2016 (5) TMI 264 - AT - Income Tax

Transfer of BOPP Films Business as Slump Sale Upheld, Capital Gains Taxed

The Supreme Industries Limited Versus The ACIT, CC-29, Mumbai

The Supreme Industries Limited Versus The ACIT, CC-29, Mumbai - TMI Issues Involved:1. Taxation of capital gains arising from the transfer of BOPP Films undertaking.2. Computation of deduction under Section 80HHC by reducing 90% of certain receipts from business profits.3. Deduction in respect of corporate dividend tax.Issue-wise Detailed Analysis:1. Taxation of Capital Gains:The primary grievance of the assessee was the taxation of capital gains amounting to Rs. 10,30,06,590/- under Section 50B read with Section 2(42C) of the Income Tax Act, arising from the transfer of the BOPP Films undertaking to Xpro India Ltd. (XIL). The assessee initially reported this amount as short-term capital gains but later retracted, arguing that the transfer was not a slump sale as defined under Section 2(42C). The assessee contended that individual values were assigned to assets and liabilities, thus disqualifying the transaction as a slump sale. The Assessing Officer (AO) rejected this argument, stating that the Business Transfer Agreement (BTA) indicated a lump-sum consideration for the entire undertaking, and the assignment of individual values was merely for ascertaining changes in value during the interim period. The AO cited the Bombay High Court's decision in Premier Automobile Ltd. vs. ITO and the ITAT, Hyderabad Bench's decision in Coromandel Fertilisers Ltd., concluding that the transaction was indeed a slump sale. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the AO's decision, noting that the BOPP undertaking was sold for a lump-sum amount along with all its assets and liabilities, thus satisfying the criteria for a slump sale. The Tribunal affirmed the lower authorities' decisions, emphasizing that the assignment of individual values to net current assets was for practical reasons and did not alter the nature of the transaction as a slump sale.2. Computation of Deduction under Section 80HHC:The second issue pertained to the computation of deduction under Section 80HHC by reducing 90% of sundry receipts, including the sale of empty bags, cartons, octroi/BPT/insurance premium, and excise/sales-tax refunds from business profits. The Tribunal referred to its decision in the assessee's own case for the assessment year 1998-99, where it was directed that net income not assessable under Section 28 should be excluded from business profits for Section 80HHC. The Tribunal instructed the AO to re-examine the issue, considering whether 90% of gross receipts or net receipts should be excluded and ensuring that sales tax and excise duty are not part of the total turnover. The matter was restored to the AO for fresh consideration in line with these principles.3. Deduction in Respect of Corporate Dividend Tax:The third issue regarding the deduction in respect of corporate dividend tax was not pressed by the assessee's Authorized Representative (AR) and was dismissed in limine.Conclusion:The Tribunal upheld the AO's decision on the taxation of capital gains under Section 50B, confirming that the transfer of the BOPP Films undertaking was a slump sale. For the computation of deduction under Section 80HHC, the issue was remanded to the AO for re-examination as per the Tribunal's earlier directions. The appeal concerning corporate dividend tax was dismissed as it was not pursued by the assessee. The appeal was partly allowed in terms indicated above, with the order pronounced on 29/04/2016.