2014 (1) TMI 1589 - HC - Income Tax

Slump sale not taxable as capital gains pre-amendment, clarifies High Court on trade mark transfers

CIT & JOINT COMMISSIONER OF INCOME TAX Versus M/s NUTRINE CONFECTIONERY CO P LTD

The High Court dismissed the Revenue's appeal, affirming that the sale consideration of a going concern in a slump sale was not taxable under capital ... Whether sale consideration of a going concern be taxed as capital gains - Slump sale - Held that:- Relying upon the decision in PNB Finance Ltd. V/s. Commissioner of Income-Tax [2008 (11) TMI 7 - SUPREME COURT] - Section 45 charges the profits or gains arising from the transfer of a capital asset to income-tax - The charging section and the computation provisions together constitute an integrated Code and when in a case the computation provisions cannot apply, such a case would not fall within Section 45 - The said sale has taken place prior to the amendment introducing section 50B the concept of slump sale - Merely because the assessee has given split up figures and received the consideration from the purchaser, it would not take the goods out of slump sale - Decided against Revenue. Issues involved:1. Whether the sale consideration of a going concern can be subjected to tax under capital gains.2. Whether the consideration received for the transfer of trade marks, patent rights, logo, etc., can be considered as long-term capital gains.Analysis:Issue 1:The appeal was filed by the Revenue challenging the Tribunal's order that the sale consideration of a going concern cannot be taxed under capital gains. The case involved the transfer of a company as part of a larger business acquisition. The Assessing Officer initially taxed the assessee based on the allocation of transfer amounts under various heads like trademarks, technical know-how, copyrights, and non-compete compensation. The Appellate Authority considered it a case of slump sale, which was not taxable before April 2000. The Tribunal upheld this decision, leading to the Revenue's appeal. The High Court, citing the Supreme Court's ruling in PNB Finance Ltd. v. CIT, emphasized the integrated nature of the charging section and computation provisions under Section 45 of the Income Tax Act. The Court concluded that as the sale was a slump sale before the amendment introducing Section 50B, it was not taxable under Section 45. The appeal was dismissed, affirming that the sale did not attract Section 45.Issue 2:The substantial question of law in this appeal revolved around whether the consideration received for the transfer of trade marks, patent rights, logo, etc., could be considered as long-term capital gains under Section 45 of the Act. The Court referred to the Supreme Court's judgment in PNB Finance Ltd. v. CIT, highlighting the tests of allocation/attribution and the conceptual difference between an undertaking and its components. The Court reiterated that the charging section and computation provisions together form an integrated code and that a case not falling under the computation provisions would not be covered by the charging section. The Court found that the sale in question was a slump sale before the relevant amendment, making it non-taxable under Section 45. The Court ruled in favor of the assessee, stating that the split-up figures provided by the assessee did not alter the nature of the sale as a slump sale. Consequently, the consideration received for the transfer of trade marks and other rights was not taxable as long-term capital gains. The appeal was dismissed, upholding the decision in favor of the assessee.In conclusion, the High Court's judgment clarified the tax implications of a slump sale involving the transfer of a company as part of a larger business acquisition. The ruling emphasized the integrated nature of the charging section and computation provisions under the Income Tax Act, ultimately determining that the sale in question was not taxable under capital gains.