TMI Blog2018 (7) TMI 1611X X X X Extracts X X X X X X X X Extracts X X X X ..... ains arising from the slump sale. Profits or gains arising from a slump sale can be correctly computed only if the total consideration arising to an assessee on account of sale is reckoned. There is no provision which allows the assessee to segregate the consideration as per slump sale agreement in accordance with the year of receipt. - Decided against assessee Allowance of expenditure restricted - Held that:- Admittedly, assessee had transferred its business on 06.04.2011 in a slump sale. Even if we accept that it was necessary for the assessee to incur some expenditure for maintaining its corporate status, we cannot understand why assessee incurred manufacturing expenses. The table reproduced by us clearly indicate that assessee incurred manufacturing expenses of ₹ 2,84,847/-. At the best, assessee would be eligible for 6/365 of the manufacturing expenditure of ₹ 2,84,847/-, since it transferred its business on 06.04.2011. This works out to ₹ 4,683/-. However, assessee’s claim with regard to employee benefits, finance costs and administrative and other expenses ought not have been disallowed since these were necessary to maintain its corporate status. Therefo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stated that assessee had moved in appeal before ld. Commissioner of Income Tax (Appeals), but did not meet with any success. As per the ld. Authorised Representative, it was pointed out to the ld. Commissioner of Income Tax (Appeals) that assessee had received only ₹ 16,02,00,000/- during the financial year relevant to impugned assessment year and the balance was kept in Escrow Account as per clause 7 of the slump sale agreement. Further, as per the ld. Authorised Representative, assessee had brought to the attention of the ld. Commissioner of Income Tax (Appeals) the conditions subject to which assessee could encash the amount lying in the escrow account and why the sum of ₹ 2,29,00,000/- lying in the escrow account could not be considered for levy of capital gains in the impugned assessment year. However, as per the ld. Authorised Representative, ld. Commissioner of Income Tax (Appeals) dismissed all these observing that assessee could not offer any convincing reply for considering the balance consideration of ₹ 2,29,00,000/- in the subsequent assessment year. Relying on slump sale agreement dated 06.04.2011 placed at paper book pages 1 to 90, ld. Authorised Rep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all be subject to a working Capital adjustment as agreed between the seller and Purchaser. 3.2 Payment on the Closing Date At Closing, Purchaser shall remit the. Purchase Price less the ,Escrow Amount to the bank account designated by the Seller to Purchaser in writing 'at least three Business Days prior to .the 'Closing Date, subject to any adjustments to the Purchase Price agreed to in writing between the Parties. 3.3 Closing Closing shall take place at the commencement of business hours on the day immediately following the date of execution of this Agreement In Chennai at the office of the Seller. 3.4 Value Added Tax If any VAT becomes chargeable on the sale ,of any of the Business Assets as .a result of the Transaction, such VAT will be borne by Purchaser against del/very 'of' a. corresponding VAT' invoice by the Seller to Purchaser. 3.5 Adjustment to Purchase Price pursuant, to claims All payments (including interest payments ) made under this agreement by the seller to purchaser or vice versa, shall be made on account of, and where applicable, as adjustment to the purchaser price. The foregoing includes any payment made i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Sellers In accordance with the terms of this Agreement. In the event of any proposal to merge or sell any portion of the Business transferred to the Purchaser, then, subject to Clauses 4.8.1 and 4.8.2, above, the Escrow Amount shall become immediately payable to the Seller in accordance with this Agreement as a condition for such transaction to become effective . Contention of the assessee is that unless and until the escrow amount was released by the escrow agent, the amount lying in the escrow account could not be considered for computing capital gains. Paras A to D of the escrow agreement dated 11.04.2011 which are very relevant is reproduced hereunder:- (A) The Purchaser has entered into individual Slump Sale agreements dated April 6, 201I( each a Slump Sale Agreement ) 'with each of MAL, PHC, TAT, Deyem, Sigma; GKR., Rangamala,' (collectively referred to as the Seller Group ) to purchase the business relating to research and development, production, distribution and sale or kitchen appliances in southern India under the Preethi arid Preett brands from the Seller Group ( Business } for consideration set out. in the respective Slump Sale Agre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Seller, the Parties hereby agree and understand that such excess claim shall not form part of this Escrow Agreement. The Purchaser and Sellers shall deal with such excess claims, separately between each other. The responsibility and liability of the Escrow Agent shall be deemed to be completed on making the payment in accordance. with the proportion as detailed in Schedule 4. 7.3 If at any time before the expiry of the Escrow Period, the Purchaser and the Sellers notifies the Escrow Agent in writing substantially iTI the form set out in Schedule 3 that any or all of the members of the Seller Group is liable to indemnify the Purchaser on account of any Damages (subject to the maximum of the amounts specified against each of the Sellers in Schedule 4) in terms of the Slump Sale Agreement ( Indemnity Letter , the Escrow Agent shall, upon the expiry of the. Escrow Period, release from the Escrow Account (including the Fixed Deposit Accounts); an amount equivalent t othe Damages . for the- purposes together with any proportionate interest accrued thereon from the date of notification to the Escrow Agent through the Indemnity Letter. till the expiry of the Escrow Period on the amo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tled to rely on the same without any further verification. The other Parties undertake to give the Escrow Agent p.ye (5) Business Days' notice in writing of any amendment to their respective Authorised 'representatives or callback contacts giving the details specified in Schedule 2 . Release of the amount lying in the escrow account is subject to issue of a letter from seller and purchaser to the escrow agent. No doubt, release of the escrow amount, is dependent on satisfaction of various responsibilities undertaken by the assessee in relation to the slump sale. However, in our opinion, this by itself would not be a reason to hold that consideration for the slump sale was not ₹ 18,31,00,000/-. Consideration is clearly mentioned in the slump sale agreement as ₹ 18,31,00,000/-. Segregating such consideration to two parts, one part payable in the relevant previous year and other part payable in the next year could not be in our opinion to a reason to say that capital gains arose only with reference to first part, even though release of the second part was subject to the seller abiding by certain conditions of the slump sale agreement. 7. Section 50B of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se of capital assets in respect of which the whole of the expenditure has been allowed or is allowable as a deduction under section 35AD, nil ; and (c) in the case of other assets, the book value of such assets . What is chargeable to tax is profits or gains arising from the slump sale. Profits or gains arising from a slump sale can be correctly computed only if the total consideration arising to an assessee on account of sale is reckoned. There is no provision which allows the assessee to segregate the consideration as per slump sale agreement in accordance with the year of receipt. 8. Coming to the judgment of Hon ble Bombay High Court in the case of Hemal Raju Shete (supra) relied on by the ld. Authorised Representative, the agreement considered by their lordships clearly divided the consideration to initial consideration and deferred consideration. It is for this reason their lordships directed the exclusion of the deferred consideration for computing the capital gains. Here in the case before us, there is no deferred consideration mentioned in the slump sale agreement. Depositing a part of the consideration in an escrow account will not be, in our opinion be equiv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 14,056 factory rent 2,49,265 repairs to machinery 460 Insurance 1,628 Factory security charges 19,228 Factory maintenance Navaloor 210 2 EMPLOYEE BENEFITS 1,51,097 Salaries and incentives 1,02,680 Gratuity fund contributions 21,028 Staff welfare expenses 27,389 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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