TMI Blog2016 (4) TMI 519X X X X Extracts X X X X X X X X Extracts X X X X ..... er authorities and this issue of assessee is allowed. - ITA No. 330/Kol/2013 - - - Dated:- 16-3-2016 - Mahavir Singh, JM And M. Balaganesh, AM For the Appellant : Shri Siddharth Jhajharia, FCA For the Respondent : Shri G Mallikarjuna, CIT-DR ORDER Per Shri Mahavir Singh, JM This appeal by assessee is arising out of order of CIT(A)-VI, Kolkata vide Appeal No. 237/CIT(A)-VI/Cir-5/2011-12/Kol dated 03.12.2012. Assessment was framed by Addl. CIT, Range-5, Kolkata u/s. 143(3) of the Income Tax Act, 1961 (hereinafter referred to as the Act ) for Assessment Year 2009-10 vide his order dated 28.12.2011. 2. The only issue in this appeal of assessee is against the order of CIT(A) confirming the action of AO in treating the sale of assets of chemical units as a slump sale u/s. 2(42C) read with section 50B of the Act. For this, assessee has raised following ground no. 1: 1. For that in view of the facts and in the circumstances of the case the Ld. CIT(A) erred in confirming the action of AO in treating itemized sale of the assets of the Chemical Unit of your petitioner as being slump sale and accordingly confirming the AO's action in aggregating the consid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lump sum although shown as itemised sale showing value of each item as claimed. The assessee's claim that intention was to make an itemised sale of assets is not supported by the documents and the rear intention was to sell it as a going concern. This particular business activity of this unit comprising of various assets of the assessee was sold for a lump sum single consideration and the appellant has not produced that any tenders/quotations for itemized sale of assets were called. The intention of the appellant is clear that all the necessary items to run it as a unit were sold to one person. For treating a transaction as slump sale and not an itemised sale, one needs to consider the intention of the parties, the facts and the documents of the transaction. Even if liabilities have not been transferred then the transaction can be deemed to be a slump sale provided: a. There is a transfer of an undertaking b. the transfer is as a going concern c. The undertaking transferred can and does continue the business without the liabilities being transferred d. The consideration is a lump sum or a single consideration for various assets/basket of assets e. no v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hort of slump sale because it could not be said that the purchaser cannot continue the activities in the absence of building and motor car, which had been kept apart. It further held as under: 29. In brief, as discussed hereinabove, slump sale has been defined as transfer of one or more undertakings as a result of sale for a lump sum consideration without values being assigned to the individual assets and liabilities in such sales. In the instant case of the assessee, though in the purchaser's books of account the individual assets have been priced independently, assessee had not assigned separate values and consequently sold the items for independent price. It is not the revenue's case also that individual assets had the price fixed separately and charged. Undertaking is explained in Explanation I to section 2(19AA). According to this Explanation, as we noted already above, includes any part of an undertaking or a unit or division of an undertaking or a business activity as a whole. Revenue's case is that some of the items like motor car and building has been retained by the assessee; as such this cannot be treated as a slump sale. But the fact to be consider ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee was not entitled to indexing under section 48 of the Act. The Court held, dismissing the appeal that the sale proceeds received by the assessee were from sale of a going concern, which was a slump sale and not a sale of block of asset. 33. The Hon'ble Bombay High Court in Premier Automobiles Ltd. v. Income-tax Officer 264 ITR 193 held that a perusal of the documents connected with the transaction showed that the intention of the parties in the .commercial sense was to transfer the Kalyan business, as a whole, for a lump sum consideration of ₹ 247 crores, that, the parties did not Intend to make a sale of itemized assets. Mere execution of conveyance of immovable property by itself would not constitute sale of itemized assets. PPL (originally KMCL) never intended to purchase individual items and apart from land, building, plant and machinery, PAL had transferred business advantages like licences, quotas, permission to use the name Premier , work-force and other intangibles. 34. The Hon'ble ITAT Kolkata D Bench in the case of CIT vs. I C I (India) Ltd. (ITA No. 1020/Ko1/2007) reported in (2008) 23 SOT 58 (Kol) has held that the question is whether it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ets, one has to look at the overall transaction and ascertain whether the basic structure of the unit is transferred or not transferred and that one cannot go by individual items of assets being transferred unless that particular asset goes to the root of the matter, i.e., products could not have been manufactured without such an asset. The assets being sold constitute a running business and the transaction is a slump sale. The assessee has simply assigned sale values to the itemized assets to come out the slump sale and to avoid the payment of taxes. 38. The Hon'ble Bombay High Court in the case of CIT v. Narkeshari Prakashan Ltd. [1992] 196 ITR 438 has laid down certain tests to decide whether the transaction is a slump sale and held that the branch of the assessee had goodwill and, therefore, when the branch is transferred as a whole for a given price, it constituted a slump sale. Therefore, one of the tests applied by the Bombay High Court was transfer of a running business. The second test applied by the Bombay High Court was to look at the subject agreement in its entirety and if it is found that several items mentioned in the agreement were such that they could not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t each of these items alone. That every buyer would have insisted on total purchase and, these intangibles were not purchasable item-wise separately and independently in the market. In the circumstances, the second broad test applied by the Bombay High Court was that if several items were not capable of independent purchase then it would amount to a slump sale. The various test applied by Bombay High Court in the case of CIT v. Narkeshari Prakashan Ltd. [1992] 196 ITR 438 were applicable to this case also. 40. There is hardly machinery valued at ₹ 1,50,561/- for which the details were not submitted during the appellate proceedings, The investment of ₹ 45,000/- was in the name of the appellant and only it can reason it, therefore lying into the amount and nature of investment there was hardly any issue to sale and to keep it back. Therefore, looking into the facts and circumstances as discussed (supra), it is practically sale of a running unit with a change of control from one management to the other called all licenses, permission etc. The sale and transfer of the assets of the undertaking for which sale prices had been predetermined and agreed and disclosed in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssible will determine the sale price of the said assets if available from the agreement. In case it is not possible the Assessing Officer will determine the gain proportionately i.e. value of assets for less than 36 months and the balance value of the assets by taking proportionately to calculate the value of the long term and short term capital gain. 43. The appellant has given as alternative plea that the appellant has reduced the sale price from the value of assets of the gross block and thereby has taken lesser amount of depreciation. It has submitted that accordingly the value of the assets may be increased which are being taken as part of slump sale and the revised chart of depreciation may be considered for allowing higher/correct amount of depreciation in the computation of income. Otherwise there will be a double addition i.e. the assessee had considered sold assets as part of the bigger depreciation chart and reduced the value thereby claiming lesser depreciation and now being taxed as capital gain. It was pleaded that the depreciation may be allowed on the assets without reducing the value of the sold assets considered as part of slump sale. The plea of the appellan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of plant and machinery fixed and moveable installed and for lying inside the said factory in as is where is basis c) Together with the Housing Complex for home to its staff situated at a nearby plot of land containing an area of 1.6 acres more or less situated within the sapid Mouzas Bardhanyaghata and Kismatdhanyaghata within P.S Sutahata in the district of Midnapore which HEIL holds as a lessee for a period of 30 years with effect from 12th September 1981. d) Also together with all licenses permissions orders including the certificate issued by the Pollution Control Authority and all relevant sanctions and clearances to the extent transferable to the Promoters. e) Stores and spares lying in the said Haldia Plant f) Raw Petroleum Coke (All the aforesaid Properties enumerated in (a) to (f) above belonging to HEIL are hereinafter collectively referred as the Property ). 2) HEIL and the Promoters have now agreed that the Property shall be sold by HEIL and purchased by the Promoters and/or their nominee the said Private Limited Company at agreed consideration be more fully agreed and recorded hereinafter. NOW IT IS HEREBY AGREED BY AND BETWEEN TH ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was never sold and or transferred as a going concern in toto but only assets of this units were sold and transferred to the purchaser at a pre determined and agreed price for each type of assets being sold and transferred and the consideration fixed for all the assets sold was not in lump sum for all assets and hence the very conception of the AO that it was a slump sale of the unit as a going concern is wholly wrong and is not based on correct state of affairs. In this connection, first, the assessee drew attention to provisions contained in sec. 2(42C) defining as to what could be treated and or said, underlined lay emphasis, [42(C) slump sale means the transfer of one or more undertakings as a result of the sale for a lump sum consideration without values being assigned to the individual assets and liabilities in such sales. Explanation 1 - For the purposes of this clause, undertaking shall have the meaning assigned to it in Explanation 1 to clause (19AA). Explanation 2-For the removal of doubts, it is hereby declared 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s being sold and transferred had been determined by an Agreement and only sale prices of such individual assets had been received and when some of the liabilities had at all been transferred and all the liabilities had been retained by the seller. Further, it was on the basis of such individual item of assets sold and transferred that the capital gain had been determined and in respect of depreciable assets the realized value had been reduced from the block of assets in terms of sec. 43(6)(c) of the Act. 6. In view of the facts of the case, we now will go through the case law with the principles decided in these cases which are squarely on the facts in the case of assessee in accordance with sale of such individual assets with predetermined sale value cannot be treated as slump sale.The co-ordinate bench of this tribunal Cochin Bench, in the case of Harrisons Malayalam Ltd. V ACIT (2009) 315 ITR AT 1 wherein it is held as under: (iii) That the estate in the nature of a rubber plantation was a going concern. The sale of every assets was attributable to a specified sum of consideration. Therefore, there could not be a slump sale . Since all the assets and liabilities had not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... res. In the course of transfer of all assets and liabilities of the business 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 by the parties to value the land on the date of sale and, therefore, slump sale price could not be apportioned to stock in trade and, therefore, no business income could be assessed. Hon'ble Supreme Court finally held as under: The learned counsel for the appellant relies on two grounds to support the contention that there is profit attributable to the sale of land which was the stock-intrade of the vendors. He says first that in the schedule to the agreement the value of land and the value of goodwill and other items is specified. He says that although the amount of ₹ 2,50,000 was shown as price of goo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsidered similar issue, wherein the assessee's sold its Kalyan Undertaking engaged in manufacturing of car for lump sum consideration. Hon'ble High court on close scrutiny of documents connected with the transfer and conduct of the parties found that the intention of the parties was to transfer the business as a whole for a lump sum consideration of ₹ 246 cr. Therefore, Hon'ble Bombay High Court found that, in fact, there was a sale of all assets and liabilities 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 also based on the manner in which the gain is accounted for by PAL in its books of account. As can be seen from the extracts of accounts of PAL at page 341 of the paper-book, it is clear that PAL has not accounted for pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT 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, on remand, the computation of capital gains. That question of computation does not arise before us in this appeal. In the present case, we have held that there is a sale of an entire Kalyan undertaking under the slump sale agreement and, therefore, the Assessing Officer will now have to compute the quantum capital gains under sections 45 to 50 of the Income-tax Act. Assuming for the sake of argument that, in this case, our finding that there was a slump sale is erroneous and that the transaction 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 mach ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the purposes of computing assessable profits, one has to go by the provisions of the Income-tax Act. If the income/profit is the long-term capital gain, one has to take original cost with indexation. For short-term capital gain, one has to take the amount 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 whole, there is no allocation of price to any particular assets and, therefore, the computation of capital gains in such a case is done on the business as a whole which business itself is a capital asset. However, in the case of sale of itemized assets, the Assessing Officer has to allocate the total amount of ₹ 210 crores not only to land, building, plant and machinery but to also all other assets and only then the computation of capital gains ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vendor and vendee. The total consideration stipulated for the transfer of the estate has been spilt over different assets both movable and immovable enumerated in different schedules and annexure. 35. The assessee-company has assigned specific consideration/value for the rubber plantation as such along with the standing trees. The consideration for the extent of land has been specifically mentioned. Thereafter, the assessee has listed out every item of movable property transferred to the buyer and value has been assigned to those movable assets. Vehicles and other assets were shown and sold separately. The assessee-company has not transferred 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 going concern . 36. Even though the expression ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 relied on to decide the exact nature of the transaction for the purpose of income-tax law. 40. The Income-tax Appellate Tribunal, Cochin Bench in the case of Accelerated Freeze Drying Co. Ltd. v. Deputy CIT in I.T.A. No.611/Coch/08 has considered the issue of slump sale in its order dated December 15, 2008. In that case, the Tribunal found that there was a bifurcation of sale proceedings, splitting up of the value between the movable and immovable assets, and those are depreciable assets. 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 secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Products Ltd. v. Deputy CIT [2001] 79 ITD 489. 46. In the present case, the rubber estate has been sold by the assessee excluding cash in hand, stock in hand, receivables, finance, assets and liabilities. It was not a case of sale by lock, stock and barrel. The assessee company has made conscious exclusions. The assets sold by the assessee have been listed out in 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 sale of every asset is attributable to a specified sum of consideration. Therefore, we cannot say that there is a slump sale . What is reflected is only total consideration . As all the assets and liabilities have not been sold as per the agreement, this is not a slump sale as construed in section 50B of the Act. It is a sal ..... X X X X Extracts X X X X X X X X Extracts X X X X
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