TaxTMI 
TaxTMI 
2011 (4) TMI 493
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....ol) of 2002, relating to the Assessment Year 1992-93. 3. A Division Bench of this Court while admitting ITA No.181 of 2004 formulated the following substantial questions of law: "i) Whether in view of the fact that the assessee has transferred the entire undertaking of the fertilizer division and the fiver division and did not transfer the plant & machinery in that respective divisions as such, it can be said that the provisions of Section 32A(5) of the Act is attracted as the plant & machinery has been the subject of sale or transfer otherwise? "ii) Whether having regard to the object and scheme of Section 32A(5) of the Act if the plant & machinery is not separately transferred out of the business but such plant & machinery remains fully in the business or the undertaking which has been transferred, the provisions of Section 32A(5) is applicable?" 4. In ITA No.182 of 2004, a Division Bench formulated the following three substantial questions of law: "i) Whether in view of the fact that the assessee has transferred the entire undertaking of the fertilizer division and the fiber division and did not transfer the plant & machinery in ....
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....90 was Rs.2,85,91,002/-. c) Since the plant & machinery of fertilizer division and fiber divisions were sold/transferred within eight years of their installations, the Assessing Officer invoked the provisions of Section 32A(5) and Section 155(A) of the Act and withdrew the investment allowance already granted in the Assessment Year 1989-90- by his order dated 23rd March, 1995. d) As a consequence of the aforesaid order, the Assessing Officer carried out the necessary rectifications so as to give the consequential effect to the investment allowance to be carried forward to subsequent assessment years which resulted in the creation of demand of Rs.4,36,23,595/- for the Assessment year 1992-93 including interest charged. e) Aggrieved by the aforesaid orders of the Assessing Officer the assessee preferred appeals for both the assessment years before the CIT (Appeals). As far as Assessment Year 1989-90 is concerned, the assessee contended before the CIT (A) that since the assessee company had not transferred the plant & machinery per se out of the fertilizer and fibres undertakings, the transfer of the above two undertakings did not fall within the mischief....
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....t contends that when the provision contained in Section 32A (5) of the Act is not attracted where the plant and machinery are sold to the Government, local authorities, corporation established by Central or Provincial Act or Government Company as defined in Section 617 of the Act, there is no reason why in case a sale as going concern the said provision should be applicable. 11. Dr. Pal, in this connection submits before us that we should not make literal construction of the word "sale" or "otherwise transfer" appearing in the said provision as such construction would lead to absurdity, the unjust result or mischief and in such a case, we should modify the language used by the legislature or even do some violence to it so as to achieve the obvious intention of the legislature and produce a rational construction as according to Dr. Pal the object of the legislature was to limit the instance where a plant and machinery are transferred but not where the entire division was transferred as a going concern. In support of such contention, Dr. Pal relies upon the following decisions. 1. K.P. Varghese vs. Income-tax Officer, Ernakulam & Anr., reported in 131 ITR 597; &nb....
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....to the assessee". Section 32A(5) : "Any allowance made under this section in respect of any ship, aircraft, machinery or plant shall be deemed to have been wrongly made for the purposes of this Act- (a) if the ship, aircraft, machinery or plant is sold or otherwise transferred by the assessee to any person at any time before the expiry of eight years from the end of the previous year in which it was acquired or installed; or (b) ...................... (c) ...................... and the provisions of sub-section (4A) of section 155 shall apply accordingly: Provided that nothing in clause (a) shall apply- (i) where the ship, aircraft, machinery or plant is sold or otherwise transferred by the assessee to the Government, a local authority, a corporation established by a Central, State or Provincial Act or a Government company as defined in section 617 of the Companies Act, 1956 (1 of 1956); or (ii) where the sale or transfer of the ship, aircraft, machinery or plant is made in connection with the amalgamation or succession, referred to in sub-section (6) or sub-section (7)." Section 155(4A): "Where an allowance by w....
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....y agreement or any arrangement or in any other manner whatsoever) which has the effect of transferring, or enabling the enjoyment of, any immovable property. (vii) Explanation.-For the purpose of sub-clauses (v) and (vi), "immovable property" shall have the same meaning as in clause (d) of section 269UA." (Emphasis supplied) 14. A bare perusal of Section 32A(5) of the Act makes it abundantly clear that in order to apply the aforesaid provision to a given case, the following conditions must be satisfied: a) the allowance in respect of the plant and machinery must have been enjoyed by an assessee in his Income-tax assessment, b) the selfsame plant and machinery must have been sold or otherwise transferred by the assessee to any other person and c) such "sale" or "otherwise transfer" must have taken place before the expiry of eight years from the end of the previous year in which it was acquired or installed. 15. In the cases before us, there is no dispute that the assessee has transferred the entire two divisions as a going concern to a third party by a slump sale and there is no price separately indicated for plant and machinery. If such transfer of the ....
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....oresaid submission of Dr. Pal. 20. The last point i.e., that we should not make literal construction of the word "sale" or "otherwise transfer" appearing in the said provision as such construction would lead to absurdity, unjust result or mischief and in such a case, we should modify the language used by the legislature or even do some violence to it so as to achieve the obvious intention of the legislature and produce a rational construction, is in our opinion, equally misplaced. 21. In this connection, we find substance in the contention of the learned counsel for the Revenue that the aforesaid submission is not tenable in a case where the language of the statute is clear and its plain meaning reflects the real intention of the legislature.In this connection, we may profitably refer to the decision of the Supreme Court in the case of Commissioner of Income-tax vs. Anjum M. H. Ghaswala & Ors., reported in (2001) 252 ITR 1 where the Apex Court held that the question of purposive interpretation arises only when the language of the statute is ambiguous or conflicting or gives meaning leading to absurdity. Otherwise, the Supreme Court held, the plain meaning of the statute is to....
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.... at Rs.65,000/ as against the consideration of Rs.16,500/- for which the house was sold and assess the difference of Rs.48,500/- as capital gains in the hands of the assessee. The assessee raised objections against the reassessment proposed to be made by the Income-tax Officer but the objections were overruled and an order of reassessment was passed by the Income-tax Officer including the sum of Rupees 48,500/- as capital gains and bringing it to tax. Though the sale of the house by the assessee was in favour of his daughterin- law and five of his children who were persons directly connected with him, the Income-tax Officer could not invoke the aid of Section 52 sub-section (1) for bringing the sum of Rs.48,500/- to tax, because there was admittedly no understatement of consideration in respect of the transfer of the house and it was not possible to say that the transfer was affected by the assessee with the object of avoidance or reduction of his liability under Section 45 of the Act. The Income-tax Officer, therefore, rested his decision to assess the sum of Rs.48,500/- to tax on sub-section (2) of Section 52 and taking the view that this sub-section did not require as a conditio....
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....ransfer was liable to be taken as the full value of the consideration for the transfer. The writ petition was, accordingly, dismissed and the order of reassessment was sustained by the majority decision of the Full Bench. Hence the matter went to the Supreme Court at the instance of the assessee with certificate obtained from the High Court. 25. It will be noticed from the above statement of facts that the principal question that arose for determination in the appeal before the Supreme Court turned on the true interpretation of Section 52 sub-section (2). 26. But in order to arrive at its proper interpretation, it is necessary to refer to some other provisions of the Act as well. Section 2 clause (24) defined the word 'income'. The definition is inclusive and covered 'capital gains' chargeable under Section 45. Section 4 is the charging section and it provided that income-tax should be charged in respect of the total income of the previous year of every person. Section 5 defined the scope of 'total income' by providing that the total income of the previous year of a person who was resident should include all income from whatever source derived which was received or was deemed....
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.... be its fair market value on the date of its transfer." 27. There was a marginal note to Section 52 which reads: "Consideration for transfer in cases of understatement". It may be pointed out that originally when the Act came to be enacted, Section 52 consisted of only one provision which was quoted above and numbered as sub-sec. (1) and it was by Section 13 of the Finance Act 1964 that sub-section (2) was added in that section with effect from 1st April 1964. 28. Now on these provisions, the question that arose was about the true interpretation of Section 52(2) of the Act. The argument of the Revenue found favour with the majority of the Judges of the Full Bench that on a plain natural construction of the language of Section 52(2), the only condition for attracting the applicability of that provision is that the fair market value of the capital asset transferred by the assessee as on the date of the transfer exceeded the full value of the consideration declared by the assessee in respect of the transfer by an amount of not less than 15% of the value so declared. Once the Income-tax Officer was satisfied that this condition existed, he could proceed to invoke th....
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....tionality to the legislature. Besides, under Entry 82 in List I of the Seventh Schedule to the Constitution which deals with "Taxes on income" and under which the Income-tax Act, 1961 had been enacted, Parliament could not "choose to tax as income an item which in no rational sense could be regarded as a citizen's income or even receipt. Subsection (2) would, therefore, on the construction of the Revenue, go outside the legislative power of Parliament, and it would not be possible to justify it even as an incidental or ancillary provision or a provision intended to prevent evasion of tax. Sub-section (2) would also be violative of the fundamental right of the assessee under Article 19(1)(f) which was in existence at the time when subsection (2) came to be enacted-since on the construction canvassed on behalf of the Revenue, the effect of sub-section (2) would be to penalize the assessee for transferring his capital asset for a consideration lesser by 15% or more than the fair market value and that would constitute unreasonable restriction on the fundamental right of the assessee to dispose of his capital asset at the price of his choice. The Court, the Apex Court continued, must ob....
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....ot helpful to the appellant in any way. 33. In the case of Bajaj Tempo Ltd. vs. Commissioner of Income-tax (supra), the question before the Supreme Court was whether the assessee was entitled to claim partial exemption from payment of tax under Section 15C of Income-tax Act of 1922 on profits and gains derived from an industrial undertaking established in a building taken on lease used previously for other business. The facts of the said case was that M/s. Bachhraj Trading Corporation ('Corporation'), incorporated on 29th September 1945, carried on business of import-export in various items. In 1957 it was granted licence for manufacturing tempo 400cc three wheeled transporters. It entered into an agreement with a foreign collaborator, who agreed to grant the licencee the know-how rights for the manufacture, in India of tempo commercial three wheeler vehicles, against payment of German marks. Accordingly the assessee company M/s. Bajaj Tempo Ltd., Bombay ('Company') was, formed, for exploiting the manufacturing licence issued by the Government 32% of the share capital of which was subscribed by the foreign collaborators and remaining 68% share capital was issued to the sh....
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.... of the revenue, that since the premises in question were earlier used for the purpose of business the assessee was disentitled from claiming the benefit as the 'newly established undertaking must also refer to a building previously used by the assessee himself in any other business'. It was further of opinion that lease could not be held to be transfer. The tribunal held that an industrial undertaking to be covered in the mischief of Clause (i) of subsection (2) of Section 15C should have been 'formed' by transfer of building, plant or machinery, which was substantial and prominent in the formation of the undertaking. In other words, the part played by such transfer should have been such that the industry without it could not have come into being. According to tribunal it could not stand to reason that a big industrial undertaking should be denied the benefit of Section 15C only because it took the business premises on lease or used its implements and tools worth a small amount previously used for the purposes of business. On further reference made by the department in the High Court, the question of law raised by department was answered in its favour and against the assessee with....
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....formation should not be by such transfer. The emphasis is on formation not on use. Therefore it is not every transfer of building or material but the one which can be held to have resulted in formation of the undertaking. In Textile Machinery Corporation Ltd. v. Commr. of Income-tax, West Bengal, (1977) 107 ITR 195: (AIR 1977 SC 11 34), this Court while interpreting Section 15C observed (para 16 of AIR): "The true test, is not whether the new industrial undertaking connotes expansion of the existing business of the assessee but whether it is all the same a new and identifiable undertaking separate and distinct from the existing business. No particular decision in one case can lay down an inexorable test to determine whether a given case comes under Section 15C or not. In order that the new undertaking can be said to be not formed out of the already existing business, there must be a new emergence of a physically separate industrial unit which may exist on its own as a viable unit. An undertaking is formed out of the existing business if the physical identity with the old unit is preserved." Even though this decision was concerned with the clause dealing with rec....
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....sion is irrelevant in the facts of the present case. 38. In the case of CIT vs. Electric Control Gear Manufacturing Co. (supra), the assessee was a partnership concern consisting of 13 partners. On March 31, 1066 it entered into an agreement whereby it transferred the entire assets of business together with liabilities as a going concern to a limited company, styled as M/s Electric Control Gear Pvt. Ltd. for a consideration of Rs. 8 lakh. The erstwhile partners of the assessee firm were allotted the shares of the same value in their profit-sharing proportion. The Income Tax Officer held that depreciation allowed to the assessee firm amounting to Rs 3,32,863 in respect of the assets transferred by the firm to the said company was chargeable to tax under the provisions of Section 41(2) of the Income Tax Act, 1961. He also brought to tax the capital gains of Rs 8 lakh, being the purchase consideration received by the assessee and after excluding the sum of Rs 5000 as basic exemption, included the sum of Rs 7,95,000 in the computation of the total income of the assessee under the head "Capital Gains". The Appellate Assistant Commissioner held that the impugned profits were taxable u....
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.... the plant and machinery must have been enjoyed by an assessee in his Income-tax assessment, b) the selfsame plant and machinery must have been sold or otherwise transferred by the assessee to any other person and c) such "sale" or "otherwise transfer" must have taken place before the expiry of eight years from the end of the previous year in which it was acquired or installed. Thus, the exact amount of price of plants and machinery is insignificant for the purpose of giving effect to Section 32A (5) of the Act unlike the provisions of Section 41(2) of the Act. 39. We, therefore, find that the above decision is of no assistance to the Appellant. 40. By relying upon the decision of the Supreme Court in the case of Arun Kumar & Ors. vs. Union of India & Ors.(supra), Dr. Pal tried to convince us that the proviso to Section 32A(5) of the Act giving benefit to the Government, a local authority, a corporation established by a Central, State or Provincial Act or a Government company as defined in section 617 of the Companies Act, 1956 (1 of 1956), or in connection with any amalgamation or succession referred to in subsection (6) or sub-section (7) of Section 32A was improper ....