TMI Blog2001 (1) TMI 201X X X X Extracts X X X X X X X X Extracts X X X X ..... ociates as a going concern including leasehold land, buildings, plants and machinery, goodwill, electrical fittings and equipments, furniture and fixtures and dead stock and vehicles, located at 87/P, Green Space Between 87/P, 88,96 107, GIDC Industrial Estate, Odhav, Ahmedabad 382 415. The intention between the parties is that the entire undertaking with all its assets and liabilities, rights and obligations secured and unsecured loans, current assets and current liabilities except certain liabilities stipulated hereinafter shall in terms of this agreement be transferred to the purchaser. The sale and purchase shall be together with present arrangement and obligations, licences, quotas etc., relating to the undertaking to be transferred." 4. Clause 3 of the agreement provides for payment of sale consideration of Rs. 1.25 crores agreed as under: "The consideration payable in respect of the above shall be as under: (a) Allotment of 10,000 equity shares of the face value Rs. 100 at a premium of 400 per share in the capital of the purchaser. (b) Allotment of 3500 8% Non-Cumulative Redeemable preference shares of face value of Rs. 100 each Redemption to be effected in 5 yea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of it (stamp duty) Rs. 83,000 Rs. 22,02,311 ------------------- -------------------- Short-term capital gain Rs. 1,02,97,689 ----------------------------------------------------------------------------------- Aggrieved the assessee carried the matter in appeal before the CIT(A). The ld. CIT(A) endorsed the view taken by the Assessing Officer and held that the computation of capital gain is in accordance with the computation provision contained under section 48 of the Income-tax Act and the decision of Hon'ble Supreme Court in the case of CIT v. B.C Srinivasa Setty [1981] 128 ITR 294 is not applicable in the instant case. The CIT(A) observed that there was no difficulty regarding the determination of cost of acquisition of the business undertaking as a going concern since the same is ascertainable from the balance sheet at an amount of Rs. 21,19,311. With regard to the date of acquisition of the asset the CIT(A) observed that since the capital gain arising in the transaction is attributable to stock in trade, it has correctly been treated as short- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1982] 137 ITR 493 (Bom.). 2. CIT v. K.P. V Shaikh Mohammed Rowther Co. 1995 Tax LR 675 (Mad.). 3. Syndicate Bank Ltd v. Addl CIT [1985] 155 ITR 681 (Kar.). 4. Kishorechand K Bansal v. Dy. CIT [IT Appeal No. 5108 (Ahd.) of 1996]. Assessment year 1993-94 Ahmedabad Bench. 5. CIT v. Artex Mfg. Co. [1997] 227 ITR 260 (SC). 6. CIT v. Electric Control Gear Mfg. Co. [1997] 227 ITR 278 (SC). The ld. counsel strongly urged that de hors section 50B, slump sale would be outside the purview of capital gains tax under section 45. In the written submissions submitted during the course of hearing it has been further argued by the ld. counsel that the sale consideration of Rs. 1.25 crores has been paid by way of allotment of 10,000 equity shares of the face value of Rs. 100 per share at a premium of Rs. 400 per share in the capital of the purchaser M/s. Shah Parikh Agencies Pvt. Ltd. as well as preference shares and promissory notes. It is argued that the actual value of the consideration received by the assessee would be considerably less than the value indicated in the agreement as above particularly looking into the fact that the purchaser company Shah Parikh Agencies Pvt. Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Hon'ble Supreme Court in the case of Allied Motors (P.) Ltd v. CIT [1997] 224 ITR 677. Concluding his arguments the ld. D.R. urged that the action of the CIT(A) in upholding the levy of short-term capital gain in the instant case deserves to be sustained. 8. We have given our thoughtful consideration to the rival contentions made by the Id. representatives of both sides and also gone through carefully the various judicial pronouncements cited before us. The basic issue which arise for consideration before us are two fold, (i) Firstly whether section 50B, introduced w.e.f. 1-4-2000 is retrospective. If the answer is yes, the assessee would obviously be liable to capital gains under section 45 r.w.s. 50B, (ii) If section 50B is held to be prospective, it would not apply for assessment year 1993-94 under appeal. In that case the question would arise whether the slump sale of a going concern would be chargeable to capital gains tax and whether capital gains could be computed by applying the computation provision contained under section 48. 9. Before we consider the aforesaid questions, it may be pointed out that it is common ground in the instant appeal that the business undertak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h the return of income, a report of an accountant as defined in the Explanation below sub-section (2) of section 288 indicating the computation of the net worth of the undertaking or division, as the case may be, and certifying that the net worth of the undertaking or division, as the-case may be, has been correctly arrived at in accordance with the provisions of this section. 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: provided that any change in the value of assets on account of revaluation of assets shall be ignored for the purposes of computing 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; and (b) in the case of other assets, the book value of such assets. Explanations 1 and 2 above have been substituted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 1985 (1 of 1986)." Under the Sick Industrial Companies Act section 3(1)(ga) defines the expression 'net worth' as the sum total of the paid up capital and free reserves. This definition of 'net worth' had to be modified since the slump sale may be of a unit or division which has no separate share of capital or reserves and further the definition of net worth appearing in SICA will have no application to non-corporate entities effecting slump sale. To overcome these difficulties definition of 'net worth' has been modified by the Finance Act, 2000. The Circular No. 794, dated 9-8-2000 issued by the Central Board of Direct Taxes for explaining the various amendments deals with the modification in the definition of 'net worth' in case of slump sale in para 29 of the circular and sub-para (3) thereof reads as follows: "This amendment takes effect retrospectively from the 1st day of April, 2000, and shall apply in relation to the assessment year 2000-01 and subsequent years." From the aforesaid circulars issued by the CBDT it is thus manifestly clear that section 50B introduced by the Legislature for levy and computation of capital gains in slump sale is effective from assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ain on slump sale, and keeping in view the intrinsic nature and character of the newly introduced provision as a self contained code, we have no hesitation in holding that the provisions are to operate prospectively w.e.f. 1-4-2000 and would not apply for the assessment year 1993-94 under appeal. The ld. D.R. has cited the Supreme Court judgment in Allied Motors (P.) Ltd.'s case, renders in the context of section 43B, in support of his contention that section 50B is a clarificatory provision and has retrospective operation. The contention of the ld. D.R. is entirely misconceived. The Supreme Court held in Allied Motors (P.) Ltd 's case that second proviso to section 43B is a curative amendment introduced by the legislature to remove procedural difficulties in effectuating the provisions of 43B and hence has retrospective effect. Section 50B on the other hand, has the trappings of a charging section and brings the slump sale within the tax net. Therefore it is legally impermissible to infer retrospectivity about such provision particularly when the Board Circulars No. 779, dated 14-9-1999 and No. 794, dated 9-8-2000 quite categorically state that the section would be operative from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... applied for determining the chargeable profits and gains. All transactions encompassed by section 45 must fall under the governance of its computation provisions. A transaction to which those provisions cannot be applied must be regarded as never intended by section 45 to be the subject of the charge. This inference flows from the general arrangement of the provisions in the Income-tax Act whereunder each head of income the charging provision is accompanied by a set of provisions for computing the income subject to that charge. Referring to the fundamental integrality of the statutory scheme provided for capital gains, the Supreme Court observed in B.C Srinivasa Setty's case at page 299 of the report: "The character of the computation provisions in each case bears a relationship to the nature of the charge. Thus, the charging section and the computation provisions together constitute an integrated code. When there is a case to which the computation provisions cannot apply at all, it is evident that such a case was not intended to fall within the charging section. Otherwise, one would be driven to conclude that while a certain income seems to fall within the charging section ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a Setty's case has been extended to the goodwill which had been acquired by the assessee on payment of consideration. The Bombay High Court held that sale of such a goodwill would be outside the purview of section 45 since its cost of improvement cannot be determined. Of course the decision has been dissented from by the Hon'ble Kerala High Court in Parthas Trust v. CIT [1988] 173 ITR 615 wherein it has been held that the goodwill was purchased from a previous owner of the business for a known consideration and a known date, the surplus realised on the sale of goodwill is to be assessed as capital gains under section 45. Be that as it may be looking to the nature and character of the capital asset being the going concern in the instant case we feel that the slump sale consideration realised by the assessee would be outside the purview of capital gains under section 45. The two decisions cited by the Id. counsel, Syndicate Bank Ltd.'s and K.P. V Shaik Mohammed Rowther Co.'s case are direct authorities in support of the proposition that slump sale of a going concern is beyond the purview of section 45. 18. The ld. D.R. has cited the decision of Kerala High Court in F.X. Periera ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n as attributable to stock-in-trade and treating the same as short-term asset. The entire approach of the Assessing Officer is contrary to computation provisions contained under sections 48 and 49 and amply demonstrate the inherently unworkable nature of these provisions in relation to slump sale. What has been sold is the entire business undertaking as a going concern. Cost of acquisition, cost of improvement as well as date of acquisition of the going concern are not capable of determination. Hence computation provisions fail and no capital gain would be chargeable under section 45. If the law fails to bring the subject within its letter, the department cannot succeed with the argument that the subject falls within the spirit of the law. We have already discussed herein before that in the absence of the three essential ingredients namely cost of acquisition, cost of improvement and date of acquisition, which are fundamental to the computation provision under section 48, the slump sale is outside the purview of section 45. 20. Regarding the reliance placed by the ld. D.R. on the decision of Supreme Court in Artex Mfg. Co.'s case, we may point out that this decision has been cite ..... X X X X Extracts X X X X X X X X Extracts X X X X
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