TaxTMI 
TaxTMI 
2012 (4) TMI 402
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....0B of the Act." 2. Appellant had filed the ROI on 27.11.2008 and Assessing Officer (AO) passed an order u/s.143(3) of the I.T. Act, 1961 (Act) on 20.02. 2003. Commissioner of Income tax (CIT) was of the opinion that the order of the AO was erroneous and prejudicial to the interest of the Revenue. So, after issuing a notice to the assessee he passed an order u/s.263 of the Act on 14th February,2005. Appellant preferred an appeal before the ITAT against the said order and the Tribunal upheld the revision-order passed by the CIT. Meanwhile the AO issued a fresh notice u/s. 143(2) of the Act in pursuance of the order passed by the CIT u/s.263 of the Act. The Appellant was asked vide said notice dated 15.02.2004 as under: "....This appears to be a case of slump sale. The Appellant has sold its one whole business, the sealant and adhesive business decision (M-seal division). All the assets of this business seem to have been transferred though individual considerations have been fixed, probably for tax purpose. Effective 1.4.2000, S.50B specifically provides for computation of capital gain in cases of slump sale...." In response to the notice Appellant filed submissions vide letter dat....
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....ital gains as done in the assessment order. Therefore, the addition mad is upheld." Being aggrieved by the said order of CIT (A) the Appellant has filed the appeal under consideration. 4. After narrating the facts of the case Authorised Representative (AR) of the Appellant submitted that transaction in question was not a slump sale as held by the AO and the CIT (A),that individual items were given separate price in various agreements, that Pidilite Industries Limited (PIL) was not related to the Appellant in any manner, that transactions were at arm's length, that purpose of Appellant was to sell individual assets that only plant and machinery was sold and that land was not sold. Dealing with the order of the CIT (A) AR submitted that he had not dealt with Sec.2 (42C) of the Act, that the cases relied upon by the CIT(A)were not applicable to the case of the Appellant, that Appellant had specifically mentioned individual price of the assets transferred where as in the cases relied upon by the CIT (A)individual items were not given any price. He further submitted that AO, CIT (A) and the Tribunal have decided the matter without referring to Sec.2(42C).As per the AR the orders of al....
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.... Deed of assignment of Trademark b- Deed of transfer of part interest in Trademark c- Deed of assignment of Goodwill d- Deed of assignment of Copy Right e- Non-Compete Agreement f- Contract Manufacturing Agreement g- Assets Purchase Agreement h- Agreement for purchase of Technical know-how. (iv) Consideration received on sale of Trademarks, know-how, copyright, amounting to Rs. 28 Crores (app.) was not offered for taxation as the Appellant was of the view that same, being capital receipt, was not taxable. (v.) On the basis of the above referred agreements/deeds the Appellant argued that the said transaction cannot be considered a slum sale transaction, whereas as per the A.O. and the CIT (A) transaction in question was a slump sale liable to be taxed as per provisions of Sec.50B of the Act. 7. Section 50B was inserted in the Act by the Finance Act, 1999 with effect from April 1, 2000. Prior to this, there were disputes as to (i) whether, transfer of business/an undertaking / division etc., by way of slump sale constituted transfer of capital asset and (ii)whether, there was any....
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....able , subject to some modification, for computing capital gains in the case of a slump sale, (iii) the net worth of the undertaking transferred shall be deemed to be the cost of acquisition and cost of improvement for the purpose of sections 48 and 49 and (iv) the net worth shall be computed in accordance with the provisions of Explanations 1 and 2. 8. Perusal of Section 2(42C) of the Act will be useful in this context that reads as under - Slump sale means the transfer of one or more undertakings as a result of the sale for a lump sum consideration without values being assigned to the individual assets and liabilities in such sales. Explanation 1.- For the purposes of this clause, "undertaking" shall have the meaning assigned to it in Explanation 1 to clause (19AA). Explanation 2.- For the removal of doubts, it is hereby declared that the determination of the value of an asset or liability for the sole purpose of payment of stamp duty, registration fees or other similar taxes or fees shall not be regarded as assignment of values to individual assets or liabilities. The definition of slump sale u/s. 2(42C) read with Explanation 1 to section 2(19AA) of the Act, makes it clear ....
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....ks of selling/transferring of business of Sealants and Adhesives products to PIL. It also speaks of a non-compete agreement with PIL with respect to the business. (Pg.13of the PB). 11.2 'Agreement for sale and assignment of trademarks together with the goodwill of the business and other Matters' contains details of various things transferred by the appellant to PIL. Pg.35 of the PB states that trademark M Seal was used in respect of epoxy resins compositions. Material of M Seal was being used for cementing cracks, holes, leaks and similar defects in metal articles and for other technical purposes. Mr. Fixit, the other product sold to PIL, was being used for chemical preparations and products used in industry, Adhesives, glues and starch. As per Pg.36 of the PB as a result of the negotiations between the Appellant on the one hand and PIL on the other business of Sealants and Adhesives was sold 'entirely and exclusively' to PIL. 11.2(i). Here, perusal of various definitions as discussed in the definitions and interpretations section of the agreement would be very useful- -Assets or plant and machinery means machinery and equipment more particularly described in the draft asset pu....
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....ions relating to the users of such product in the context of Cable Jointing business; b)and would in respect of such goods, use a trademark which would be distinctively different from and not similar to the mark M seal. Not only this, Appellant's successor in the Cable Jointing business was also barred from manufacture such products if it wished to include any Sealants and Adhesives products as a component of the table Jointing kits or terminations. 11.2(iv). As per clause 12 of the agreement(Pg.46 of the PB) PIL agreed that on a best efforts basis and at its sole discretion it would absorb personnel from Appellant's officers category.For absorbed personnel Appellant agreed to transfer funded Gratuity leave and other retirement benefits to the relevant funds/trusts of PIL. 11.2(v). As per clause 15 of the agreement(Pg.47 of the PB)the parties agreed that PIL would not engage or compete with and in the business of manufacture, sale, distribution, marketing of Cable Jointing kits, Cable Jointing terminations and components and Cable Jointing insulating compounds. On the other hand Appellant agreed that it would not engage or compete with PIL in the business of Sealants and Adhesive....
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.... now we will consider the 'substance aspect' of the arrangement of the business of Sealants and Adhesives . The term business denotes an abstract thing that includes physical adjuncts like plant and machinery and stock as well as the intangible elements like goodwill, intellectual properties and licences etc. In the case under consideration Trademarks, Copyrights, goodwill, manufacturing process, plant and machinery were transferred by the Appellant to PIL. As a result of the nine agreements/ deeds mentioned earlier(para 6)business of Sealants and Adhesives carried out by the Appellant had gone to PIL irrevocably. In other words not only the manufacturing apparatus of the Appellant but the business, as a whole, had also changed hands for ever. We are aware of the fact that the Appellant was the elite owner of the Trademark M Seal-it was registered on 16th August, 1972.(Pg. 115of the PB).Appellant had also applied for registration of Trademark 'Mr. Fixit' on June 30th, 1998. Trademarks were undeniably assets of the Appellant's business duly registered with the trademark authorities. Trademarks, Plant and Machinery, Technical Know-how, Copyright along with Goodwill and renunciation o....
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....compete with the Appellant in the Cable Jointing kits, Cable Jointing terminations and components and Cable Jointing insulating compounds business Here, we would also like to mention that deciding the appeal filed by the assessee against the 263 order of the CIT the Tribunal vide its order dated 14.09.2006 (ITA No.2944 Mum/2005) held as under - "The Appellant has sold the entire business to PIL even though the agreements were different. Therefore, in pith and substance, the result is that the Appellant company has sold the entire business M-seal to PIL........." We fully endorse the views expressed by the ITAT in this regard. 13. After selling tangible and intangible assets as well as manufacturing process Appellant was left with business of Cable Jointing kits, Cable Jointing terminations and components and Cable Jointing insulating compounds. Nobody can claim that business of Cable Jointing is same as the business of Sealant and Adhesives. Definition section of the main agreement gives details of both the businesses. As per that section "Cable Jointing business means the business of Cable Jointing insulating compounds and hardeners and Cable Jointing kits, Cable Jointing termi....
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....rlier order of the Tribunal were bad in law. 14.2.We have considered the provisions of Sec.2(42C).No doubt it speaks of slump sale and of assigning of values to the individual assets and liabilities, but explanation 2 to the section clearly mentions that value determined for registration purposes shall not be regarded value of to the assets or liabilities.Word shall has been used with a purpose. As per the principles of jurisprudence legislature always uses words keeping in mind a certain goal. We are of the opinion that by rejecting the stamp duty/ registration fee valuation it has indicated that valuation of assets should be done on scientific basis supported by sound principles of accounting. From the case records and the material produced before us we are unable to find any basis for valuation done by the Appellant. The AO had specifically inquired about the basis of valuation adopted by the Appellant, but till date no valuation report has been filed. If the AO and the CIT(A) has ignored the 'agreed valuation as determined by the Appellant and PIL' for purposes of Sec.50B r.w.s.2(42C) no fault can be found with them. We are of the opinion that if the appellant wanted to claim ....
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....ffered a few items of assets for taxation and sale proceeds of others have been claimed as capital receipt. The basis of valuation is not known-as it is claimed to be a "agreed price" Deciding the issue about slump sale / itemises sale in the matter of Mahindra Sintered Products Ltd. (95 ITD 380) 'J' Bench of ITAT, Mumbai has held as under: "The approach of the assessee indicates that to settle the sale consideration help of professional was sought and thereafter a final figure was arrived at. Our fourth observation in the sequence is that one M/s. Mehta Padame, registered value was also appointed, though claimed to be the purchaser, who has valued the fair market value of plant and machinery including electric installation. As per the valuation given the fair market value of plant and machinery was determined at Rs. 1,64,75,000/-. The assessing officer has adopted this figure for purpose of calculation of short-term capital gain on sale of plant and machinery, the computation already reproduced in above paras. So, undisputedly the appellant was aware beforehand distinctly about the value of plant and machinery the value of land and building. Hence it is not a case of lump sum p....