Itemised asset transfer, not slump sale, with apportioned capital gains and no set-off of old losses or depreciation.

Transfer of factory assets was treated as an itemised sale, not a slump sale, because liabilities remained with the liquidator and the agreement allowed apportionment of consideration among identifiable assets. The stated rule under section 50B was applied prospectively and was not used to tax the transaction as a transfer of undertaking as a whole. Consideration attributable to land was assessed as long-term capital gains, while consideration for depreciable assets was taxed as deemed short-term capital gains under section 50. Unabsorbed business loss and unabsorbed depreciation were held not to be available for set-off against gains assessed under section 50, and the statutory priority under section 72(2) was applied against the assessee.

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Issues: (i) Whether the transfer of the factory assets constituted a slump sale so as to attract capital gains only on the entire undertaking, and whether the sale consideration could be bifurcated between land and depreciable assets; (ii) Whether unabsorbed business loss and unabsorbed depreciation from earlier years could be set off against the income arising from the transfer.

Issue (i): Whether the transfer of the factory assets constituted a slump sale so as to attract capital gains only on the entire undertaking, and whether the sale consideration could be bifurcated between land and depreciable assets.

Analysis: The transfer was held not to be a slump sale of a running business as a whole. The agreement showed that the assets were sold while liabilities remained with the liquidator, and the consideration could be apportioned among identifiable assets. The Court distinguished the authorities dealing with transfer of an undertaking along with liabilities, and held that the statutory scheme under section 50B, defining slump sale and providing taxation on net worth, was prospective and did not govern the present transaction. The consideration attributable to land was therefore liable to long-term capital gains under section 45, while the consideration attributable to depreciable assets was liable to deemed short-term capital gains under section 50.

Conclusion: The assessee was not entitled to treat the transaction as a slump sale for capital gains purposes, and the bifurcation of consideration was upheld in favour of the Revenue.

Issue (ii): Whether unabsorbed business loss and unabsorbed depreciation from earlier years could be set off against the income arising from the transfer.

Analysis: The Court held that business loss cannot be set off against capital gains assessed under section 50, and that the deeming fiction under section 50 does not convert business income into capital gains. It further held that unabsorbed business loss had priority over unabsorbed depreciation under section 72(2), and since the available business profit had already been absorbed, no further set-off of unabsorbed depreciation was permissible. The amended rule relating to depreciation did not assist the assessee in respect of earlier years' depreciation.

Conclusion: The claim for set-off of unabsorbed business loss and unabsorbed depreciation was rejected in favour of the Revenue.

Final Conclusion: The transfer was taxed by apportioning consideration between capital assets as identifiable in the agreement, and the assessee was not permitted to use earlier losses or depreciation to reduce the assessed gains.

Ratio Decidendi: Where assets are transferred without liabilities and the consideration is ascertainable with reference to individual assets, the transaction is not a slump sale; section 50B applies prospectively, and unabsorbed business loss or depreciation cannot be set off against capital gains assessed under section 50 in a manner contrary to the statutory priority rules.

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