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1987 (2) TMI 119
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....rinivasa theatre on the said site. The theatre together with the unexpired portion of the lease rights in the site were sold to Sri N. China Satyanarayana, etc., by a registered sale deed dated 3-2-1965. The said cinema hall together with the unexpired portion of the lease rights in the site were sold by Sri N. China Satyanarayana, etc., in their turn to Sri V. Venkatarama Raju son of Sri Subbaraju on behalf of the assessee-HUF under the registered sale deed dated 6-3-1968. On behalf of the assessee-HUF Sri T. Krishnamurthy was requested to extend the lease period. In pursuance of the agreement Sri T. Krishnamurthy executed a registered lease deed dated 1-2-1968 extending the lease period from 20-4-1982 to 31-12-1992. The assessee-HUF leased out cinema hall to Sri K. Ramachandraraju and Sri K. Venkataramaraju on condition that they should pay rent of Rs. 12,050 per month. The lease is for five years, i.e., from 1-6-1980 to 1-5-1985. The Lease deed was registered. The lease amount was offered as business income derived by the assessee-HUF and it was accepted by the department in the income-tax assessments completed against the assessee in the previous years. Even while the lease was....
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....T Act. The assessee objected to the same and contended that as the entire undertaking was sold away as going concern no question of any balance in charge under section 41(2) could arise and the assessee relied upon the decision of the Gujarat High Court in Artex Mfg. Co. v. CIT [1981] 131 ITR 559. The Income-tax Officer overruled this objection of the assessee stating that the facts of the case cited are quite different from the facts on hand before him and ultimately he brought the amount of Rs. 67,621 to tax in the hands of the assessee. 4. In the appeal before the CIT (A), Visakhapatnm the argument that the balancing charge cannot be brought to tax as the entire undertaking was sold without specifying any value in respect of each individual depreciable asset and the assessee relied upon besides the decision already cited before the Income-tax Officer on two more decisions, one of Gujarat High Court reported in Sarabhai M. Chemicals (P.) Ltd. v. P. N. Mittal, Competent Authority, IAC [1980] 126 ITR 1 at 22 and CIT v. Mugneeram Bangur & Co. (Land Department) [1965] 57 ITR 299 of the Supreme Court. The learned CIT (A) firstly held that it was unfortunate that the Income-tax Offi....
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....eatre facia 2,000 5. Outside paving and compound wall 15,000 6. Booking-cum-tea & soda shop 3,000 7. Ladies waiting shed 2,500 8. W. C. shed 2,000 9. Furniture 50,000 10. Equipment and accessories &n....
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....er proper thought deliberately placed to avoid an assessment of the profits under section 41(2). Thus he confirmed the order of the Income-tax Officer and dismissed the appeal preferred by the assessee. Hence the second appeal. 5. In the grounds it is contended that in view of the decisions in Artex Mfg. Co's case and Mugneeram Bangur & Co. (Land Department)'s case no balancing change arose on the sale of the cinema theatre,.machinery and fittings since the sale was for a slump price. The learned CIT (A) is not justified in doubting the bona fides of the sale deed so far as the sale consideration is concerned. The finding of the learned CIT (A) that the idea of slump price is a clear after-thought is not justified and is only based upon suspicion and surmise. Mr. M. J. Swamy, learned counsel for the assessee contended before us that the sale is of both movable and immovable properties. He cited before us the commentary of Chaturvedi and Pithisaria's Income-tax Law, Third Edition, page 1548 which is a follows: "Transfer of entire business for slump price - no balancing charge - capital gain may result.--Balancing change under section 41(2) arises only where any 'depreciable as....
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.... down sale will therefore be within the purview of the sub-section. It is also applicable to a case of transfer of assets as a part of the sale of an entire undertaking. However, even in such cases, it must be possible to say that a particular asset has been sold for a particular price. It has therefore been held that this provision is attracted only where there is a transfer of plant, machinery, building or furniture and not to a case where the whole business as a going concern is taken over for a slump price." As can be seen that the learned author stated that the balancing charge under section 41(2) is attracted to a case of transfer of asset as part of the sale of an entire undertaking and the learned author also cited the authority of the Supreme Court in CIT v. B. M. Kharwar [1969] 72 ITR 603, Madras High court in R. M. Veerabhandra Thevar v. CIT [1973] 92 ITR 357 and the Bombay High court in Akbar Mfg. & Press Co. Ltd. v. CIT [1957] 31 ITR 99. Besides relying upon the way of distinction sought to be made by the learned CIT (A) between the cases cited on behalf of the assessee and the case on hand in the impugned order Sri Padmanabhan sought to contend that Sarabhai M. Che....
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....'s case was impliedly overruled by the amendment of proviso 2 to section 10(2) (vii) of the Indian Income-tax Act, 1922 and this position was made clear by a later Supreme Court decisions in B. M. Kharwar's case and CIT v. K. B. Kalikutty [1969] 73 ITR 533. Therefore Sri Padmanabhan contended firstly that there are decisions of the Supreme Court, Madras High Court and Bombay High Court going contrary to the decisions of Gujarat High Court in which it is held that even though it is a slump sale balancing charge can be brought to tax. Secondly, he contended that on facts that the recitals of the sale deed do not justify to call the sale of whole business undertaking and so even the decision cited on behalf of the assessee would not be of any help to him. Thirdly, he contended that in this case there is clear evidence to show that there is itemised value of each and every depreciable asset and even though it is a slump price if the value of the depreciable asset can be ascertained then section 41(2) clearly attracted even according to the assessee. Fourthly, he contended that the Supreme Court decision in Mugneeram Bangur & Co. (Land Department)'s case does not hold the field any long....
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....bt followed the decision in CIT v. Mugneeram Bangur & Co. [1963] 47 ITR 565 (Cal.). 9. In K. B. Kalikutty's case the facts are that the assessee was running the business of plying buses. He plied the buses for some time in the previous year and sold them in that year. The question was whether the amount realised by him in excess of their WDV up to their original cost was taxable under the second proviso to section 10(2) (vii). The Supreme Court held that even on the assumption that the sale of business was a closing down sale or realisation sale the amount was nonetheless taxable since the sale was made after the amendment of the second proviso to section 10(2) (vii) by Act No. 67 of 1949. In that case their Lordships held that in CIT v. Ajax Products Ltd. [1965] 55 ITR 741 the Supreme Court clarified the position about the effect of the amendment made in 1949 in the proviso and they have also explained the impact of the amendment made in the second proviso on the three conditions laid down by the Hon'ble Supreme Court in CIT v. Express Newspapers Ltd. [1964] 53 ITR 250. Then their Lordships of the Supreme Court observed as follows: "The words 'whether during the continuance ....
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.... (Land Department)'s case nor Artex Mfg. Co.'s case applies to the facts of the case. From a correct appraisal of the recitals of the sale deed dated 2-11-1981 we can only come to the conclusion that the transaction is a sale of cinema hall building, the machinery, fixtures and furniture as well as the right to the unexpired portion of the lease. In B. M. Kharwar's case there is a firm which carried on business of manufacturing, purchasing and selling cloth. Subsequently, it closed its manufacturing side of business and transferred its machinery to a private limited company in the share capital of which the partners of the firm had the same interest as they had in the assets and profits of the partnership. While assessing the firm for assessment year 1959-60 the Income-tax Officer, Surat, brought to tax under section 10(2) (vii), proviso (ii) of the IT Act, 1922, Rs. 40,743 being excess realised over the written down value of the machinery under section 10(2) (vii). At page 610 in the penultimate para of the judgment the Supreme Court postulated that a sale of the business may secure either a fixed price or an asset in exchange. The Supreme Court held the following: "But counsel....
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....e displaced by probing into the 'substance of the transactions. If we adopt the tests laid down by the Hon'ble Supreme Court in the above case and apply them to the facts on hand there is no other way for us except to hold that under the sale deed dated 2-11-1981 only sale of depreciable assets like building, plant, machinery, furnitures and fixtures plus the unexpired portion of the lease rights was conveyed for a consideration of Rs. 3 lakhs to the vendees. It is no doubt true that the assessee is receiving lease amounts from its lessees was considered as business income. But in such a case inasmuch as no liabilities, if any, sustained by the assesses were made over to the vendees no stock-in-trade was also made over to the vendees and no goodwill of the assessee was made over to the vendees and the vendees and the vendors being different even the tests laid down to hold that it is a sale of the whole business or this is a slump sale was not satisfied. Further, having regard to the valuation report obtained from registered civil engineer on 5-9-1981 under which each and every depreciable asset was valued only two months before the sale made us hold that there was definite materia....