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Issues: (i) Whether the slump price received on transfer of the undertaking could be brought to tax as income from business under section 41(2) of the Income-tax Act, 1961. (ii) Whether the same receipt was chargeable to capital gains.
Issue (i): Whether the slump price received on transfer of the undertaking could be brought to tax as income from business under section 41(2) of the Income-tax Act, 1961.
Analysis: Section 41(2) applies only where the value attributable to depreciable assets is identifiable so that the surplus over written down value can be computed. In a slump transfer of a going concern, if the award or sale consideration does not disclose any separable value for depreciable assets, and there are no reliable materials to attribute a distinct part of the consideration to those assets, the amount cannot be guessed and taxed under the head income from business. The presence of a balance-sheet or general valuation does not, by itself, supply a computable attribution where the award is a composite slump price.
Conclusion: The slump price was not chargeable to tax as income from business under section 41(2); this issue was answered in favour of the assessee.
Issue (ii): Whether the same receipt was chargeable to capital gains.
Analysis: The transfer of the undertaking involved capital assets, and the cost of acquisition was determinable. The receipt therefore fell within the capital gains charging framework to the extent of the capital element. The assessee did not dispute this aspect, and the authorities distinguishing cases where item-wise valuation was available did not alter the result on these facts.
Conclusion: The receipt remained chargeable under the head capital gains; this issue was decided in favour of the Revenue.
Final Conclusion: The assessment could not sustain taxation of the slump price as business income under section 41(2), but the capital gains aspect survived and required reconsideration on remand for quantification in accordance with law.
Ratio Decidendi: A composite slump consideration for transfer of a going concern cannot be assessed as business income under section 41(2) unless the portion attributable to depreciable assets is separately and reliably ascertainable; where such attribution is not possible, only the capital gains element, if otherwise computable, can be taxed.
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