TaxTMI 
TaxTMI 
2011 (5) TMI 465
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....admitting total income of Rs. 8,55,290. This return of income was processed u/s 143(1) on 25.3.2004. Subsequently, the Assessing Officer noticed that during the previous year relevant to assessment year 2003-04, the assessee had sold a proprietary concern, M/s Maya Agencies as a going concern for a consideration of Rs. 5 crores to M/s Sri Manmaya Textiles Private Ltd., Erode (hereinafter referred to as the 'Company'). The Assessing Officer was of the view that the assessee had earned profit on the sale of this concern but did not include profit in the computation of income and also did not make any claim regarding exemption/deduction of the said income of Rs. 4,62,10,283, therefore, income chargeable to tax had escaped assessment. Consequen....
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....tual and legal matrix conjointly go to establish that the conditions stipulated in this section stand fulfilled and therefore, this transfer has to be considered in terms of section 47(xiv) by holding the surplus of net worth as exempt from income tax. Now the Revenue is aggrieved. 3. The main plea of the Revenue before us is that the transaction in question is not covered under the provisions of section 47(xiv) because the transfer of 'assets and liabilities', as a going concern, was not preceded by succession of the business of proprietary concern by the company which is a pre-condition u/s 47(xiv). According to the ld.DR, it is a case of slump sale covered u/s 50B as has been held by the Assessing Officer. The ld.AR has reiterated the r....
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....ated in that section r.w.s 2(42C). The Assessing Officer has not cared to examine if the conditions as stipulated regarding transfer as a 'slump sale' are satisfied or not. The proprietary concern was taken over by the company as a going concern for a consideration of Rs. 5 crores. The difference between the net worth and the sale consideration is to be considered as a goodwill. Admittedly, the transfer of the proprietary concern was made as a going concern for a consideration only by way of allotment of shares of the company which according to us cannot be regarded as transfer for the purpose of charging capital gains. In this regard, the ld.AR has relied on the decision of Cochin Bench of the ITAT in the case of K.V. Mohammed Zakir v. Ass....
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....y (both are different legal entities) as to what constitute the assets and liabilities for the purpose of the transfer and what is the "consideration" payable. In determining the liabilities for the purpose of transfer, it has been agreed that the current account balances of the proprietor in the books of the sole proprietary concern will be taken over as a liability on loan account by the limited company and to be discharged as loan as such. Thus, under sub-cl. (a) of the section, such loan has to be necessarily to be transferred as a liability along with all other liabilities to comply with the provisions of sub-cl. (a). This is also a matter of agreement/contract relating to the transfer and also in accordance with well-accepted principl....
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.... In the instant case, it has been agreed between the two parties that the consideration for the transfer of all the assets and liabilities of the undertaking, as determined and for which the shares are to be allotted was Rs. 2,55,00,000 which, initially was to be treated as an "advance" towards share capital against which shares are to be allotted by the company to the proprietor of the sale proprietary concern. The proprietor in this context, per se, is different and distinct from the sale proprietary concern. The assets and liabilities are those of the sole proprietary concern. The balance to the credit of the proprietor in the current account treated as loan due to the proprietor, therefore, will be a genuine liability of the sole propri....
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....cts clearly go to evince that the assessee has fully adhered to the conditions laid in section 47(xiv). Thus, by respectfully following the above noted decision of ITAT Cochin Bench, the assessee is eligible to claim this transaction as exempt in view of section 47(xiv). We are also in agreement with the other reasonings given by the ld. CIT(A) in this regard and ld.AR's submission regarding the intention of the legislation in enacting section 47(xiv). Section 47(xiv) reads as under: "47. Transactions not regarded as transfer.-Nothing contained in section 45 shall apply to the following transfers :- (xiv) where a sole proprietary concern is succeeded by a company in the business carried on by it as a result of which the sole proprietary c....