TMI Blog2004 (3) TMI 327X X X X Extracts X X X X X X X X Extracts X X X X ..... turing of Sintered Bearings. The assessee also had units for manufacturing of Copper Iron Powder at Ahmednagar. This Ahmednagar unit was sold for a consideration of Rs. 2,60,43,039 to M/s. Hoganas India Ltd. It was claimed that the sale was made as a going concern of the assessee with all tangibles, intangibles, contingent rights and liabilities. The claim of the assessee was that there was a transfer of capital asset and the transfer of the said undertaking did not make the assessee liable for capital gain tax. It was further claimed before Assessing Officer that it was difficult to arrive at the cost at the time of its inception nor possible to arrive at the figure of cost of improvement. It was claimed that there was no method to arrive at the exact cost of the undertaking, hence, applying the ratio of CIT v. B.C. Srinivasa Setty [1981] 128 ITR 294 (SC) the assessee has claimed that there should not be any capital gain on such transfer. According to assessee as no precise cost could be attributed to the said undertaking therefore, on its transfer there would be no liability to capital gain tax. Reliance was placed on the decision of Syndicate Bank Ltd. v. Addl CIT [1985] 155 I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consideration of current assets of Rs. 44,97,989 and the sale price of the building of Rs. 49,68,750 plus the cost of land at Rs. 1,01,300. After arriving at the sale price of plant and machinery along electrical installations the short term capital gain was computed as under:- Sale price for plant machinery As ascertained above Rs. 1,64,75,000 Less: Opening W.D.V. Rs. 5,00,285 ---------------- Leaving in balance of Rs. 1,59,74,715 ---------------- (which represents short-term capital gain on sale of plant and machinery and electrical installation). Being aggrieved, the assessee went in appeal against the order of Assessing Officer. 4. Ld. CIT (A) has summarized the ground that the action of the Assessing Officer was challenged according to which short-term capital gain on sale of building at Rs. 35,57,295 and short-term gain on sale of plant and machinery at Rs. 1,59,74,715 was challenged on account of transfer of Ahmednagar Unit by the assessee to M/s. Hoganas India Ltd. In this regard ld. CIT(A) has reproduced some of the cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of AC. Srinivasa Setty's case and the decision of Artex Mfg. Co. v. CIT [1981] 131 ITR 559 (Guj.) were cited. Ld. CIT(A) has observed that the revenue had gone in appeal against the decision of Artex Mfg. Co.'s case and the Supreme Court in its decision in CIT v. Artex Mfg. Co. [1997] 93 Taxman 357 had overruled the decision of the Hon'ble Gujarat High Court. 4.1 Before ld. CIT(A) an alternate plea was raised that if the provisions of section 50 were to be applied then the amount of consideration deserves to be set off against the WDV of the entire blocks of asset of the appellant company. It was subsequently argued that the set off should not be restricted against the blocks of assets of Ahmednagar unit. It was submitted that the Ahmednagar Plant was a part and parcel of the entire business, therefore, should not be segregated from the other units. 4.2 Before ld. CIT(A) an another decision of Hon'ble Supreme Court in the case of CIT v. Electric Control Gear Mfg. Co. [1977] 227 ITR 278 was also cited. However, he has concluded that it was not a case of transfer of undertaking as a whole as a going concern but it was a case of transfer of the assets of such undertaking. He has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment of stamp duty. He has further submitted that some of the clauses has also mentioned that the above consideration was subject to increase or decrease depending upon certain circumstances. As there was a charge of ICICI, therefore, prior approval of the said institution and bank was required and for that purpose it was referred to them. Clause (9) of the agreement has also incorporated that from the appointed date M/s. HIL was entitled to take over all the employees of MSP which showed that the transfer was lock, stock and barrel. With this background he has compared the facts of the case with the fact of Premier Automobiles Ltd.'s case. He has mentioned that the basic test to be applied is whether there was continuity of business by the buyer and in the present case in fact the buyer continued the business. One has to see whether there was a transfer of a business as a whole and the circumstances of the case were such that the whole business of undertaking was transferred. The intention can also be adjudged by considering the entire agreement and not certain clauses. The lump sum price was fixed for the business as a whole and the employees connected with the activity have also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ic Control Gear Mfg. Co.'s case while deciding the latter one. As the facts were not identical the earlier decision was distinguished. He has concluded that action of the Assessing Officer deserves to be affirmed. 7. Parties have been heard at length, facts of the case were thoroughly examined and orders of the authorities below were duly considered in the light of the material placed before us as well as the precedents relied upon. On the basis of the elaborated discussions hereinabove it can be summarized that the assessee had two units one at Ahmednagar and another at Pimpri, Pune. It has sold Ahmednagar unit vide an agreement dated 6-8-1992 to M/s. Hoganas India Ltd. (in short HIL). The appointed date was 1-11-1992 which was considered as the date of transfer. The entire controversy, in our opinion, revolve around an issue that whether under the present facts and circumstances it was a slump sale or itemized sale. So we have to examine the facts of the case to ascertain whether the sale consideration was for the entire unit or it was attributable to individual identifiable assets. On careful and deep examination of the agreement, valuation reports, treatment of transfer by ve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... paras. So undisputedly the appellant was aware before hand distinctly about the value of plant and machinery and the value of land and building. Hence it is not a case of lump sum price for the business as a whole but the price was fixed in respect of the identifiable assets. At this juncture we would like to mention that from the side of the revenue it was argued that the broken up figure were accounted for in its books of account by the purchaser M/s. HIL, however, this argument is not in the right perspective. The reason is that the buyer has to claim certain deduction in its income-tax matter and for the purpose the seller has its own independence. But the situation in the instant appeal is that the appellant was very much aware about the sale price of each and every assets and therefore, on that basis a figure was arrived at Rs. 150.63 lakhs as surplus on sale of industrial undertaking in its books of account. In view of the above observation based upon the factual matrix we can arrive at a conclusion that it was not a case of transfer of undertaking as a whole but it was a transfer of the assets of the undertaking excluding the liability. It is an admitted fact that the liab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tions under which an undertaking is transferred. On the basis of the foregoing discussions and in view of the material facts, the essence of the matter is that the instant appeal is close to the facts of Artex Mfg. Co.'s case, hence to be relied upon. One more decision of Hon'ble Jurisdictional High Court was also cited from the side of the appellant namely Premier Automobiles Ltd.'s case. After considering the substance of the transaction and the facts of that appeal the Hon'ble Court has given a finding that the intention of the parties were to transfer the business as a whole for a lump sum consideration. Interestingly the Hon'ble Court has specified that the parties in that appeal did not intend to make a sale of itemized assets and this observation was very much relevant because before the Hon'ble High Court the two aforecited decisions of the Hon'ble Supreme Court were referred to. Before us ld. A.R. Shri Khare has tried to match the facts of the instant appeal with the facts of Premier Automobiles Ltd.'s case, but in view of our above observation we hereby arrive at a conclusion that the facts are distinguishable hence this precedent is not directly applicable. 7.2 Now com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... treated as short-term capital gain. The emphasis thus is that such block of assets should cease to exist. In terms of this section, in our opinion surplus arising on transfer of capital assets is taxable as short-term capital gain when the written down value of a block of assets is reduced to 'nil' even though all the assets falling within that block are not transferred. Thus where an assessee has obtained a deduction on account of depreciation in previous years, the provision of sections 48 and 49 shall have to be subjected to the modifications indicated in section 50. Both the depreciation as well as the block of assets belongs to an assessee and for all purposes has to be taken into account as a whole. There is no indication in the language of section 50 that while computing the short-term capital gain of a particular asset is to be segregated from the block of assets. The view taken by the revenue authorities was thus ipso jure wrong. 7.3 Resultantly, in solido, first limb of Ground No. 1 is hereby decided against the assessee and second limb is decided in favour of the assessee. Before we part with we may mention a word of appreciation to Shri Khare and Shri Sunil Agarwal ld ..... X X X X Extracts X X X X X X X X Extracts X X X X
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