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TMI Blog2002 (9) TMI 24X X X X Extracts X X X X X X X X Extracts X X X X ..... ss as a going concern were not ascertainable and so a business as a going concern was not an asset on the transfer of which a liability to capital gains arose?" Income-tax Reference No. 303 of 1997 is at the instance of the Revenue arising out of the same order of the Income-tax Appellate Tribunal. The following three questions are referred at the instance of the Revenue: "1. Whether, on the facts and in the circumstances of the case, the Tribunal is right in law and fact in holding: (i) section 50(2) is not applicable to non-depreciable assets such as land? (ii) the Assessing Officer erred in treating the profits arising on the sale of land as one arising on the sale of short-term capital asset? (iii) the land must be treated as a long-term capital asset and the assessee is entitled to the deduction under section 48(2)? 2. (a) Whether, on the facts and in the circumstances of the case, the Tribunal is right in law and fact in interfering with the valuation of closing stock and the addition of Rs. 6,33,442? (b) Whether, on the facts and in the circumstances of the case, and also in view of the fact that Kuttukaran Machine Tools though not dissolved had ceased to do any busin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that the land being a separate asset having been acquired by the assessee in the year 1981 it has to be assessed only as a long-term capital asset by granting deductions available under law. Similarly the assessee contended before the Assessing Officer that since the assessee had sold the closing stock at the book value as per the agreement there is no question of arriving at the market value of the closing stock and adding the difference as income. Since the Assessing Officer had not accepted both the contentions, the assessee filed appeal against the said assessment order before the first appellate authority, viz., the Commissioner of Income-tax (Appeals), Kochi. The appellate authority confirmed the assessment on these two points as per order dated January 18, 1995 (annexure B). The assessee filed second appeal before the Income-tax Appellate Tribunal and raised the very same contentions which have been taken before the authorities below. The Tribunal accepted the contentions regarding the availability of the benefit under section 48(2) of the Act in respect of the land and also deleted the addition made on the closing stock. The Tribunal, however, rejected the contention of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alance-sheet as at June 1, 1990, drawn up for the purpose of take over shall stand transferred to and vest in the party of the second part with effect from June 1, 1990, and the party of the first part shall have no manner of claim or right to any of the said assets. The party of the first part shall do all acts or things necessary to make the transfer absolute, including registration of a sale deed in respect of the land and building in the appropriate forum of Registry." From a reading of the said clauses particularly clauses (1) and (4) it is clear that the assessee had transferred the business in its entirety as a going concern to the company mentioned above and it also provides that the business will be succeeded to by the said company. Clause (4) further provides that the ownership of all the assets of the party of the first part as borne on its balance-sheet as at June 1, 1990, drawn up for the purpose of take over shall stand transferred to and vest in the party of the second part with effect from June 1, 1990, and the assessee shall have no manner of claim or right to any of the said assets. It further provided that the assessee shall do all acts or things necessary to ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... titled to deduction as provided under section 48 of the Income-tax Act. The assessee had separately valued the land. The Assessing Officer also accepted the separate valuation. However, the Assessing Officer did not grant deduction sought for by the assessee treating the land also as part of the block of assets. The Tribunal has considered this matter. It was noted that there was absolutely nothing on record to show that the value of the land was included in the value of the block of assets. In the above circumstances, noting the fact that this asset was acquired by the assessee in 1981, the Tribunal held that the land must be treated as a long-term capital asset eligible for deduction as provided under section 48. In the absence of materials produced by the Revenue to the effect that the value of the land has also been taken in the block of assets and in the books of account of the assessee we have to accept the finding of the Tribunal. We accordingly hold that the Tribunal has correctly held that the capital gains arising from land in question is entitled to deduction under section 48(2) of the Act. In the above circumstances, we answer question No. 1 in the departmental referen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this amount was deducted in the adjustment memo for income-tax purposes on the ground that it was not assessable to tax either as revenue or as capital gains. This was practically accepted in the assessment. However, in reassessment proceedings this amount was added to the income earlier brought to tax treating the house properties, gardens and estates as stock-in-trade of the assessee. This was confirmed by the Tribunal. The High Court upheld the Tribunal's order. The Supreme Court observed that the decision of the Madras High Court in G.R. Ramachari and Co. v. CIT [1961] 41 ITR 142 squarely covers the situation. It is noted that the said decision held that the principle of valuing the closing stock of a business at cost or market price at the option of the assessee is a principle that would hold good only so long as there is a continuing business and that where a business is discontinued, whether on account of dissolution or closure or otherwise by the assessee, then the profits cannot be ascertained except by taking the closing stock at the market value. Comparing the situation of a firm which goes into liquidation where the stock-in-trade and other assets of the business will h ..... X X X X Extracts X X X X X X X X Extracts X X X X
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