TMI Blog2018 (8) TMI 919X X X X Extracts X X X X X X X X Extracts X X X X ..... the sale of the hotel premises, the business of assessee was closed down. Therefore, it is clear from the sale deed executed, the intention of the parties was to sell the hotel business as a going concern and the same is nothing but a slump sale. The sale of hotel premises by the assessee was a slump sale, liable to the taxed u/s 50B of the I.T.Act. It is ordered accordingly. - Decided in favor of Revenue. - ITA No.384/Coch/2017 - - - Dated:- 14-8-2018 - Shri Chandra Poojari, AM And Shri George George K, JM For The Appellant : Smt.Bindhu A.S. For The Respondent : Sri.K.P.Paulson ORDER Per Chandra Poojari, AM This appeal at the instance of the Revenue is directed against the CIT(A) s order dated 25.05.2017. The relevant assessment year is 2013-2014. 2. The grounds raised read as follows:- 1. The order of the Commissioner of Income tax (Appeals-II), Kochi, in ITA No.1014NC/Cir- 1(1)/CIT(A)-II/15-16 dated 25.05.2017, is opposed to law, facts and circumstances of the case. 2. Whether the learned Commissioner of Income Tax (Appeals) was right in allowing the assessee s appeal holding that the assessee only sold the land and building of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... For land 138652000 For building 50348000 For business 11000000* 20,00,00,000 Long term capital gain on land portion Sale consideration 13,86,52,000 Acquisition details F.Y.2007-2008 17004000 Purchase cost 17004000x852/551 2,62,92,936 Capital gain LTCC 11,23,59,064 Short term capital gain on Building portion Sale consideration 5,03,48,000 Cost of acquisition 31538299 3,15,38,299 Capital gain LTCC 1,88,09,701 2.2 The Assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Total income as per Assessee s computation 11,49,71,881 2.3 During the course of scrutiny proceedings, the Assessee was asked to justify the valuation of business at a value fo ₹ 1,10,00,000/-. In reply, the Assessee s AR stated that the sum of ₹ 1.10 crores is considered as business value because the total business was sold to buyers. As the total business was sold, the AR was asked to clarify the basis for valuation of the business at ₹ 1.10 crores. The A R. replied that after considering the running loss and carry towards losses, the value of business was computed at ₹ 1.10 crores to set off the losses. Since, the Assessee sold its only income generating asset as a whole, the Assessee's AR was asked to explain as to why the above transaction should not be treated as slump sale with reference to section 2(42C) read with section 50B of Income Tax Act, 1961. Section 2(42C) which says that unless the context otherwise requires, the term, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ement shall be taken for the computation of Net worth. Net worth shall be taken on the basis of: - Book values of assets liabilities - As on the date of transfer No Indexation: No indexation is required since even cost of acquisition or improvement shall not been considered for the computation of Net worth. Unabsorbed losses and depreciation: The unabsorbed losses and depreciation with respect to transferred undertaking shall be allowed to carry forward in future years to the transferor. Taxability : The net amount of profit out of transfer with respect to slump sale shall be taxable under the head 'Capital Gains'. No income shall be taxable under income from business if the transfer has duly complied with the conditions being a slump sale. Even stock in trade of such undertaking shall not be taxable under income from business. Taxable Year : The taxable year shall be the effective year , where effective year is the year in which transfer of undertaking has been legally made effective. The taxability shall not be dependent upon the date of actual possession of assets or actual transfer. Effective dat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his case, only the land and building have been sold for separate amounts of sale consideration and the assets and liabilities, available in the balance-sheet, have not been sold at all. And therefore this transaction cannot be held to be a slump sale. To support its contention, the appellant placed reliance on the decision of Hon'ble ITAT, Kolkata, 'B' Bench in ITA No. 1233/Ko1/2008 in DCIT Vs. Tongani Tea Company Ltd, wherein Hon'ble ITAT decided this issue in favour of the assessee and referred to the decision of Hon'ble Jurisdictional IT AT, Cochin Bench in the case of Accelerated Freeze Drying Co. Ltd. Vs DCIT in ITA No. 611/Coch/08 order dated 15.12.2008. Apart from the above Hon'ble Kolkata ITAT considered many other decisions and finally concluded as under: In the instant case, the items sold did not include liabilities. The sale agreement did not include investments and deposits. Accordingly, all the investments, deposits, receivables, stock and such other current assets in the form of financial and other assets remained with the assessee-company along with the liabilities. Only those assets which were enumerated in the Schedules and A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as allowed. 3.3 Aggrieved by the order of the CIT(A), the Revenue has filed the present appeal before us. The learned Departmental Representative, apart from relying on the grounds raised, strongly supported the assessment order. The learned AR, on the other hand, reiterated the submissions made before the Assessing Officer and has also filed a paper book comprising of 88 pages, inter alia, enclosing the case laws relied on, copy of the ledger account of the term loan the assessee had taken from South Indian Bank, Bank statement, copy of sale deed executed on 18.01.2013, etc. The learned AR has also submitted a brief written submission and the same reads as follows:- The learned CIT (A) is right in holding in Assessee's favor, that the learned AO erred in law and facts, in considering the sale of land and building of a Hotel as a slump sale and in invoking the special provision of Section.50B for computation of its' capital gain, instead of the regular provisions of Section 48 and Section 50 on the following reasons:- A. The sale of land and hotel building of the appellant will not come within the meaning of slump sale defined u/s.2 (42C) since assets a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n under the current liabilities, Therefore, the Assessee's argument that there was no liability in existence at the time of sale is not acceptable . In fact, so many liabilities such as South Indian Bank term loan liability for ₹ 4,77,63,766/- and overdraft facility for ₹ 51,01,347/- and other statutory liabilities were in existence as on the date of sale and that liabilities were closed by the Assessee himself out of the sale proceeds. Copies of the relevant pages of General ledger, showing SIB Term loan account and SIB OD Account (Copy enclosed Page 47 to 49) and copies of bank statement showing SIB Term loan account and SIB 0D Account (Copy enclosed Page 50 to 62) are available to prove the contentions of the assessee. Details of the said secured bank loan liabilities were submitted in the course of assessment as annexure to the reply letter to notice of the Assessing Officer dated 05.01.2016, as per para 4, which reads as follows: .. 4. Details of Secured and Unsecured Loan : Loan Balance as on 31.03.2012 Balance as on 31.03.2013 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le within the meaning of Section 2(42C). Hence sale of the land and building will not attract Section 50B, the special provision for computation of capital' gain in the case of slump sale . C. Further, explanation 1 to Section 50B, the special provision for computation of capital gain in the case of slump sale reads as follows: Explanation 1 - For the purposes of this section, net worth shall be the aggregate value of total assets of the undertaking or division as reduced by, the value of liabilities of such undertaking or division as appearing in its books of account (emphasis supplied) .. a) What is clear from the above is that Section 50B, the provision that provides for computation of capital gain in the case of slump sale, is applicable only when the net worth (Total Assets minus Total Liabilities) of the business undertaking is transferred as a going concern for a lump sum consideration. b) In other words, 50B deals with the transfer of an undertaking having net worth (Assets minus Liabilities) and it does not deal with the transfer of individual assets or group of assets having only value (as against net worth ) as there are no liabilitie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... als and Industries Ltd.[(1962) 46 ITR 135 (SC)]. The test for determination of what constitutes a slump sale are laid down in Artex Manufacturing Co. [(1997) 227 ITR 260 (SC)] in a case where sevarality in sale was inferred and in CIT v. Electric Control Gear Manufacturing Co.[(1997) 227 ITR 278 (SC)] , where the inference was that it was a slump sale. The advantage of slump sale is not only that business profit attributable to stocks cannot be treated as business profits taxable at normal rate, but also, that the profit on sale of depreciable assets covered under section 41(2) liable to tax at normal rate to the extent of depreciation already allowed would avoid tax at normal rate. After section 41(2) was substituted by section 50, incidence of tax as short term capital gains is avoided. All that is necessary is that the surplus on sale of business has to suffer tax as long term capital gains. But after section 50B, the benefit of indexation is not available, so that taxpayer may find severable sale more welcome in certain cases depending on the business exigencies. 4.1 The assessee had sold land and building for a total consideration of ₹ 20 crore vide sale deed date ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntire clause of the sale deed that the assets of the assessee, including the license for boarding, lodging, bar etc. were also transferred to the purchaser along with land and building as a going concern. The entire business was sold for a total consideration of ₹ 20 crore consisting of land and building which includes furniture, equipments, kitchen equipments, telephone instruments, television, computer, etc. The building and other amenities are valued as a whole, without assigning value to any item of the assets. As mentioned earlier, consequent to the sale of the hotel premises, the business of assessee was closed down. Therefore, it is clear from the sale deed executed, the intention of the parties was to sell the hotel business as a going concern and the same is nothing but a slump sale. 4.4 The learned AR had contended that it is not a slump sale going by the definition of section 2(42C) of the I.T.Act for the reason that there is no liability transferred to the purchaser as on the date of sale. Admittedly, the assessee was having huge liability prior to the date of sale with M/s. South Indian Bank, Banerji Road. The impugned property was mortgaged to South Indian Ba ..... X X X X Extracts X X X X X X X X Extracts X X X X
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