as under: "On the facts and in the circumstances of the case and in law the Learned CIT (A) erred in upholding the order passed by the learned Assessing Officer applying the provisions of section 50B of the Income tax Act to sale of assets of the M Seal Division of the Appellant. "On the facts and in the circumstances of the case and in law the Learned CIT (A) ought to have accepted the contention of the Appellant that the said sale was an itemized sale and not a slump sale and therefore provisions of section 50B were not applicable to the facts of the case. "The learned AO be directed to compute capital gains on such itemized sale of assets of M. Seal Division without applying the provisions of section 50B of the Act." 2. Appellant had filed the ROI on 27.11.2008 and Assessing Officer (AO) passed an order u/s.143(3) of the I.T. Act, 1961 (Act) on 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accordance with the requirements of section 50B........". The AO after considering the replies filed by the Appellant held that it was a case of slum sale. Calculation of Capital gain u/s.50B of the Act is appearing on page 5 of the AO's reproduced here- Calculation of net worth of sealant and adhesive business transferred Fixed Asset (Depreciable) as on 1st March 2000 6,62,331 Current Asset (Stock of Raw material 74,48,998 New worth 81,11,392 Less Consideration received 32,74,48,998 Long Term Capital Gain 31,93,37,669 3. Appeal preferred by the Appellant before the CIT (A) was decided by him on 04.01. 2010.CIT (A) Vide para 5.3 of his order page 7 held as under - "5.3. In the light of above discussion, observations of the tribunal, case laws cited and facts of the case, it is held that the AO was justified in treating the same of M-Seal division as slump sale as per the provisions of section 50B of the Act. The appellant in the course of the appeal proceedings has not been able to point out any infirmity in the working of capital gains as done in the assessment order. Therefore, the additio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and that the Appellant had not sold everything to PIL. 6. We have heard both the parties and perused material produced and case laws cited before us. We would like to mention undisputed facts of the case for better understanding of the case. ( i ) Appellant sold/transferred/assigned trademarks(notably M-Seal and Mr-Fixit),copyrights, know-how, assets and goodwill pertaining to the Sealants and Adhesives Business. [Director's report to the Shareholders Pg.20 of Paper Book (PB)] w.e.f. 22nd March, 2000. ( ii ) PIL paid Rs.32 Crores to the Appellant. Sale consideration amounting to Rs.1.89 Crores , received on account of good will and non compete fee, was offered for tax by the Appellant. ( iii ) Appellant and PIL signed nine agreements in this regard. Besides the main agreement of 22nd March,2000,(Agreement for assignment of Trademark together with Goodwill of the business and other matters)three more agreements/ deeds were signed on 22nd and balance five were entered in to on 27.03.2000.Deeds/Agreements, excluding the main agreement, entered in to by both the parties are as under- a - Deed of assignment of Trademark b - Deed of transfer of part interest in Tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no regard shall be given to the provisions contained in the second proviso to section 48. (3) Every Appellant, in the case of slump sale, shall furnish in the prescribed form along with the return of income, a report of an accountant as defined in the Explanation below sub-section (2) of section 288 indicating the computation of the net worth of the undertaking or division, as the case may be, and certifying that the net worth of the undertaking or division, as the case may be, has been correctly arrived at in accordance with the provisions of this section. Explanation.- For the purposes of this section, "net worth" means the net worth as defined in clause (ga) of sub-section (1) of section 3 of the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986). A bare look at the section reveals that (i) it is a special provisions for computing capital gains chargeable to tax in the case of a slump sale and, therefore, would prevail over the general provision in case of any conflict, (ii) the provisions of sections 48 and 49 have been made applicable , subject to some modification, for computing capital gains in the case of a slump sale, (iii) the net worth of the unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rademarks, know-how, copyright were also taxable as the proceeds of goodwill and non compete fee and whether the transaction was slump sale or not ? 11. In commercial world transactions have to be seen and considered in totality. The controversy of form versus substance is as old as taxation laws and from the very beginning substance, rather than form, has been held the deciding factor in such matters. Secondly, treatment given by an Appellant to a transaction in his books of accounts or an agreement entered into by him do not and cannot alter the real character of that transaction. In this background study of agreements/deeds signed by the Appellant and PIL is not only useful but essential. 11.1 . Directors in their report to the shareholders stated that in accordance with the approval of the shareholders the company had transferred and assigned the Trademarks ( notably M- seal and Mr fixit) Copyright, Know how, Assets and Goodwill pertaining to the Sealants and Adhesives Business being carried out by it to PIL (Pg.2 of the PB). Schedule XIV of the Auditors' report talks of selling/transferring of business of Sealants and Adhesives products to PIL. It also speaks of a non ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny nature in relation thereto business of Sealants and Adhesives . (C1.2.1,Pg.40 of the PB.) 11.2(iia). As per clause 8.1 of the said agreement(Pg.43of the PB) Appellant agreed to use different trademark(other than M Seal) in respect of Cable Jointing insulating compounds within 30 days from the closing date. It also agreed that on closing date appellant shall apply for amendment of the registration certificate of the trademark M Seal so as to specifically exclude Sealants and Adhesives . The said agreement was about M Seal in class 17 of the fourth schedule to the Trade and Merchandise Marks Rules, 1959. 11.2(iii). Clause 9.5 of the agreement (Pg.44-45 of the PB) is also important. As per that clause both the parties agreed that if at a future date Appellant wished to include any sealants and Adhesives products as as a component of the Cable Jointing kits terminations the following provisions would apply-a)Appellant would give prior intimation to PIL as when it intends to put Sealants and Adhesives products as a component of the Cable Jointing kits or terminations and shall provide adequate descriptions relating to the users of such product in the context of Cable Jointing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hinery (more than 50 items) transferred by the Appellant to PIL. 11.6 . As per Clause 2.1 of 'Agreement to purchase Technical know-how' appellant agreed to sell PIL technical know-how 'fully and absolutely'. 12. A close analysis of the agreement and the deeds entered into by the appellant with PIL (Para 11 to 11.6) leaves no doubt that the business as a whole was sold,-it was not an itemised sale of assets. Directors' report, Auditors' report and pg. 36 of the PB talk about 'sale of business'. Paragraph 11.2(i) defines the business of Sealants and Adhesives and it includes all the processes from manufacturing to marketing. As per the Agreement to Grant Appellant had agreed to sell/transfer and assign all rights, benefits, titles, interests of any nature in relation thereto 'business of Sealants and Adhesives' [Para 11.2(ii)]. The non-compete agreement speaks of 'business of Sealants and Adhesives' and as per that agreement the appellant had agreed not to carry out that business. 12.1 .One may say that agreements and deeds should be seen in substance and their form should be ignored to arrive at a definite conclusion. So, now we will consider the 'substance aspect' of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fferent colours of a rainbow may appear separate entities prima facie, but in reality rainbow is a single phenomenon. Same is the position of the transaction being considered by us. In these circumstance it is a case of sale of proverbial lock stock and barrels or a sale of going concern. Following facts are noteworthy in this regard - 1. Assets(more than 50 items of plant and machinery) of the appellant were sold to PIL on an 'as is where is' basis. (Para 11.5.) 2. Technical know-how was sold 'fully and absolutely'.(Para 11.6.) 3. More than 35 products of Sealants and Adhesives were transferred to PIL(PB Pg.63-64) 4. Registered trademark of M Seal and unregistered trademark of Mr Fixit, related with the business of Sealants and Adhesives were also transferred.(Para 11.3.). 5. Appellant agreed to use different trademark (other than M Seal) in respect of Cable joining insulating compounds.(Para 11.2(iia.). 6. Business of Sealants and Adhesives was sold 'entirely and exclusively' to PIL.( PB Pg.36) 7. PIL agreed that it would not enter in to or compete with the Appellant in the Cable Jointing kits, Cable Jointing terminations and components and Cable Join ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re, the provisions of Sec.50B have been rightly invoked by both the lower authorities. 14.1. We would also like to deal with the other submission of the Appellant. AR submitted that the AO, the CIT(A) and ITAT had not considered provisions of Sec.2(42C) of the Act while deciding the issue. We have perused the Form No. 35 and 36 filed by the Appellant before the CIT(A) and the Tribunal. We do not find any mention of Sec.2(42C) of the Act in the Ground of Appeals. Similarly, the Appellant has not discussed the said issue in the covering letter for the Return of Income filed before the AO (Pg. 18 -19 of the PB), in submission before the AO at the time of original assessment (Pg. 29 -31 of the PB),in submission made before the CIT(Pg.183-194 of the PB).As the submission made before the ITAT during earlier hearing have not been submitted, so we are not in a position to comment upon it. If the Appellant had not raised issue regarding Section 2(42C) before any of the authorities how can he expect an adjudication order about it ?We do not hold that orders of the lower authorities or the earlier order of the Tribunal were bad in law. 14.2. We have considered the provisions of Sec.2(4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re applicable to Sec.41 (2) only. In the case of Mungneeram Bangur question decided by the Hon'ble SC was cost and value of the land transferred by the firm to the company. Conclusion drawn by the Hon'ble SC is reproduced here - "There is no evidence that any attempt was made to a very wait the land on the date of sale. As the vendors were transferring the concerned to a company, constituted by the offenders themselves, no effort would ordinarily have been made to evaluate the land is on the date of sale. What was put in schedule was the cost price as it stood in the books of the vendors. Even if the sum of Rs. 2,50,000 attributed to goodwill is added to the cost of land, it is nobody's case that this represented the market value of the land.......In view the sale was the whole concern and no part of a slump price is attributable to the cost of the land." In the matter of PNB issue to be decided was taxability u/s.45 of the Act. The Hon'ble SC stated that intangible assets like goodwill, value of banking licence could not be assigned value. In the matter under consideration the Appellant has offered a few items of assets for taxation and sale proceeds of others have been claime ..... X X X X Extracts X X X X X X X X Extracts X X X X
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