9911796707
TMI Blog2002 (11) TMI 796X X X X Extracts X X X X X X X X Extracts X X X X ..... fficer. Under the circumstances of the case we set aside the issue to the file of the Assessing Officer to re-examine the matter in the light of the reconciliation statement. 2(a). Ground No. 1 of the assessee's appeal reads and under: "The Income Tax Authorities have erred in law and on the facts of the case in taxing ₹ 46,78,000 under Section 41(1) of the Act". The learned counsel of the assessee contended that the amount of ₹ 46,78,000 has been offered to tax, and has been taxed, in the assessment year 1996-97. It is contended that the said amount is wrongly taxed in the year under appeal. The learned counsel pointed that for both assessment years 1995-96 and 1996-97 the assessee had filed loss returns but for both the assessment years assessments were completed at positive figures. It is stated that it is a case of double taxation. The assessee had no objection if the amount is taxed in any of the two years. The Assessing Officer is directed to verify these facts and to delete the impugned amount in the year under appeal if the same has been taxed in assessment year 1996-97. 3. Ground Nos. 3 and 4 are connected and they are extracted here for immediate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) The assessee-company failed to give asset-wise breakup of consideration, despite various opportunities given to it. Therefore, M/s Pal-Peugeot Limited was requested to submit the treatment given by it in its books of account to these particular transactions. The details show that the figure of total consideration is at variance with the figures given by the assessee in the assessment proceedings. The Transferee Company has taken into account the entire price paid to the assessee by dividing it between fixed assets and current assets on the basis of valuation report. (iii) The contention of the AR that no specific price has been charged for any particular asset, is not correct. The sale of part of Kalyan Unit has been a long drawn process over a number of years which itself shows that the price has been fixed for every asset during the course of above period. This fact gets further confirmed by the valuation report furnished by the purchaser wherein the price of each and every asset was separately mentioned giving complete and proper description. (iv) The assessee did not produce fixed asset register. Though the assessee company says that the agreement is for transfer of land, f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iption of each item, including value column, with make and year of purchase. The assessee has kept value column blank deliberately. Since the assessee failed to produce documents in original, it is difficult to ascertain the real affair in this matter. (vii) For transfer of immovable property assessee obtained tax clearance certification under section 230A of the Act. Column 15 of the proforma for 230A application reads as under: "(I) Full value of consideration for which the property or the right, title or the interest to or in the property is purported to be transferred; and (II) If the transfer is to be without consideration, the value for the purpose of stamp duty." The assessee kept column No. 2 vacant and the value was put against column No. 1 which indicates the sale price of immovable property. However, the contention of the assessee that the price was mentioned in that application only for the purpose of obtaining tax clearing certificate, shows that the intention of the assessee is far from honest and the assessee has been indulging in make believe stories at the various stages of the transaction. Though the assessee stated that the land and building has b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been determined at the time of agreement but copy furnished to the Assessing Officer is without such value. 5. It was thus concluded by the Assessing Officer that it is not a slump sale but the assessee has merely adopted the device to avoid payment of tax. He, therefore, proceeded to tax the profit under the head long term capital gains, short term capital gains and business profit, by taking the value of each asset as declared by the transferee in its record as the sale price. 6. Aggrieved, assessee preferred an appeal before the CIT(A). Detailed Written submissions dated 3-11-1998 along with several compilations containing copies of various agreements in support thereof were filed before the CIT(A). It was contended that the various additions made by the Assessing Officer were illegal. The assessee-company had two plants for manufacturing cars i.e. one at Kurla and another at Kalyan. Premier - Padmini cars were manufactured at Kurla plant whereas 118 NE cars were manufactured at Kalyan plant. During the previous year relevant to the year under consideration the company sold its running business of manufacturing of 118 NE cars together with all the assets of Kalyan business to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... received on slump sale was taxable, a detailed statement was submitted which according to the assessee should be the basis for levying tax. 7. The Assessing Officer has submitted his comments vide his letters dated 17-12-1998 and 23-12-1998 in support of his claim that additions made in the assessment year is in accordance with law and facts. It was contended that there is sufficient evidence on record to prove that the assets were evaluated at the time of sale and further stated that the basis for bifurcation of slump consideration was the balance sheet of Pal-Peugeot drawn on 31-3-1995 and the valuation report which gives the values as on 29-9-1994. It was also pointed out that some of the Directors in both companies were common at the relevant point of time and hence it would be really difficult to say that the deal was at arms length. In other words, the Assessing Officer was of the view that it was a premeditated design to create a subterfuge of slump sale with the sole purpose of evading tax. The Assessing Officer further pointed out that in respect of all the three units the schedule of fixed assets is common. The assets reflected in the schedule are land, building, furnit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whereas in the assessee's case there is a clear stipulation regarding verification of individual assets in the MOU. 9. When the same was put to the assessee, the learned counsel submitted that no separate price was attributable to different assets and it was the purchaser who bifurcated the price as per the valuation report obtained by them more than one year after the close of this deal. It was also submitted that the assessee did not reduce the WDV of fixed assets in its account because it did not know as to how much of ₹ 210 crores is attributable to each asset. Regarding the valuation of land it was submitted that registration authority desired a valuation of land and building which was obtained by the purchaser in November 1995. Again the Assessing Officer was called upon to state this case and the contents of the letters written by the Assessing Officer was again put to the assessee's counsel and thus the matter was heard at length. 10. On a detailed consideration of the matter the learned CIT(A) came to the conclusion that the impugned sale cannot be treated as a slump sale. In this regard he observed that sale agreement should not be viewed in isolation and the agr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e ground that such sales are assessable to tax even earlier in the light of the decision of the Hon'ble Supreme Court in the case of CIT v. B.M. Kharwar [1969] 72 ITR 603. Thus, learned CIT(A) concluded that it was not a case of slump sale. 13. With regard to the sale price attributable to each item the learned CIT(A) observed that the Assessing Officer was justified in taking the sale price as recorded in the transferee's book. In this regard he observed as under : "Since the prices of land and building were known and were also evidenced by the registered sale deed, it becomes absolutely clear that the transfer could not be treated as a case of slump sale. In the circumstances the Assessing Officer was perfectly right in examining the accounts of the transferee as well as other evidences to determine the consideration for other assets transferred by the appellant and thereafter to tax the gains or profits arising out of such a transfer". 14. With regard to the cost of acquisition of land the Assessing Officer observed that the assessee has not disclosed the date of acquisition of the land though it was stated that the same had been acquired before 1968. The Assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order of the learned CIT(A), The learned counsel prepared the summary of the Assessing Officer/CIT(A)'s objections and explained therein, the case of the assessee. Since the assessee's case is summarized in the said statement the same is reproduced here for quick reference : S.No. Assessing Officer's objections Para of A.O.'s Order Assessee's submissions 1. The assessee failed to give asset-wise break-up of consideration. 10.7 Assessee did not sell any asset separately for a price. It sold the entire Kalyan business which included many assets like land, building, plant and machinery etc., etc., for a slump price. As such, Assessee does not have any break-up and cannot give what it does not have. 2. The above submissions becomes factually, incorrect due to the fact that transferee company has in its books has taken into account the entire price paid to you by dividing it between fixed assets and current assets on the basis of valuation report. 10.7.1 Transferee company got the slump price apportioned more than one year after the sale of its Accounting. That does not bind the assessee. If the price of each asset had been known at the time of sale, where was the need to h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s been done as per the understanding with the assessee company. 11.5 The Assessing Officer has no evidence for such a statement. 10. Since the assessee is not giving the respective separate sale consideration for the obvious reasons even though , it knows the separate value of each asset comprised in the total consideration, which is evident from the discussion in the paragraphs to follow, it would be reasonable basis. 11.5 Assessee never knew of separate valuation of each fixed asset. 11. The parties shall also simultaneously undertake a verification process (industrial due diligence) for verification of principal items of the assets) (to be transferred later by PAL to KMCL) including Plant and machinery situated at Kalyan or any other locations (Kurla, Pune or any other locations) with a view to carry out broad verification of such items. The recitals in the above sub-clauses very clearly refer to the valuation report i.e., Industrial due diligence for verification of the assets. 11.7 "Due difference" means to verify the physical existence of assets and not their values 12. Clause 2A.4 very clearly mentioned that there is no consideration in respect of intel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red into a joint venture agreement with the Premier Automobiles Limited (the assessee hereinafter referred to as PAL) whereby they decided to float a new company. Referring to the MOU dated 11-3-1993, the learned counsel submitted that Government of India as well as Government of French had to give their approval before the MOU can be legally enforceable. In March 1993 itself the price of Kalyan plant was agreed at ₹ 210 crores and the MOU does not contain the bifurcation of cost of the each individual asset which proves that the sale of Kalyan plant was a slump sale. He also referred to the second agreement dated 17-5-1994 which is a supplementary MOU between AP and PAL wherein it was agreed that the joint venture company would be known as Kalyan Motors Private Limited. Except clarifying certain aspects there was no change in the agreement in so far as the slump sale price is concerned. He then referred to Declaration of Trusteeship (Page 26 of the paper book) dated 29-9-1994 to submit that the Kalyan business of the assessee-company was completely taken over by the Kalyan Motors as a going concern with effect from 29-9-1994 and it was decided therein that the slump sale agr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the sale price is not taxable. He also relied upon the decision of the Nagpur Bench of Bombay High Court in the case of CIT v. Narkeshari Prakashan Ltd. [1992] 196 ITR 438. Thus he contended that unless there is sufficient evidence to show that assets are valued by the assessee and the sale took place by charging separately for each independent asset, the Assessing Officer cannot bring to tax an amount received by the assessee on the sale of a going concern. Only when there is some evidence that the assessee has valued assets before sale, the Assessing Officer will be entitled to disregard the nomenclature given by the assessee i.e., merely because it is treated as slump sale it would not debar the revenue from finding out the truth. However, in the instant case, the Revenue has no such evidence to prove that the assessee valued assets separately and charged the price for each asset. 19. The learned counsel submitted that the MOU was entered into in the year 1993 and the price for the sale of unit was fixed in 1993. Merely because the transferee company got the plant and machinery valued in 1995 and apportioned the same in its books of account, the tax authorities were not ju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bifurcations is allowed then depreciation has to be reduced, in which event assessee will have no objection. 23. In reply to the AR's contentions with regard to Ground Nos. 3, 4 and 5, the learned DR submitted that the material on record clearly indicates that it was not a case of slump sale. In this regard, he adverted our attention to page 55 para 96 of the order of the CIT(A). He further submitted that the assessee did not answer the questionnaire issued by the Assessing Officer and hence the Assessing Officer had to examine the transferee company's record. He emphatically contended that the slump sale is merely a front to avoid tax. Explaining the meaning that has to be ascribed to the term "slump sale", learned DR submitted that it can be equated to a distress sale e.g., sale of old news papers in the house etc. In the instant case the assessee has several Units. All the Units were not sold. Thus, so far as the assessee is concerned it was a sale of a part of its undertaking. It can be said that the assessee sold in bits and pieces particularly when the assessee sold one machinery from Pune, a part of the plant from Kalyan etc. Thus it cannot be considered as a slu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the value of each asset. He also adverted our attention to internal page 5 of the supplementary MOU to submit that in order to obtain bank loan the assessee has to give detailed report on the value of each asset without which no bank will lend money whereas the assessee has not furnished any material in this regard. Thus he contends that the Assessing Officer had no other alternative but to rely upon the value of each asset as recorded in the transferees books. Regarding the bank finance he has also referred to pages 9 and 10 of the supplementary MOU to impress upon us that before lending amount the bank has to be satisfied that the sale value is reasonable which in turn requires verification of the value of each independent asset. He also referred to pages 41 and 42 of the paper book (1) filed by the assessee i.e., Joint Venture agreement to submit that the assessee has only sold some assets and therefore it cannot be treated as slump sale. In particular he referred to clause (F) of the agreement which reads as under: "(F) As set forth in the MOU, PAL and AP agreed that subject to the terms and conditions of the Slump Sale Agreement, PAL would sell to KMCL some of its asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so submitted that the Indian and French Government are involved in this matter in which event is it possible for Government authorities to accept the price stated in the MOUs without the aid of valuation ? He thus submitted that the assessee has taken valuation of each asset but the information was not furnished to the Assessing Officer so as to claim tax benefit by treating the sale as slump sale. He adverted out attention to pages 19, 65, 111, 112, 118 of PB(I) of the assessee and in particular the definitions given in the Slump Sale Agreement, to submit that the assessee had definitely ascertained the value of each asset. The definition of "statement of acquired net asset" was given in the Slump Sale Agreement is an under : "'Statement of acquired net assets' : shall mean and contain the particulars of Acquired Net Assets together with the relevant values". In particular he adverted out attention to pages 111 and 118 of the PB(I) of the assessee to submit that the assessee has certainly obtained valuation of immovable assets because the term "Acquired Net Assets" means the "acquired immovable assets" as described in Schedule 2.A and Acqu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gement of the JV which is now known as PAL-PEUGEOT Limited. Therefore the transaction was not at arms length and the assessee was aware of the value of each asset before the sale but for the purpose of saving tax the same was shown as a slump sale. He also submitted that though the assessee sold the assets, depreciation was claimed in its hands though the transferee-company also claimed depreciation and the intention of the assessee was to avoid payment of tax which is quite apparent from a combined reading of the MOUs and other agreements. He placed reliance upon the following decisions : (i) Artex Mfg. Co.'s case ( supra) (ii) Electric Control Gear Mfg. Co.'s case (supra) (iii) Southern Roadways Ltd. v. CIT [1999] 235 ITR 21 (Mad.). He also submitted that there is difference in the language used in section 41(2) and section 50 of the Income-tax Act. 27. At this stage Mr. Kapila, the learned CIT DR sought our permission to elaborate the contentions urged by the learned Departmental Representative Mr. Tralshawala. He submitted that section 41(2) of the Act created a legal fiction and such fiction cannot be extended beyond the intended purpose and thus judgment of various court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave no application for the purpose of interpreting applicability of section 45 of the Income-tax Act, 1961. He has also referred to the following decisions to explain that the facts of the assessee's case clearly shows that each asset was separately valued and sold as such and hence the sale proceeds attract tax : (i) Anand Electric Co. Ltd. v. CIT [1999] 237 ITR 587 3 (Bom.) (ii) Syndicate Bank Ltd. v. Addl. CIT [1985] 155 ITR 681 4 (Kar.) (iii) Nagpur Electric Light & Power Co. Ltd. v. CIT [1988] 171 ITR 33 5 (Bom.) (iv) CIT v. F X Periera & Sons (Travencore) (P.) Ltd. [1990] 184 ITR 461 6 (Ker.) (v) T.S. Hegde & Sons v. ITO [1995] 54 ITD 409 at 413 (Bang.) (vi) ITO v. Smt. R. Shyamala [1996] 59 ITD 383 (Mad.). Another Senior Departmental Representative Mr. Srinivasulu referred to paragraphs 109 and 110 at pages 64 and 65 of the CIT(A)'s order to submit that the items of ₹ 60.46 crores and ₹ 32.01 crores were not shown by the assessee as falling in any of the schedules. He thus contended that the assets valued at ₹ 32 crores were not transferred at all because it was with reference to the technical fees and miscellaneous expenses. In this regard he also r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tions took place over a period of two years whereas the fact remains that the negotiations for fixing the price did not take any time. Only to take permission from Government of India for selling the assessee's unit to a non-resident, it took some time. He also submitted that the learned DRs equated the sale to a scrap sale or a sale of old newspapers but the fact of the matter is that it was a genuine slump sale but in order to satisfy the purchaser one or two items, which the other party felt necessary, were added or deleted but such an act does not change the character of slump sale. He also submitted that the JV agreement is a different exercise but the assessee does not have complete control over the JVC and the transactions are at arms length because the foreign enterprise is also involved in the JV Company. With regard to the contention of the learned DRs that the sale of Kalyan Unit involves crores of rupees and also the approval and satisfaction of the foreign company and the assessee-company apart for the respective Governments and therefore valuation of each property is a must, the learned counsel submitted that the argument of the learned DR was based on mere hypothesis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h of peculiar facts in which the assessee sold its unit. Regarding the applicability of the decision in Artex Mfg. Co.'s case (supra), the learned counsel submitted that it was a case where the assessee knew market value of each asset before the sale whereas in the instant case the assessee was not aware of the market value of each asset at least till 1994. He relied upon the decision of Supreme Court in Electric Control Gear Mfg. Co. Similarly, the decision of Hon'ble Madras High Court in Sourthern Roadways Ltd.'s case (supra) supports the case of the assessee. The Assessing Officer would be justified in going behind the documents provided there is some evidence, whereas in the case of the assessee there was no such evidence to show that the assessee was aware of the value of each asset. In the case Killick Nixon & Co. (supra) slump sale also was not the issue. In the case of Killick Nixon & Co. (supra) the assessee therein has not raised the plea that it sold running business and hence it has no relevance to the assessee's case. The case in Narkeshari Prakashan Ltd. (supra) is in favour of the assessee and not Revenue. In the case in Dasaprakash Bottling Co. (supra) the issue of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dded to the cost of land, it is nobody's case that this represented the market value of the land." It may be noted that the issue as to whether the sale of capital asset is assessable to tax under the head 'capital gain' was not the subject matter of consideration before the Hon'ble Supreme Court. It may also be noted that the vendors are not different from the purchasers because the partners of the vendor firm were the shareholders of the company, which purchased the business. Under these circumstances, the Hon'ble Supreme Court observed that the vendors might not have valued the land at the time of sale. 32. In the case of Narkeshari Prakashan Ltd. (supra), Nagpur Bench of Hon'ble Bombay High Court was concerned with the case of sale of one branch. The assessee, a publishing house had two branches at different places out of which one branch was sold 'lock, stock and barrel'. The court observed that even if an inventory was made and value was indicated against each item, the overwhelming character of the transaction was not changed and what was sold was the entire branch business as a whole and thus the provisions of section 41(2) are not attracted. The learned DR drew our ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g. Co. (supra), the question before the Hon'ble Supreme Court was whether the surplus as a result of difference between the written down value and the sale consideration for the plant, and machinery and dead stock transferred by the assessee is taxable under section 41(2) of the Income Tax Act, 1961. The facts in brief are that the assessee firm was carrying on a business of manufacturing art silk cloth. The Private Limited Company by name Artex Manufacturing Company Private Limited was formed with a view to take over the business of the assessee as a running concern. The partners of the firm were allotted shares towards consideration for the said sale. The case of the assessee was that the firm was converted into a private limited Company and business of firm was taken over by company as a going concern and hence there was no income chargeable to tax under section 41(2) or under section 45 of the Act. The AO took written down value of the plant and machinery etc. as per the income tax records and after deducting the same from the total consideration received by the firm, tax payable under section 41(2) was computed. The first appellate authority however, held that the surplus was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rved that merely because a sum of ₹ 3,32,863 has been allowed as depreciation to the in assessee-firm, it cannot be said, that was the excess amount between the price and the written down value. It may be noted that the issue as to whether the amount is assessable to tax under section 45 of the Act or not, was not the subject matter of consideration by the Hon'ble Supreme Court and thus it has no application to the facts of the case. 37. In the case of Anand Electric Co. Ltd. (supra), the Hon'ble Bombay High Court held that the taking over of the undertaking did not constitute a slump sale, but only a sale of the individual assets of the undertaking, for the purpose of section 41(2) of the Act, in this regard, the court applied the decision of the case of Artex Mfg. Co. (supra). 38. In the case of Southern Roadways Ltd. (supra) the facts are that the transport division of the assessee company was taken over by the State Government by way of compulsory acquisition and compensation was determined for each and every. The case of the assessee was that it was a sale of whole undertaking and hence no profit arises on slump sale. The Hon'ble High Court rejected the contention of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of each asset can be ascertained and it cannot be said that it is a sale of whole undertaking for a slump price. In the cases cited by both the parties it is seen that the sale was of the whole undertaking of an assessee which practically puts an end to the business carried on by that assessee or it was sale of a branch which was maintained independently all through. In the case before us, however, the facts are different. The assessee had three units. While entering into joint venture agreement with AP, the assessee sold not only the business within the walled area of Kalyan but also one or two machines which were used by the other units. The excess land available at Kalyan was retained with the assessee. Clause 3.16 in the Slump Sale Agreement, Clause II. 2 of the MOU, para 2(a)(ii ) of Supplementary MOU para 10 of the letter dated 9-12-1997 addressed to the AO and other material clearly show that it was not a sale of a unit as a whole. 41. There is sufficient indication to the effect that price of each asset was taken into account at the time of sale. In an application made by the assessee under section 230A of the Act, the assessee mentioned specific value for the land and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and liabilities of Kalyan business and the other assets available at other units before settling for the price mentioned in the joint venture agreement. 43. It should also be born in mind that in the case of a Mega deal involving crores of rupees, no party would be willing to make an adhoc estimate of the price which may deprive either party in terms of few crores. It should also be born in mind that in the case of a sale of this nature, meticulous paper work would have been undertaken with the help of experts and it cannot be said that such specialist would include a value column in the final agreement without there being any need for it. In the instant case, it was specifically mentioned in the agreement that 'due diligence report' would be carried out. According to the learned counsel the term 'due diligence' means the verification of the existence of the assets and not the value. We are unable to appreciate the same. If there was no need to value the cost of each asset, the parties would not have retained the column in schedule 2A, 2B and 2C with regard to the value of each asset. Should it be assumed that the team of experts from both the sides have ignored the basic fact tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tioned sum is referable to the short-term capital gains as under: (i) On sale of building as per para 11.26 ₹ 19,31,67,078 (ii) On sale of plant and machinery as per para 11.28 ₹ 64,39,50,057 (iii) On sale of paint shop as per para 11.29 ₹ 7,57,34,659 ₹ 91,28,51,794 The AO observed that the assets transferred include building situated at Kalyan and also plant and machinery. The assessee claimed depreciation which was allowed in the earlier years and they were considered for depreciation as a block of assets. Under section 50 any amount received on account of transfer of an asset goes to reduce the block and in case there has been addition, the block is increased. In this case sale price of the building was taken at ₹ 23.24 cores. Accordingly the short-term capital gains on the sale of building was worked out. In para 11.28, the AO has given the reasons for arriving at the profit on account of the sale of plant and machinery at ₹ 64.39 crores and at para 11.29, the issue regarding profit on the sale of paint shop was considered.This issue was considered by the learned CIT(A) in para 110 of his order. The learned counsel has not given any s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l filed by the assessee is partly allowed. Per Jaidev, A.M. - I have gone through the proposed order of my learned brother Shri D. Manmohan, Judicial Member. But I am unable to persuade myself to agree with the findings recorded by him on the main ground of appeal of the assessee inspite of the discussion held with him. The main ground of appeal, which is covered by assessee's grounds of appeal Nos. 3, 4 and 5, is whether running business of manufacturing 118 NE cars at Kalyan sold by assessee alongwith other assets of Kalyan business for a sale consideration of ₹ 210 crores to M/s. PEUGEOT of France was a slump sale and hence surplus or profit was not assessable to tax. My learned brother is of the view that it is not a slump sale and hence surplus is assessable to tax. However, I hold the contrary view. 2. So far as the facts involved in the appeal are concerned, my esteemed brother has given out the facts in a very apt manner and in detail and also given out the submission of ld. counsel for the assessee as well as of ld.D.Rs. in detail and it will be mere repetition to give out those facts as well as respective submissions of learned representatives of parties. It will ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had argued very strongly that the said sale was not a slump sale because of the following factors : The assessee company did not sell all pieces of land owned by it in Kalyan. The price of each asset can be ascertained by taking recourse to the valuation done in September, 1996 by the transferee company. The assessee company had sold one or two machines not owned by 118 NE division of the assessee company and also did not sell one or two machines owned by the assessee's 118 NE manufacturing facility. The assessee company after the sale continued to have right of use of intellectual property. The transferee company carried on Industrial due diligence of every asset purchased by it. That due diligence report had a column for 'Value'. This column for 'value' would not have been there if the deal was a slump sale. The assessee company filed application under section 230A in April, 1966 where it mentioned the value of land and building at ₹ 43,44,59,500. 7. All the above points, in my opinion, do not affect the true nature of the transaction. The assessee sold all the pieces of land that were being used for its manufacturing facility at Kalyan. Other pieces were not connected w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assets which are no longer owned by it. I am, therefore, of the considered view that for the purposes of calculation of depreciation allowable to the assessee, the amount of ₹ 210 crores is to be split as per transferee companies allocation. The splitting is only for the purposes of calculating the allowable depreciation. 11. In the result, the appeal of the assessee is partly allowed. ORDER UNDER SECTION 255(4) OF THE INCOME-TAX ACT, 1961 We, having differed on the points in the above appeal filed by the assessee, refer the following points of difference to the President under section 255(4) of the Income Tax Act, 1961 :- Question No. 1 : Whether the sale of assets, termed by the assessee as the sale of Kalyan business, is a slump sale ? Question No. 2 : Whether the sale proceeds on the sale of assets to Kalyan Motor Co. Limited are assessable to tax as long term capital gains, short-term capital gains and business income ? THIRD MEMBER ORDER Per Shri J.P. Bengra, Vice President. - There being a difference of opinion between the Members constituting the Division Bench, the Hon'ble President has referred, under section 255(4) of the Income-tax Act, 1961, the following ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 11, pages 22 to 55, of his order. The same is summarised as under: (i) Some (Main) shareholders of the assessee-company and purchaser company, i.e., PPL are common. PPL's Articles of Association shows that Shri Jyotindra M. Vakil and Shri Maitreya V. Doshi are shareholders as mentioned above and they are also Directors of the assessee-company. (ii) The assessee-company failed to give asset-wise break-up of consideration despite various opportunities given to it. Therefore, PPL was requested to submit the treatment given by it in its books of account to these particular transactions. The details show that the figure of total consideration is at variance with the figures given by the assessee in the assessment proceedings. The transferee company has taken into account the entire price paid to the assessee by dividing it between fixed assets and current assets on the basis of valuation report. (iii) The contention of the authorised representative that no specific price had been charged for any particular asset is not correct. The sale of part of Kalyan unit had been a long drawn process over a number of years, which itself shows that the price had been fixed for every asset during ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee, the Court found some difficulty in apportionment of sale consideration on the capital assets whereas in the instant case it is possible to apportion the price on each capital asset. It is a case of item wise sale after proper valuation, but relevant documents were not made available to the Assessing Officer for obvious reasons. The copy of sale agreement alongwith various annexures were called for and it as noticed that there is description of each item, including value column with make and year of purchase. The assessee had kept the value column blank. Since the assessee failed to produce documents in original, it is difficult to ascertain the real affairs in this matter. (vii) For transfer of immovable property, assessee obtained tax clearance certificate under section 230A of the Act. Column 15 of the proforma for 230A application reads as under: (1) Full value of consideration for which the property or the right, title or the interest to or in the property is purported to be transferred; and (2) If the transfer is to be without consideration, the value for the purpose of stamp duty." It is mentioned that the assessee kept column No. 2 vacant and the value ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of acquired net assets together with the relevant values." The above recitals very clearly mention that the value has to be put in respect of the acquired assets. Schedule 2A, B and C, in fact, have the column for the value of assets, which is not given in the xerox copy supplied. This shows that the assessee wants to hide true position of the case becuase the schedule prove that the value of each asset has been determined at the time of agreement, but the copy furnished to the Assessing Officer is without such value. 4. Thus the Assessing Officer concluded that it is not a slump sale, but the assessee has merely adopted the device to avoid payment of tax. He, therefore, proceeded to tax the profit under the head 'long-term capital gains' 'short-term capital gains' and 'business profit', by taking the value of each asset as declared by the transferee in its record as the sale price. 5. The assessee preferred an appeal before the CIT(A) and submitted detailed written submissions dated 3-11-1998 along with several compilations containing copies of various agreements in support thereof. The claim of the assessee was that the various additions made by the Assessing Officer we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A) has called for the comments from the Assessing Officer, who submitted his comments vide letters dated 17-12-1998 and 23-12-1998 in support of his view that the additions made in the assessment order are in accordance with law and facts. He stated that there is sufficient evidence on record to prove that the assets were evaluated at the time of sale and further stated that the basis for bifurcation of slump consideration was the balance-sheet of PPL drawn on 31-3-1995 and the valuation report which gives the value as on 29-9-1994. It was further emphasised that some of the directors in both the companies were common at the relevant point of time and hence it will be difficult to say that the deal was at arms length. In other words, the Assessing Officer was of the view that it was a premeditated design to create a subterfuge of slump sale with the sole purpose of evading tax. The Assessing Officer further pointed out that in respect of all the three units, the schedule of fixed assets is common. The assets reflected in the schedule are land, building, furniture, plant and machinery. One of the most striking feature in this regard is that even after having sold part of the assets ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... because it did not know as to how much of ₹ 210 crores is attributable to each asset. Regarding the valuation of land, it was submitted that the registration authority desired a valuation of land and building, which was obtained by the purchaser in November, 1995. During the proceedings before the CIT(A) it was found that before the Assessing Officer the assessee had not produce the original sale agreement and it was also found that the assessee had not filed copies of certain documents forming part of the assessment order. Therefore, letters were issued to the assessee. On 19-3-1999, the assessee produced original sale agreement and also filed copies of documents. In its letter, the assessee has also referred to the amendments proposed by the Finance Minister through the Finance Bill 1999. The Assessing Officer was further asked to give his comments about the amendments proposed in the Finance Bill 1999. It was submitted that section 50B was proposed to be inserted to bring to tax any profit arising out of slump sale. The slump sale has been defined in the proposed section 42C, but the ingredients of slump sale were not present in the case of the assessee. He made the follow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The same amount was reflected in the accounts of the transferee company. He also referred to clause 3.16 in the slump sale agreement which proves that assessee did not part with all the assets of Kalyan business. Clause 3.16 is extracted hereunder for immediate reference: "PAL shall have the right to use perpetually and free of charge all elements, parts and components together with the relevant know-how that are presently used in both the products of Pal's Residuary Business and in the products of the Kalyan Business in any manner whatsoever." Thus, the CIT(A) concluded that the prices had been fixed for specific assets and it was not a slump sale. 9. The contention of the assessee was that slump sales are assessable to tax only by virtue of amendment made in the Statute Book by Finance Act, 1999 which is prospective in operation. Since the instant sale took place prior to that, it is not taxable. This was rejected by the CIT(A) on the ground that such sales are assessable to tax even earlier in the light of the decision of the Hon'ble Supreme Court in the case of B.M. Kharwar (supra). Thus, CIT(A) concluded that it was not a case of slump sale. 10. With regard to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the schedules to the slump sale agreement. He also referred to clauses of the slump sale agreement in support of his conclusion that there was no consideration for miscellaneous assets. The CIT(A) was thus of the opinion that the short-term capital gains on plant and machinery was correctly worked out by the Assessing Officer as per the records of the transferee company and as per the written down value of assets in the case of assessee. However, he directed the Assessing Officer to take into account the addition shown by the assessee to plant and machinery at ₹ 4,31,24,790. 13. As regards the addition of ₹ 1.84 crores as business profit, on account of transfer of current assets, the CIT(A) was of the view that necessary facts were not bought on record by the Assessing Officer. He, therefore, restored the matter to the file of the Assessing Officer for fresh consideration. 14. Aggrieved by the order of the CIT(A), the assessee filed an appeal before the Tribunal. Before the Tribunal, the learned counsel for the assessee filed a summary of the objections of the Assessing Officer/CIT(A) and explained therein the case of the assessee, which is summarised in paragraph ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a case of slump sale for a price of ₹ 210 crores. 16. The learned Judicial Member next considered the issue whether the bifurcation of sale price is in accordance with law, for which he has given his detailed reasonings as follows: "46. This leads us to the next issue as to whether bifurcation of the sale price is in accordance with law? As regards the amount of ₹ 20,49,56,346 the learned CIT(A) has set aside the issue to the file of the Assessing Officer and, therefore, the learned counsel has not pressed the issue. Accordingly, the inclusion of ₹ 20.49 crores is not taken up for consideration. 47. Regarding ₹ 91,28,51,794, the case of the learned counsel is that these are assets such as technical know-how and capital work in progress. As can be seen from the page 59 of the assessment order, the inclusion of aforementioned sum is referable to the short-term capital gains as under: (i)on sale of building as per para 11.26 ₹ 19,31,67,078 (ii)on sale of plant and machinery as per para 11.28 ₹ 64,39,50,057 (iii)on sale of paint shop as per para 11.29 ₹ 5,57,34,659 ₹ 91,28,51,794 The Assessing Officer observed that the asset ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssed in para 11.27 of the order of the Assessing Officer, which reads as under: 'Furniture - Sale price of the furniture is taken by the transferee at ₹ 40,38,095, on which it has claimed depreciation. The opening WDV of all the furniture as on 1-4-1994 is ₹ 1,13,40,896 and there has been further addition of ₹ 2,59,831. Thus, the total comes to ₹ 1,16,00,727. The sale price being lesser i.e., ₹ 40,38,095, there remains balance of ₹ 75,62,632 on which depreciation at 10 per cent is allowed, which comes to ₹ 7,56,263. Penalty proceedings under section 271(1)(c) is initiated.' The learned CIT(A) has dealt with this issue in para 112 of his order. In view of our finding that the sale of assets cannot be treated as slump sale, we do not find any infirmity in the order of the CIT(A) with regard to the allowability of depreciation to the extent of ₹ 7,56,263." 17. The learned Accountant Member though held that it was a case of slump sale, but on the issue of depreciation, he held as under: "10. The issue of depreciation does create a difficult situation. Some of the assets owned by the assessee-company have been sold but the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the consideration for the entire Kalyan facilities including engine machinery work shop and gear box assembly work shop and intangible assets was fixed at a lump sum price of ₹ 210 crores. Both the assessee-company and M/s. Automobiles PEUGEOT Ltd. (AP) of France then executed a supplementary MOU in May 1994 which only listed the jobs still to be got done in India and documents still to be prepared to implement the original MOU. Finally all permissions came around September 1994 and on 29-9-1994 there was a declaration of the trusteeship which required the assessee-company to conduct its Kalyan business for and on behalf of the Joint Venture Company till the slump sale agreement is executed. Even in this trusteeship it is mentioned that the assessee-company shall sell, assign and transfer to Kalyan Motors Company Ltd. (KMCL) its Kalyan business and the Joint Venture Company has agreed to take over as a going concern the Kalyan business with effect from close of business hours on 29-9-1994 (page 27 of Vol. I). He pointed out the definition of "Kalyan Business" in the trusteeship agreement and also brought to my notice the definition of "Products" in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble or intangible (intellectual property benefits, assumed contracts benefits, benefits of trained labour of over 2000 persons); and (b) Actual book value of the current assets given to the Joint Venture Company MINUS actual book value of current liabilities transferred to Joint Venture company. It was submitted that the actual sale was to take place after obtaining many permissions from Central and State Government Authorities, which was expected to take some time. Therefore, the Joint Venture Company could never have fixed the consideration of current assets and current liabilities in advance. This was fixed by the Chartered Accountants, who actually certified the book value of acquired current assets and the value of acquired current liabilities. This was done because the current assets change with every transaction and the assessee-company was running a big business and in the period between March, 1993 and September, 1994 thousands of transactions took place resulting into changing current assets' aggregates. In this connection, he relied on the decision of the Hon'ble Supreme Court in Mugneeram Bangur & Co.'s case (supra); Narkeshari Prakashan Ltd.'s case (supra); Artex Mfg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it is clear that the assessee-company knew of the valuation much before April, 1996. (g)The assessee-company has deliberately not given separate sale consideration of each asset although it has that knowledge. (h)The parties, i.e., the assessee-company and the joint venture company had agreed to undertake an 'Industrial Due Diligence' of principal items of the assets and that Due Diligence cannot be completed without assigning value to each asset. (i)That is no consideration received by the assessee-company on account of intellectual property. (j)That JV and the assessee-company have some common Directors and these common Directors have signed the Balance Sheet of the transferee company wherein separate prices of assets are mentioned and therefore, the assessee-company also knew of the valuation of each asset. (k)A close look at the documents clearly show that the prices had been fixed for specific asset after proper valuation. (l)The conduct of the assessee-company shows that the transfer was not a genuine slump sale." It was submitted that all the above facts are not supported by any evidence. It was explained that the transferee company got one valuation of land and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the assessee-company has not put an end to its business is wrong. So also the interpretation of 'Industrial Due Diligence' taken by the learned Judicial Member. The technicians, who did the due diligence, knew the fact that slump price has already been fixed and, therefore, did not value each asset. As regards the opinion of the learned Judicial Member in the matter of application under section 230A of the Act, it was submitted that the assessee-company agreed to sell the fixed assets as a going concern for a lump sum price. The learned Judicial Member was not right in assuming something, which was not on record. The learned Judicial Member has held that the assessee-company did not give any justifiable reasons as to why the sale value of land and building was mentioned in 230A application instead of stating that it was a slump sale. He failed to appreciate that the covering letter dated 24-4-1996 specifically mentions the same. It was submitted that in the absence of any suggestion of bad faith or fraud, the true principle is that a taxing statute has to be applied in accordance with the legal rights of the parties to the transactions. What is apparent is the true state of af ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the business in bits and pieces and after the slump sale the assessee was allowed to operate the business in a different capacity, which has not been appreciated by the learned Accountant Member. (ii) Assets other than Kalyan undertaking were also transferred by the assessee. It is submitted that it is not a case of slump sale and also not exclusive transfer of Kalyan business, but it is transfer of assets located in other plants or units of the assessee. Referring to the finding given by the learned Accountant Member, it is submitted that his finding that out of three units the assessee was running before the sale, the assessee was left with only two units and everything connected with the third unit was transferred for a fixed price is incorrect. In this connection, my attention was invited to Clause F (page 41 of the assessee's compilation), wherein it is mentioned that "As set forth in the MOU, PAL and AP agreed that subject to the terms and conditions of the Slump Sale Agreement, PAL would sell to KMCL some of its assets including inter alia plant and machinery situated at Kalyan or any other locations such assets hereinafter referred to as 'Kalyan Business'". It i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that the entire land was owned by the assessee and it had agreed to transfer only 7.2 lakhs sq. metres for a consideration of ₹ 43.44 crores. In this way the entire land was not transferred and there are no other manufacturing facilities at Kalyan other than what had been transferred. There is no evidence to establish that the remaining land was owned by Kurla Unit or Pune Unit. This fact is further established from Clause 3.22 of Slump Sale Agreement (page 140 of APB). In this agreement it was further agreed that some of the assessee's movable assets would remain located in the Kalyan premises of the assessee-company, which shows that all assets were not sold (page 144 of APB). In a slump sale the going concern is transferred "as is and where is basis". After transfer of the undertaking, the transferee should run the business. The assessee transferred its Kalyan business including paint shop. At the time of transfer, paint shop was under construction and the assessee agreed to complete the construction of paint shop within a stipulated time and also agreed to pay liquidated damages for non-completion of the paint shop within the stipulated time. In this connectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f sale related to the Kalyan business were retained by the assessee-company. The assessee did not transfer the creditors to the tune of ₹ 13 crores and the assessee agreed to discharge such liability. In this connection, my attention was invited to Clause 2.A.2 of the agreement (page 116 of APB). It is further submitted that the assessee did not transfer depreciation fund of ₹ 35.02 crores, revaluation of depreciation fund of ₹ 3.5 crores and revaluation reserve of ₹ 14.4 crores. It also did not transfer the other liabilities, attributable to residuary business. My attention was invited to Clause 3.8 of Slump Sale Agreement (page 131 of APB). Adverting my attention to pages 127 to 131 of APB, it is submitted that all liabilities were not transferred. Besides this, all liabilities and pending court cases of the assessee prior to the date of sale deed were not taken over by the transferee, because the agreement further stipulates that liabilities arising out of settlement with labour of the assessee pertaining to the period prior to the date of sale is to be discharged by the assessee, which is clear from Clause 3.7-5 of the Slump Sale Agreement. (v) The asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was invited to the relevant portion of the supplemental MOU, where the term 'due diligence' and Clauses II and III have been set out. It was further stated that the valuation of assets was there and Clause 8.1 of the Joint Venture Agreement dated 19-10-1994 establishes this fact, which is reproduced below: "8.1 The full contribution of PAL to the Company shall have been made by consideration of the sale of Kalyan business at the values and in the manner more particularly set out in the Slump Sale Agreement. The contribution of PAL shall, after all the instalments of AP's contribution be paid, be equal to AP's contribution and shall thereafter, unless otherwise agreed, at no point of time exceed AP's contribution." Further, my attention was invited to the fact that in the Slump Sale Agreement it is clearly mentioned that the assets were valued by the statutory auditors, which is clear from the following : "Statement of Acquired Net Assets shall mean and contain the particulars of Acquired Net Assets together with the relevant values." "The value as of the Sale Date of the Acquired Current Assets and Acquired Current Liabilities will be precisely determi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er of the learned Accountant Member, where he has held that the valuation of the assets was done by the transferee-company in September, 1996 and in his opinion there was no price for each asset. While giving this finding, the learned Accountant Member ignored the material available on record which establishes the fact that the management of transferee-company was carried on by the transferor-company in consultation with the PAL PEUGEOT Ltd. There were common directors. All significant or material decisions relating to KMCL or transferee were taken by the assessee-company and it deputed its officials to transferee-company for running the day to day business. Thus the assessee manages the business of the transferee-company. My attention was invited to page No. 5 (Clause 5 of MOU dated 11-3-1993); Page No. 21 (Supplemental Agreement Clause 5) and Page Nos. 45, 52 and 70 (Joint Venture Agreement). (viii) Capital gain arising on transfer of Industrial Undertaking is assessable under section 45 of the Act. Shri Kapila submitted that the gain arising from transfer of Kalyan business is assessable to tax under section 45 of the Income-tax Act. The word 'property' in the definition of 'C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... led to bifurcation if there is a consolidated price for transfer of capital assets. 27. Shri Kapila further submitted that the assessee claimed depreciation on building, plant and machinery and paint shop. So the gain arising from transfer of these assets has been rightly brought to tax as short-term capital gains under section 50 of the Act. Long-term capital gain arises on transfer of land. The learned Accountant Member, it was submitted, has not given any reasons for not bringing the gain or surplus arising from the transfer of land to tax. It was submitted that though in paragraph 10 of the order of the learned Accountant Member a direction was given to the Assessing Officer stating that for the purposes of calculation of depreciation allowable to the assessee, the amount of ₹ 210 crores is to be split up as per transferee-company's allocation, he (the learned Accountant Member) further held that the splitting up is only for the purpose of calculating the allowable depreciation. In this connection, it was submitted that in a way the learned Accountant Member has approved the computation of long-term capital gains. He further pointed out that the Assessing Officer has ado ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the learned Judicial Member. 29. In reply, the learned counsel for the assessee supported the findings of the learned Accountant Member and controverted the arguments of the learned Departmental Representative and also the findings of the learned Judicial Member. It was submitted that two machineries taken from Pune and Kurla were required to complete the capacity of the plant to manufacture 50 to 60 thousand cars per annum. Therefore, these machineries were sold along with the Kalyan business. The assets transferred from Kurla and Pune are known to the department and the full details of ₹ 37.14 crores are with them. Regarding the non-transferring of land located at Kalyan and Sundry Debtors, it was submitted that the assessee owned Kalyan plant and some pieces of land situated in Kalyan Municipality, but not within the Kalyan business. As regards the debtors relating to the Kalyan undertaking not transferred, it was submitted that all the debtors of the Kalyan business effective from lst September, 1994 were transferred. This proves that the assessee had sold everything belonging to Kalyan business. As regards the non-transferring of deposits, it was submitted that the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id not make any difference. The persons undertaking due diligence did not take into account the price of the asset. Referring to the conveyance deed, the learned counsel for the assessee submitted that the so called consideration of ₹ 43.44 crores was not paid by any separate cheque but was included in the monies due to the assessee-company. Further, the mere fact that the transferee-company and the assessee-company had some common directors does not mean that the contract was not at arms length, especially when the company is a reputed foreign company. As regards the argument that capital gain is chargeable under section 45 of the Act, it was pointed out no such plea was taken before any authority. So the Tribunal cannot take notice of the same. It was further submitted that details of current assets and liabilities amounting to a net figure of ₹ 37.84 crores had been with the department. Otherwise, how the department could tax ₹ 1.84 crores as business income. The learned counsel for the assessee tried to distinguish the facts of the case in the following decisions : (i) Vimal Chand Golecha's case (supra) (ii) V. Prakashan's case ( supra) (iii)In the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a composite part of such a sale substantial assets of other units, it cannot be said to have the character of slump sale. A slump sale involves a lump sum price for all assets and liabilities. The assessee company has alleged that it has transferred Kalyan business which has been set out in joint venture vide agreement dated 19-10-1994. If we look into the relevant clause 'F' of joint venture agreement, we find that clause 'F' mentions as under : "(F) As set forth in the MOU, PAL and AP agreed that subject to the terms and conditions of the Slump Sale Agreement, PAL would sell to KMCL some of the assets including, inter alia, plant and machinery situated at Kalyan or any other locations such assets hereinafter referred to as Kalyan business." 32. From the above, it is clear that it is not a sale of Kalyan assets only. In addition to Kalyan assets, the assessee transferred assets located in other plants, i.e., it transferred Engine Machining Workshop, which comprises of a series of machines as well as a Gear Box Assembling Workshop from Kurla Unit and also transferred 116 NE and 137 diesel engine licence, which is clear from the relevant portion of MOU dated 11-3-1993, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... metres, but it transferred land to the extent of 7,23,449 sq. metres as part of Kalyan assets. In the agreement dated 27-5-1996, the assessee clearly stated that the entire land was owned by the assessee and it has agreed to transfer 7.2 lakhs sq. metres for a consideration of ₹ 43.44 crores. Thus, it is clear that as per the agreement, the entire land was not transferred. The reason why the remaining portion of the Kalyan business was not transferred show the circumstances which establish that the entire Kalyan Undertaking was not transferred. In the Slump Sale Agreement, it was agreed that some of the assessee's movable assets will remain located at Kalyan premises of the company, which is clear from the following clause 4.3 : "4.3 After the sale, some of the Acquired Movable Assets will remain located either in PAL's Residuary Business premises or in vendors' premises. PAL shall fix a plate indicating that such Acquired Movable Assets are owned by the Company and shall file any relevant documents, if necessary, to make such ownership enforceable towards any third party. PAL shall cause its vendors to fix such plates on the Acquired Movable Assets lying or situated in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... period of joint venture agreement for period from 1-4-1993 to 31-3-1995. The AO has mentioned that the assessee did not produce Fixed Assets Register to substantiate the fact that all the assets relating to Kalyan unit were transferred. 37. It is an admitted position that the assessee-company did not transfer the deposits of various customers, which is clear from clauses 4.6.1, 4.6.13 and 4.6.14 of slump sale agreement. Clause 2D of the slump sale agreement reveals that the assessee did not transfer the loan obtained from ICICI , which is clear from the following paragraph : "2D. As soon as practicable, PAL will obtain agreements of the Lenders which are a party to agreements with or relating to the Kalyan Business, which will give effect to certain modifications and relaxations granted by the lenders. It is agreed that any prepayment costs or additional interest costs subject to overall ceiling of ₹ 2,00,00,000 (Rupees Two Crores) actually imposed by the lenders in order to effect the above Modifications or relations shall be for the account of the Company. The Company shall reimburse this amount to PAL only on confirmation from the lenders that such payment has been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... running Kalyan business for a consideration of ₹ 247 crores, whereas the allegation of assessee is that it has received an aggregate consideration of ₹ 210 crores for slump sale. The assessee thus received ₹ 210 crores towards the value of immovable and movable assets and ₹ 37.84 crores for net current assets. Thus, the total consideration received by the assessee comes to ₹ 247 crores, which is established by letter dated 15-1-1998. From the above, it is clear that the assessee did not sell the Kalyan business as a going concern "lock, stock and barrel". Therefore, as per the decision of Hon'ble Bombay High Court in the case of Narkeshari Prakashan Ltd. (supra), it cannot be said that the case of the assessee fits in the parameter of concept of "slump sale". 39. Besides the above features, I find that the application moved under section 230A of the Income-tax Act before the Tax Authorities, the assessee mentioned specific value for the land and building. The same value is adopted by the transferee for the purpose of claiming depreciation. The case of the assessee is that in the covering letter it was specifically mentioned that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs. 40. Due diligence report is not an empty formality. It ordinarily means ascertaining the condition of the asset in relation to the approximated price agreed upon, so as to appreciate whether the slump sale price fixed is reasonable or not. It presupposes valuation of the assets also as other wise there would be no meaning in the due diligence exercise. There is no statutory format for the purpose of obtaining due diligence report. It cannot be said that standard formats are available in the market. Due diligence reports are taken by certain companies under certain circum- stances and since there would not be any market for such formats, ready made formats would not have been obtained from the market. When the assessee has prepared its own due diligence report, there was no need to have a column to indicate the price of each asset. The circumstances, thus, clearly show that though the exercise of fixing a price for each asset was undertaken by both the parties, the price was not mentioned in the due diligence report. The case of the assessee is that in some forms against the value column, it was specifically mentioned "excluding price". Apart from supporting the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rned counsel for the assessee relied on the decision of Narkeshari Prakashan Ltd. (supra). I have already discussed the principles of law laid down in that case by the Hon'ble High Court. Besides this, I would like to mention here that was a case relating to provisions of section 41(2) of the Income-tax Act inasmuch as in that case where the business was sold as a going concern, the excess realized may not be business profit but will be capital gain chargeable to tax. In that case, there was sufficient evidence to show that the project was sold as a whole "lock, stock and barrel", whereas in the case of the assessee before me, it is not so. 45. Heavy reliance was placed by the learned counsel in the case of Artex Mfg. Co. (supra) and Electric Control Gear Mfg. Co. (supra). In the case of Artex Mfg. Co. (supra ) the question before Hon'ble Supreme Court was whether the surplus as a result of difference between written down value and the sale consideration for the plant and machinery and dead stock transferred by the assessee was taxable under section 41(2) of the Income-tax Act. The Hon'ble Supreme Court observed that in a case where it can be found that a particular pric ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assets and profit of the partnership. The question arose whether the amount received in excess over the written down value of the machinery is liable to tax by applying the second proviso to section 10(2)(vii) of the Indian Income-tax Act, 1922 and, considering the facts of the case, the Hon'ble Supreme Court held as under: "It is now well-settled that the taxing authorities are not entitled, in determining whether a receipt is liable to be taxed, to ignore the legal character of the transaction which is the source of the receipt and to proceed on what they regard as 'the substance of the matter'. The taxing authority is entitled, and is indeed bound, to determine the true legal relation resulting from a transaction. If the parties have chosen to conceal by a device the legal relation, it is open to the taxing authorities to unravel the device and to determine the true character of the relationship. But the legal effect of a transaction cannot be displaced by probing into the 'substance of the transaction'. This principle applies alike to cases in which the legal relation is recorded in a formal document, and to cases where it has to be gathered from evidence - oral and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance of probabilities, I am of the opinion that the sale in the present case was not a slump sale. Therefore, I agree with the view taken by the learned JM. Hence, question No. 1 referred by the Hon'ble President is answered in negative and in favour of the Revenue. 51. The next issue arises as to whether the sale proceeds of assets of Kalyan Motor Co. are taxable as long-term capital gain, short-term capital gain and business income respectively. In the preceding paragraphs I have already discussed that bifurcation of sale price is in accordance with law. The learned JM has mentioned that the issue relating to the amount of ₹ 20,49,56,346 is set aside to the file of Assessing Officer. This issue was not pressed by the learned counsel. Accordingly, the inclusion of this amount is not taken up for consideration. Regarding ₹ 91,28,51,794 the case of the learned counsel is that there are assets such as technical know-how and capital work-in-progress. As can be seen from page 59 of assessment order, the inclusion of aforementioned sum is referable to short-term capital gain as under : (i) On sale of building as per para 11.26 ₹ 19,31,67,078 (ii) On sale of plant an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; 1.84 crores was rightly brought to tax. I, therefore, do not agree with the submission of the assessee's learned counsel that this amount is not separately taxable. The learned CIT(A) had set aside this issue for proper examination vide paragraph 111 of his order. I do not find any infirmity in the said order. It will be pertinent to mention that the learned AM also indirectly agreed with the finding of learned JM in paragraphs 9 and 10 of his order. I, therefore, agree with the finding given by the learned Judicial Member. In view of the above facts and circumstances, question No. 2 is also answered in favour of the Revenue and against the assessee. 53. Consequently, the findings of learned JM on these two issues are hereby confirmed. 54. The matter will now go before Regular Bench for disposal of the appeal in accordance with the opinion of majority. ORDER UNDER SECTION 255(4) OF THE INCOME-TAX ACT, 1961 The following points of difference were referred to the Third Member to resolve the controversy : "1. Whether the sale of assets, termed by the assessee as the sale of Kalyan business, is a slump sale? 2. Whether the sale proceeds on the sale of assets to Kalyan Moto ..... X X X X Extracts X X X X X X X X Extracts X X X X
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