1987 (1) TMI 15 - HC - Income Tax

High Court affirms Revenue's win on asset sale vs. going concern, taxable income incl. capital gain. Solatium part of sale price.

Nagpur Electric Light And Power Co. Limited Versus Commissioner Of Income-Tax

The High Court ruled in favor of the Revenue, affirming the Tribunal's decision that the transaction involved the sale of individual assets rather than a ... Business, Capital Gains, Income Issues Involved:1. Identity of the property transferred.2. Character of the transaction.3. Year(s) in which the income is taxable.4. Amount of taxable income.Summary:1. Identity of the Property Transferred:The Tribunal held that it was not the business of the Wardha undertaking as a going concern which was transferred by the assessee to the Board; rather, it was a sale of various assets of that undertaking. The High Court agreed with this view, answering the first question in the negative and in favor of the Revenue.2. Character of the Transaction:The Tribunal determined that the transaction between the assessee and the Board was in the nature of a sale. The High Court upheld this characterization, noting that the provisions of section 41(2) of the Income-tax Act, 1961, were applicable. The court referenced the Supreme Court's judgment in Fazilka Electric Supply Co. Ltd. v. CIT [1962] 46 ITR 127 (SC) to support this conclusion, emphasizing that the sale was not of a going concern but of individual assets. Consequently, the second question was answered in the affirmative and in favor of the Revenue.3. Year(s) in Which the Income is Taxable:The Tribunal found that the only income includible in the assessee's assessment for the assessment year 1967-68 was the capital gain relating to the sale and transfer of movable property delivered to the Board on March 11, 1967/March 12, 1967. The High Court agreed, answering the fourth question in the affirmative and in favor of the Revenue.4. Amount of Taxable Income:The Tribunal included the solatium in the purchase price and held that the difference between the amount of the consideration (original cost) and the written down value of the assets was taxable as income u/s 41(2) of the Act. Additionally, the difference between the balance of the consideration (sale price) and the original cost of the assets was taxable as a capital gain. The High Court, referencing its earlier judgment in Akola Electric Supply Co. (P) Ltd. v. CIT [1978] 113 ITR 265 (Bom), confirmed that the solatium was includible in the sale price for determining the taxable capital gain. Thus, the third question was answered in the affirmative and in favor of the Revenue.Conclusion:The High Court answered all four questions in favor of the Revenue, affirming the Tribunal's findings and holding that the transaction was a sale of individual assets, taxable u/s 41(2) and as capital gains. No order as to costs was made.