TMI Blog2022 (8) TMI 1348X X X X Extracts X X X X X X X X Extracts X X X X ..... eement and deferred payments laid down therein. For these by laying down that when capital assets being an undertaking or division is transferred by way of slump sale, the net worth of the undertaking or the division, as the case may be, shall be deemed to be the cost of acquisition and the cost of improvement for the purposes of sections 48 and 49 and no regard shall be given to the provisions contained in the second proviso to section 48. For the reasons given above, we are unable to agree with the view canvassed by assessee. We are of the view that the CIT(A) fell into an error in accepting the plea of the assessee and holding that the sum not received owing to clause 3.1.2 of the BTA cannot be brought to tax in AY 14-15. We therefore allow the appeal of the Revenue. - ITA No. 2551/Bang/2019 - - - Dated:- 16-8-2022 - Shri N. V. Vasudevan, Vice President And Shri Laxmi Prasad Sahu, Accountant Member For the Assessee : Shri. S. Ramasubramanian, CA. For the Revenue : Dr. Manjunath Karkihalli, CIT(DR)(ITAT), Bengaluru. ORDER PER N.V. VASUDEVAN, VICE PRESIDENT : This is an appeal filed by the Revenue against order dated 30.09.2019 of CIT(A), Mysur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on, 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 : Provided that any change in the value of assets on account of revaluation of assets shall be ignored for the purposes of computing the net worth. Explanation 2. For computing the net worth, the aggregate value of total assets shall be, (a) in the case of depreciable assets, the written down value of the block of assets determined in accordance with the provisions contained in sub-item (c) of item (i) of sub-clause (c) of clause (6) of section 43; (b) in the case 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. A reading of Sec.50B (1) of the Act read with Sec.2(42C) of the Act, it is clear that taxability of capital gain on slum sale arises in the year of transfer of the undertaking. Sec.50B of the Act is a special provision for computation of capital gain on slum sale and excludes other provisions of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ration and Rs.3,47,21,564/- of Net Current Assets (NCA) difference were received immediately on sale. The legal case in connection Excise Duty has decided in favour of the Assessee by the Hon ble High Court but the department has appealed to the Hon ble Supreme Court and since it will take time for a decision in the remaining sum was not payable to the Assessee and hence not offered to tax in the present AY 2014-15. Hence, the Assessee did not consider the entire slump sale consideration of Rs.110 Crore, as full value of consideration received/or accrued on transfer. The Assessee submitted that the remaining sum will be offered to tax in the year in which the Assessee receives the said sum. vide another letter dt. 30.12.2016, the assessee submitted that it received a sum of Rs.4,38,20,000/- during the Assessment Year 2015-16 and the same was offered to tax in AY 2015-16. 5. The Assessing officer did not accept the above submission of the Assessee for the reason that as per section 45, any profits or gains arising from the transfer of a capital asset effected in the previous year shall be chargeable to income-tax under the head Capital gains , and shall be deemed to be the incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sfer Agreement dated 01.03.2013 110,00,00,000 Add Difference in Net Current Assets as adopted by the assessee 3,47,21,564 Sale consideration on account of slump sales 113,47,21,564 Less Consultancy post closing expenses as per assessee 5,11,40,000 Net proceeds of slump sale 108,35,81,564 Less Net Current Assets as per assessee 8,43,83,680 54,87,45,026 WDV of assets as per assessee 46,34,44,923 Book value of land 9,16,423 Long term capital gain on slump sale 53,48,36,538 6. On appeal by the assessee, the CIT(A) agreed with the contention of the Assessee that because of clause 3.1.2 of the BTA, the remaining sum of Rs.10 crores had to be taxed only in the year of it s receipt. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l be set out in Schedule 10 ( Tax Disputes ). It being clarified that :(a) the seller shall be solely responsible for any liability arising out to Tax Disputes, and (B) in the event that the amount of loss or indemnity to nay of the Purchaser Indemnified Parties as contemplated under this Clause 3.1.2 exceeds the Subsequent Business Transfer Consideration, then the seller and/or promoter Group shall Separately indemnify the Purchaser Indemnified Parties for such excess amount also; and, c) Any other amounts and monies payable by the seller and/or the Promoter Group to the Purchaser or YKK under or in connection with this Agreement, inter alia, including for claims made by nay customers to the Purchaser for refund of die deposits. According to CIT(A), liability to pay tax arises in the year in which the conditions are fulfilled by the Assessee and the remaining sum is received by the Assessee. Since, the remaining sum is payable on fulfillment of certain conditions, it cannot be taken into taxable income until fulfillment of those conditions. He therefore allowed the appeal of the Assessee. 7. Aggrieved by the order of the CIT(A), the assessee is in appeal before the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... date the assessees passed on the execution of the agreement. There is no material on the record or in the agreement suggesting that even if the entire consideration or part is not paid the title to the shares will revert to the seller. In that sense the controlling expression of transfer in the present case is conclusive as to the true nature of the transaction. The fact that the appellant assessee adopted a mechanism in the agreement that the transferee would defer the payments would not in any manner detract from the chargeability when the shares were sold. 8. It was lastly submitted that the Tribunal's findings are based upon its understanding about the characterization of the receipt and it has not dealt with the deeming fiction about the accrual which is dealt with by Section 48. We are unable to agree. The tenor of the Tribunal's order is that the entire income by way of capital gains is chargeable to tax in the year in which the transfer took place. This is what is stated in Section 45(1). Merely because the agreement provides for payment of the balance of consideration upon the happening of certain events, it cannot be said that the income has not accr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year 2007-08. On the analysis of agreement, the Commissioner of Income-Tax (Appeals) concluded that the amount of Rs.20 crores is the maximum amount that could be received by all co-owners under the agreement from M/s. RKHS. However, on working of the formula there was no guarantee that this amount or for that matter any amount would be received. He therefore held that the amount received/ accrued alone be considered for compuitating capital gain. The Tribunal held that what amount has to be brought to tax is the amount which has been received and/or accrued to the assessee and not any notional or hypothetical income as the revenue is seeking to tax the assessee in the subject assessment year 2006-07. On further appeal, the revenue contended that in terms of section 45(1) of the Act that transfer of capital asset would attract the capital gains tax and the amount to be taxed under section 45(1) is not dependent upon the receipt of the consideration. The Hon ble High Court held that in the subject assessment year no right to claim any particular amount gets vested in the hands of the assessee. Therefore, entire amount of Rs.20 crores which is sought to be taxed by the Assessing Offi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7 It is clear therefore that income may accrue to an assesee without the actual receipt of the same. If the assessee acquires a right to receive the income, the income can be said to have accrued to him though it may be received later on its being ascertained. The basic conception is that he must have acquired a right to receive the income. There must be a debt owed to him by somebody. There must be as is otherwise expressed debitum in presenti, solvendum in futuro . . . . In this case all the co-owners of the shares of M/s.Unisol have no right in the subject assessment year to receive Rs.20 crores but that is the maximum which could be received by them. This amount which could be received as deferred consideration is dependent/contingent upon certain uncertain events, therefore, it cannot be said to have accrued to the respondent-assessee. The Tribunal in the impugned order has correctly held that what has to be taxed is the amount received or accrued and not any notional or hypothetical income. As observed by the Apex Court in Commissioner of Income-Tax vs. M/s. Shoorji Vallabdas and Co. (1962) 46 ITR 144 Income-Tax is a levy on income. No doubt, the Income-Tax Act takes int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... right to receive Rs.20 crores in the subject assessment year. 10. He also placed reliance on the decision of the Special Bench in the case of Vireet Investment Pvt. Ltd., 58 ITR (Trib.) 313 (SB) wherein the Special Bench, following the decision of the Hon ble Supreme Court in the case of CIT Vs. Vegetable Products Ltd. 88 ITR 192 (SC) held that when two views are possible the view favourable to the Assessee should be followed. He also relied on the decision of Hon ble Punjab and Haryana High Court in the case of PCIT Vs. Mahipinder Singh Sandhu 416 ITR 175 (P H) which is in line with the reasoning of the Hon ble Bombay High Court in the case of Mrs.Hemal Raju Shete (Supra). 11. We have given a very careful consideration to the rival submissions. As we have already noted, from a reading of the provisions of Sec.50B (1) of the Act read with Sec.2(42C) of the Act, it is clear that taxability of capital gain on slum sale arises in the year of transfer of the undertaking. Sec.50B of the Act is a special provision for computation of capital gain on slum sale and excludes other provisions of the Act, in so far as it relates to charge and computation of capital gain on slump sal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lly and exclusively in connection with such transfer; (ii) the cost of acquisition of the asset and the cost of any improvement6 thereto: According to him the concept of receipt/accrual is relevant even for charge to tax of income in the form of capital gain. In this regard the learned counsel for the Assessee has placed reliance on the decision of the Hon ble Bombay High Court in the case of Mrs.Hemal Raju Shete (supra). The decision rendered by the Hon ble Bombay High Court in the case of Mrs.Hemal Raju Shete (supra) was a decision rendered in the context of provisions of Sec.45(1) of the Act and has to be read as a decision rendered on its peculiar facts. The ratio laid down therein cannot be extended to a case where computation of capital gain is made u/s.50B of the Act. As we have already explained the statutory provisions, are special provisions applicable to computation of capital gain on slump sale and these provisions specifically lay down the methodology of computation in Sec.50B(2) of the Act, in relation to computation of capital gain. Capital gains arising on slump sale are calculated as the difference between sale consideration and the net worth of the unde ..... X X X X Extracts X X X X X X X X Extracts X X X X
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