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2015 (11) TMI 925 - ITAT KOLKATA

2015 (11) TMI 925 - ITAT KOLKATA - TMI - Addition under the head capital gains in term of section 50B treating the sale of unit as slump sale - CIT(A) deleted the addition - Held that:- Section 50B of the Act provides that any profit or gain arising from the slump sale effected in the previous year shall be chargeable to income-tax as capital gain arising from the transfer of long-term capital assets and shall be deemed to be the income of the previous year in which the transfer took place.

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9.1999 between the assessee and Russel Tea Ltd. sale consideration paid by vendee was for specific assets mentioned in the agreement and which were purchased/acquired for specific consideration. We find that this estate had been sold on the basis of detailed agreement executed between the vendor and the vendee. The total consideration stipulated for the transfer of the estate had been split over different assets, both movable and immovable enumerated in different schedules and annexures. The ass .....

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not transferred as per the agreement but had been retained by the assessee. The assessee had assumed all the liabilities including the statutory liabilities till the date of transfer. Therefore, it could not be said that the transfer was a slump sale only for the reason that the rubber estate was transferred to the buyer as a 'going concern.

In the instant case, the items sold did not include liabilities. The sale agreement did not include investments and deposits. Accordingly, all th .....

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ot even assessable to capital gains. - Decided against revenue. - IT APPEAL NO. 1233 (KOL) OF 2008 - Dated:- 6-11-2015 - MAHAVIR SINGH, JUDICIAL MEMBER AND M. BALAGANESH, ACCOUNTANT MEMBER For The Appellant : A.K. Bar, CIT For The Respondent : R.P. Agarwal and D.S. Damle ORDER Mahavir Singh, Judicial Member - This appeal by revenue is arising out of order of CIT(A)-IV, Kolkata in Appeal No.127/CIT(A)-IV/07-08 dated 09.04.2008. Order giving effect to the ITAT's order dated 11.12.2006 i.e. ass .....

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ed in holding that assessee did not conduct slump sales but conducted sale of fixed asset. An amount of ₹ 10,54,73,587/- was assessed by the AO under the head Capital Gain in terms of section 50B considering it as slump sales." 3. Briefly stated facts are that the assessee company carried business of growing and manufacture of tea, which owned two tea gardens by the names - Tongani Tea Estate and Nagrijuli Tea Estate. According to AO, out of these two tea estates, the assessee by an a .....

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-2, Kolkata passed order u/s. 263 of the Act, revising the original assessment order vide dated 18.07.2006, setting aside the assessment directing the AO to assess the income on sale of Nagrijuli Tea Estate under the head capital gain after deducting net wealth of Nagrijuli Tea Estate as prescribed under explanation (1) to section 50B of the Act. The assessee challenged the revision order of CIT passed u/s. 263 of the Act before ITAT, wherein the Tribunal set aside the order of AO dated 27.12.20 .....

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's appeal against the assessment order u/s. 143(3) read with section 147 of the Act dated 27.12.2005 as infructuous. Finally, the impugned assessment order was passed by the AO u/s. 251 read with section 263 of the Act giving effect to the order of ITAT dated 11.12.2006. The AO noted that the assessee company sold its entire tea estate known as Nagrijuli Tea Estate as a going concern basis and also as is where is basis. According to AO, it is not a piecemeal sale of asset or part of asset or .....

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was only of specified assets and this is not an agreement for sale of business undertaking as going concern. The AO discussed the facts as under: "However, the assessee in its details filed with the return has shown sale price of land at Land Development at Nagrijuli at ₹ 12,20,08,000/-. The cost of the land and Land Development at Nagrijuli Tea Estate was shown at ₹ 2,81,414/- and ₹ 6,94,26,019/-respectively. The total of land and land development comes to ₹ 6,97,0 .....

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,18,979/-. From the details the excess amount appears to be Rs.(5,79,92,000 - 48,18,979) or ₹ 5,31,73,021/-. But the assessee has offered short term capital gain for only ₹ 2,25,99,606/-. The assessee arrived at this figure by taking the WDV of the entire plant & machinery, building etc. of the entire business consisting of two tea estates and head office of ₹ 3,53,92,394/- from the sale value of ₹ 5,79,92,000/-. The total sale value as per the details filed by the as .....

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her accessories as a going concern as per the agreement page 3 at item E, the assessee was requested to explain why the entire profit arising out of the sale will not be considered u/s. 50B as slump sale." 5. Accordingly, the AO added a sum of ₹ 10,54,73,887/- u/s. 50B of the Act by observing as under: "Similarly, the excess amount in respect of plant & machinery and the assessee's claim for deduction of the WDV of the entire business cannot be allowed since plant & m .....

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sessee preferred appeal before CIT(A). 6. The CIT(A) held that sale of Nagrijuli Teas Estate was not a slump sale within the meaning of section 2(42C) read with section 50B of the Act and, therefore, capital gain was not assessable by observing in para 13 and 14 as under: "13. In the assessee's case also the agreement dtd. 14.9.99 shows-that the intention of the parties was to transfer only the fixed assets situated and lying at Nagrijuli Tea Estate for the connsideration of ₹ 18 .....

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consideration paid in the books of the respective parties was made with reference to the valuation report. The purchaser and seller passed accounting entries for purchase/sale of assets in their respective books as per the values estimated by the valuer. The tax computations were also made by the parties with reference to values apportioned amongst different fixed assets. On these facts therefore I have no hesitation in holding of the ratio laid down by the Bombay High Court in the case of Premi .....

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y were integral of the business undertaking. Hence there was no sale of undertaking within the meaning of Sec. 50B. For this reason "net worth" of the undertaking could not have been computed in the manner statutorily provided in Explanation 1 to Sec 50B. Sec. 50B is a code by itself and contains complete computation mechanism for assessment of capital gain on "transfer" of an "undertaking" in a "slump sale". In working out the "net worth" which .....

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etty v. CIT (128 ITR 294) has held that if computation provisions of I.T. Act fail and capital gain cannot be computed in the manner statutorily provided in law then there cannot be assessment of income under the head capital gain. In my opinion therefore on the facts of the case; computation of capital gain was not possible u/s 50B because "net worth" of the undertaking could not be computed in the manner provided in Explanation 1 to Sec 50B. Viewed from any angle therefore the A.O. w .....

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the other hand Ld. CIT-DR Dr. A K Bar argued on behalf of revenue. 8. We have heard rival submissions and gone through facts and circumstances of the case and also case records including paper books filed by the assessee. The facts of the case are that the assessee company carried on business of growing and manufacture of tea, which owned two tea gardens by the names - Tongani Tea Estate and Nagrijuli Tea Estate. According to AO, out of these two tea estates, the assessee by an agreement dated .....

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mutually agreed at ₹ 18 cr. and clause (b) gave break up of sale consideration, which follows as under: "(b) The break up of the consideration between various categories of the assets of the said Tea Estate has been mutually agreed as follows: (i) Land, Tea Plantations, Nursery and Allied Agricultural Assets ₹ 13,50,00,000 (ii) Plant & Machinery, Installations, Vehicles ₹ 4,50,00,000 Furniture & fittings and other Non Agricultural Assets. ₹ 18,00,00,000" .....

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r with all tea plantations, bushes, nurseries and other trees and vegetation thereupon, the factory buildings, godowns, bungalows and/other structures built and standing thereon and the Plants and machinery mentioned in the Second Schedule hereunder written, furniture, fixtures and fittings lying thereat and vehicles and tractors and other fixed assets appertaining to the said tea estate and lying thereat and all rights, titles, entitlements and easements in respect thereof hereinafter collectiv .....

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t and remaining unpaid then vendee shall pay the same on behalf of the vendor and same shall be reimbursed to the vendee by the vendor. He further drew our attention to clause (c) of the agreement which provides that on taking over possession of the tea estate the vendor and the vendee shall prepare an inventory for all usable store items as may be lying and the same shall be taken over by the vendee at the respective book value in the books of the vendor and total value of such store items shal .....

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ility of the vendor and which was to be paid for by the vendor. 10. Ld. Counsel for the assessee also referred to the valuation report with reference to the value estimated by an expert, wherein specific value were assigned to the specific clause and categories of assets. He narrated that the valuation report was titled first "A Report on Assessment & Apportionment of Fixed Assets of Nagrijuli Tea Estate (A unit of Russel Tea Ltd.) as on 14.09.1999", wherein the computation of meth .....

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transfer and purchase of assets with reference to the valuation described to the different categories of fixed assets and also filed its return of income disclosing profit on sale of these assets. From the cumulative reading of various clauses of agreement dated 14.09.1999 and valuation report dated January 2000 of Shri A. K. Ghosh, Chartered Surveyor and Valuer it appears that under the agreement dated 14.09.1999, the assessee agreed to transfer specific assets comprised in or situated or lying .....

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ved bereft of liabilities and in the case of slump sale not only the assets but also corresponding liabilities relating thereto, to the undertaking should, therefore, be transferred. He argued that the slump sale u/s. 50B of the Act does not envisage transfer of assets of the undertaking only and that also excluding the liabilities of the undertaking. He referred to Rule 6H & form No. 3CEA and pointed out that the net worth of the undertaking which is to be deducted from the sale considerati .....

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the fact further that on the date of transfer of Nagrijuli Tea Estate had the following current assets and current liabilities, it did not come within the ambit of transferred assets for which consideration of ₹ 18 cr. was paid and which are as under: (a) Stock of stores & spares ₹ 17,19,252/- (b) Stock of finished tea ₹ 42,20,672/- (c) Sundry Debtors ₹ 6,28,665/- (d) Cash & Bank Balance ₹ 59,702/- (e) Loans, Advances, Deposits & Recoverable ₹ 14, .....

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sale of assets or part of assets of tea estate but it was only mutually agreed upon to break up the consideration between various categories of assets of the tea estate. On this, Ld. Counsel for the assessee stated that once this is sold as a going concern on, as is where is basis, it means, that it is a slump sale in view of the provision of section 50B of the Act. Ld. CIT, DR drew our attention to the agreement dated 14.09.1999 clauses - D & E at pages 2 & 3 of the agreement, which re .....

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d tea estate as a going concern with effect from 11th October, 1999." From the above, Ld. CIT, DR stated that the vendee sold to the vendor the said tea estate as a going concern w.e.f. 11.10.1999. In view of the above, Ld. CIT, DR requested the bench to restore the order of the AO treating the same as slump sale and charging capital gains. 12. We find from the above facts of the case that as per clause 3(b) of the agreement segregated consideration of ₹ 18 cr. amongst fixed assets si .....

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ies that in the event the vendee was made liable to pay or made any liabilities pertaining to the period up to 11.10.1999 then the vendor was liable to reimburse the amount paid by the vendee. Further, clause (c) provides that gratuity liability accrued up to 31.03.1999 would be actually paid to an approved fund by the vendor. Even clause (e) on page 6 of the agreement provides that on taking over possession of the vendor, both the vendor and the vendee would prepare inventory and usable store i .....

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estate. Further, clause 12 of the agreement at page 9 provides that tea manufactured out of the green leaves plucked upto 10.10.1999 was put on account of the vendor and stock of tea as on the date of transfer i.e. on 11.10.1999 belongs only to the vendor. It means that the assessee has transferred specified and itemized sale in the above stated tea estate and not as a going concern. 13. From the above facts and circumstances, now we have to come to the provisions of section 2(19AA) of the Act a .....

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is not assessed. In the case of slump sale, in view of section 2(42C) of the Act, the undertaking as a whole is transferred but for a slump sale consideration and, therefore, there can be profit or loss of transfer of undertaking, which can be assessee. However, both in slump sale and de-merger an undertaking is the subject matter of transfer and transfer of all assets and liabilities associated with and which form part of undertaking, which is a necessary condition for application of provisions .....

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ss were taken over by the company for a lump sum consideration. The AO and the Tribunal held that though the assessee has disclosed in its books goodwill at ₹ 2.5 lacs but firm did not enjoy any goodwill and the sum of ₹ 2.5 lacs was nothing but additional value of land which was stock in trade of the assessee's business. Hon'ble Supreme Court held that there was nothing in the agreement or document evidencing the transfer which in any manner proves that any attempt was made .....

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value of goodwill and other items is specified. He says that although the amount of ₹ 2,50,000 was shown as price of goodwill, it was really excess value of the land sold along with other assets. Secondly, he says, relying on the passage already cited above from Doughty's case** that the vendor's business was a business of purely buying and selling land. In our opinion, on the facts of this case it cannot be said that the vendors were carrying on the business of purely buying and .....

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le from an ordinary sale, and it is very difficult to attribute part of the slump price to the cost of land sold in the realisation sale. The mere fact that in the schedule the price of land is stated does not lead to the conclusion that part of the slump price is necessarily attributable to the land sold. There is no evidence that any attempt was made to evaluate the land on the date of sale. As the vendors were transferring the concern to a company, constituted by the vendors themselves, no ef .....

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sion of this court in Commissioner of Income-tax v. West Coast Chemicals & Industries Ltd.* and Doughty's case** that no part of the slump price is taxable. We, therefore, answer question No. 3 in the negative. As stated before, in view of this answer, it is not necessary to answer questions Nos. 2 and 4." 15. Ld. Counsel for the assessee also relied on the judgment of Hon'ble Bombay High court in the case of Premier Automobiles Ltd. v. ITO [2003] 264 ITR 193 (Bom), wherein Hon& .....

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ities of the Kalyan Undertaking and it is a transfer of going concern and, therefore, it was a case of slump sale and accordingly, it was stated that there arises long term capital gains. Hon'ble Bombay High court in Premier Automobiles Ltd., supra has held as under: "There is one more aspect which needs to be mentioned. Our above conclusion, namely, that the transaction is a slump sale is not only based on our interpretation of terms and conditions of the entire arrangement but it is a .....

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to any profits and, therefore, that value had to be ignored. These accounts of PAL support the slump sale agreement because the accounts are not based on the sale of itemized assets. This aspect has been lost sight of by the Assessing Officer. There was a separate ledger for the Kalyan business which contains various heads of accounts, viz., building account, land account, plant and machinery account, in which debit/credit entries were made as per the figures given on page 341 of the paper-book. .....

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connected or not connected with his business or profession. In the case of West Coast Electric Supply Corporation Ltd. v. CIT [1977] 107 ITR 483 (Mad), it has been held that the word "property" in the definition of "capital asset" in section 2(14) would include an undertaking acquired as a whole. Therefore, the Kalyan business acquired as a whole by PPL, constituted property in the definition of "capital asset". In the case of demerger, all assets and liabilities s .....

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ale value is not attributed to individual items of assets. In the present case, all the tests laid down by the Bombay High Court in the case of CIT v. Narkeshari Prakashan Ltd. [1992] 196 ITR 438 stand satisfied. In our view, principles for computing capital gains are the same, both under section 41(2) as it stood at the relevant time and under section 50 of the Income-tax Act. In the present case, having held that the transaction was a slump sale, the Assessing Officer will now have to decide, .....

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was a sale of itemized assets even then there is a basic fallacy in the stand taken by the Department. In this case, the Assessing Officer has held that there was a sale of itemized assets. According to the Income-tax Officer, there was a short-term gain on sale of building of ₹ 19.31 crores ; ₹ 64.39 crores on plant and machinery, ₹ 7.57 crores on paint shop. These short-term gains have been calculated by the Assessing Officer by assigning specific sale values to building, pa .....

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, technical proprietary information and intangibles like licences, quotas, permits, etc., all of which have been transferred to PPL and consequently the liability of PAL stood increased arbitrarily. Moreover, there is arbitrariness in the assignment of sale value by the Assessing Officer. For instance, the Assessing Officer has assigned sale values to buildings, plant and machinery on the basis of the report of the valuer of September, 1996. However, when it came to assignment of the sale value .....

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7; 68 crores. Further, in this case, the controversy in computation of capital gains by the Assessing Officer is, whether the Assessing Officer was justified in taking into account valuation of assets done by PPL in September, 1996. At this stage, it may be mentioned that PAL sold the entire Kalyan business for a net consideration of ₹ 247 crores (see page 267 of the paper-book). As per the returns filed by PAL, the book profit/surplus was ₹ 81.31 crores. The Assessing Officer has in .....

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mount shown under the block of assets on the first day of the previous year. Lastly, the valuation of assets done by the transferee-PPL in this case is not for determining value of individual assets but for allocating the price of various assets in their books of account. Therefore, the sale value assigned by the transferee for the purposes of their books of account cannot constitute the basis for computing income/profits of PAL under the Income-tax Act. In the case of sale of business as a whol .....

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; 210 crores is restricted to specific three items then liability of the assessee would stand increased artificially. In the case of sale of itemized assets, the Department will have to work out the cost of each item. We are dealing with the case concerning the assessment year 1995-96. At that time, there was no definition of slump sale. The concept of slump sale is based on judge-made law. Under the circumstances, even if we were to accept the contention of the Department, namely, that there wa .....

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on, executing engineering contracts etc. During the relevant year the assessee sold one of its rubber estates with standing trees and all other paraphernalia known as 'Boycee Estate' as a going concern. The CIT(A) held that the surplus arising out of the sale of its 'Boycee Estate' was taxable as capital gain u/s. 50B of the Act read with section 2(42C) of the Act, as the rubber estate owned by the assessee was sold as a going concern, which showed that the sale was a slump sale .....

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ea, rubber, cocoa, cardamom, etc. In the case of rubber itself, the assessee is having about 12 different estates. During the previous year relevant to the assessment year under appeal, the assessee-company has sold one of its rubber estates known as "Boyce Estate". The estate has been sold on the basis of a detailed agreement executed between the vendor and vendee. The total consideration stipulated for the transfer of the estate has been spilt over different assets both movable and i .....

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ransferred the estate with all the assets and liabilities. All the financial assets available to the assessee up to the date of the transaction were not transferred as per the agreement but have been retained by the assessee-company. The assessee-company has assumed all the liabilities including the statutory liabilities till the date of transfer. Therefore, it is not possible to hold that the transfer was a slump sale only for the reason that the rubber estate was transferred to the buyer as a .....

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cter of the transaction. Rubber plantation is a highly labour oriented activity. It is not easy to retrench all the experienced workers only for the reason that the property has been changed hands. Retrenchment of the workers will create serious labour problems and it will not be possible either for the assessee or for the buyer to dose the contract without having a clear cut understanding on the engagement of labour deployed in the rubber estate. Therefore, the agreement with the buyer that the .....

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basis and all other activities have to be carried out without any interruption. Therefore, by the nature of the activities of the rubber plantation itself, it is a "going concern". Even if there is no such an expression in the agreement that the rubber estate is sold as a going concern, the nature of the asset has become "a continuous asset". Even, in the absence of such a specific clause, by its nature, a rubber plantation is in the nature of a "going concern". Un .....

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nces of the case, we are of the considered view that the Commissioner of Income-tax (Appeals) has been highly carried away by the commercial expression reflected in the 'agreement like "going concern". At the cost of repetition, we have to state that a rubber plantation is always a "going concern". Even if the parties to the contract do not say so, still the estate in the nature of a rubber plantation is a going concern. Therefore, the said expression is not a test to be .....

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sets. In that case, the Tribunal held that section 50 is applicable. The Tribunal further held that it was not the value of the transaction to be taken as a noteworthy for the purpose of "slump sale". The Tribunal held that section 50B did not attract in that case. 41. The Income-tax Appellate Tribunal, Bangalore Bench, in the case of Kampli Co-operative Sugar Factory Ltd. v. Joint CIT [2002] 83 ITD 460 has considered the case of split sale vis-a-vis slump sale. In that case, the Tribu .....

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facts and circumstances of the case decided by the Bangalore Tribunal as mentioned above. As in the case of Kampli Co-operative Sugar Factory Ltd, v. Joint CIT [2002] 83 ITD 460 in the present case also, the items sold did not include liabilities. The sale agreement did not include investments and deposits. All the investments, deposits, receivables, stock and such other current assets in the form of financial and other assets remained with the assessee-company along with the liabilities. Only t .....

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ntifiable assets of undertaking and no liability was transferred to the buyer, the transfer of undertaking would not constitute a slump sale. 44. The Income-tax Appellate Tribunal, Kolkota Bench "D", in the case of Deputy CIT v. ICI (India) Ltd. [2008] 23 SOT 58 has held the same view that there cannot be a case of slump sale, if all the assets and liabilities of an undertaking have not been transferred to the vendee. 45. As rightly relied on by the learned chartered accountant appeari .....

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different schedules and annexure. The consideration has been specifically assigned to the sale of immovable property by way of rubber estate. Separate consideration has been assigned to the sale of movable properties including vehicles and other properties. Therefore, it is not a case of slump sale for a lump sum amount of consideration where the consideration is not attributable to any particular item of asset. There is no such a statement of blanket consideration in the present case. Here, the .....

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ng so, in the light of the judgment of different Benches of the Tribunal as stated in the above paragraphs, we hold that this is not a "slump sale" answerable to section 50B of the Act. 47. Moreover, in the light of the decisions: (a) Manubhai A. Sheth's case (supra); (b) S. Mutyam Reddy's case (supra); (c) Alanickal Co. Ltd.'s case (supra); (d) All India Tea and Trading Co. Ltd.'s case (supra) and; (e) Singhai Rakesh Kumar's case (supra) The profits arising on sale .....

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t;. The said direction is set aside. This issue is decided in favour of the assessee." 17. In view of the above facts and circumstances of the case, we find that Section 50B of the Act provides that any profit or gain arising from the slump sale effected in the previous year shall be chargeable to income-tax as capital gain arising from the transfer of long-term capital assets and shall be deemed to be the income of the previous year in which the transfer took place. Further, Section 2(42C) .....

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unit or division of an undertaking or a business activity taken as a whole, but does not include individual assets or liabilities or any combination thereof not constituting a business activity. The Explanation 2 to section 2(42C) of the Act further provides that the determination of the value of an asset or liability for the sole purpose of payment of stamp duty, registration fees or other similar taxes or fees shall not be regarded as assignment of values to individual assets or liabilities. .....

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99 between the assessee and Russel Tea Ltd. sale consideration paid by vendee was for specific assets mentioned in the agreement and which were purchased/acquired for specific consideration. We find that this estate had been sold on the basis of detailed agreement executed between the vendor and the vendee. The total consideration stipulated for the transfer of the estate had been split over different assets, both movable and immovable enumerated in different schedules and annexures. The assesse .....

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transferred as per the agreement but had been retained by the assessee. The assessee had assumed all the liabilities including the statutory liabilities till the date of transfer. Therefore, it could not be said that the transfer was a slump sale only for the reason that the rubber estate was transferred to the buyer as a 'going concern. 19. Even though the expression "going concern" is a functional qualification as far as the estate is concerned, the said functional qualification .....

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e either for the assessee or for the buyer to close the contract without having a clear understanding on the engagement of labour deployed. Therefore, the agreement with the buyer that the new owners would absorb the existing labour force was not a salient feature to decide whether the sale was a slump sale or not. The meaning of the expression 'going concern' has to be understood in the light of the peculiar nature of the property tram/erred in the instant case. What was transferred in .....

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estate of affairs and to an existing fact and not to create any legal proposition in the context of the sale deed. Therefore, the AO and CIT(A) had been carried away by the commercial expression reflected in the agreement like 'going concern '. Therefore, the said expression is not a test to be relied on to decide the exact nature of the transaction for the purpose of income-tax matters. 20. In the instant case, the items sold did not include liabilities. The sale agreement did not incl .....

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