AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2015 (11) TMI 925
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....n amount of Rs. 10,54,73,587/- was assessed by the AO under the head Capital Gain in terms of section 50B considering it as slump sales." 3. Briefly stated facts are that the assessee company carried business of growing and manufacture of tea, which owned two tea gardens by the names - Tongani Tea Estate and Nagrijuli Tea Estate. According to AO, out of these two tea estates, the assessee by an agreement dated 14.09.1999 sold Nagrijuli Tea Estate to Russel Tea Ltd. for a total value of Rs. 18 cr. According to AO, the said tea estate was sold as a going concern in view of the sale agreement dated 14.09.1999. Original assessment framed by AO u/s. 143(3) read with section 147 of the Act, assessed the excess profit on sale of fixed assets u/s. 50B of the Act at Rs. 10,54,73,587/-. Aggrieved, assessee preferred appeal before CIT(A) and during the pendency of appeal before CIT(A), CIT-2, Kolkata passed order u/s. 263 of the Act, revising the original assessment order vide dated 18.07.2006, setting aside the assessment directing the AO to assess the income on sale of Nagrijuli Tea Estate under the head capital gain after deducting net wealth of Nagrijuli Tea Estate as prescribed under ex....
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....s as agricultural development reserve at Sch.2 of the balance sheet. It also appears from the details filed with the return that the assessee had shown to have sold plant & machinery for Rs. 5,79,92,000/- against the Written Down Value of Rs. 48,18,979/-. From the details the excess amount appears to be Rs.(5,79,92,000 - 48,18,979) or Rs. 5,31,73,021/-. But the assessee has offered short term capital gain for only Rs. 2,25,99,606/-. The assessee arrived at this figure by taking the WDV of the entire plant & machinery, building etc. of the entire business consisting of two tea estates and head office of Rs. 3,53,92,394/- from the sale value of Rs. 5,79,92,000/-. The total sale value as per the details filed by the assessee comes to Rs. 18,28,00,000/- (For land & land development 12,20,08,000 + 5,97,92,000). Although as per the agreement the sale price was shown at Rs. 18 crore but the value of the sale is taken at Rs. 18,28,00,000/- on the basis of the assessees details considering that the assessee might have received 28,00,000/-over and above of the said agreement. Since the assessee has sold the entire Nagrijuli Tea Estates alongwith its land & plantation, plant & machinery and o....
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.... ratio laid down by the Bombay High Court in the case of Premier Automobiles Ltd v. ITO (264 ITR 193) had no application to the assessee's case. In my opinion therefore the A.O. was not justified in holding that the assessee had conducted slump sale of its undertaking & A.O. was therefore factually and legally wrong in invoking Sec 50B of the Act and assessing gain on transfer of assets u/s. 50B. 14. In the present case current assets except stock of stores and spares and liabilities of Nagrijuli Tea Estate were not subjected to transfer though they were integral of the business undertaking. Hence there was no sale of undertaking within the meaning of Sec. 50B. For this reason "net worth" of the undertaking could not have been computed in the manner statutorily provided in Explanation 1 to Sec 50B. Sec. 50B is a code by itself and contains complete computation mechanism for assessment of capital gain on "transfer" of an "undertaking" in a "slump sale". In working out the "net worth" which is "actual cost" of the "capital asset" for the purposes of Sec 48 of the Act; one needs to include values of all assets and liabilities appearing in the books of the transferred undertaking.....
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....arious categories of the assets of the said Tea Estate has been mutually agreed as follows: (i) Land, Tea Plantations, Nursery and Allied Agricultural Assets Rs. 13,50,00,000 (ii) Plant & Machinery, Installations, Vehicles Rs. 4,50,00,000 Furniture & fittings and other Non Agricultural Assets. Rs. 18,00,00,000" He further referred to clause (i) page 3 of the agreement which defines the scope of the sale as follows: "The Vendor shall sell and the Purchaser shall purchase All That the Tea Estate known by the name of NAGRIJULI TEA ESTATE, P.O. Nagrijuli, District Nalbir in the State of Assam having Tea Board Registration No. 2323 consisting of pieces or parcels of land measuring about 2457 Acres more or less described in the First Schedule hereunder according to the nature and tenure thereof together with all tea plantations, bushes, nurseries and other trees and vegetation thereupon, the factory buildings, godowns, bungalows and/other structures built and standing thereon and the Plants and machinery mentioned in the Second Schedule hereunder written, furniture, fixtures and fittings lying thereat and vehicles and tractors and other fixed assets appertaining to the sa....
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.... 5. Furnitre & Fixture IV 15,71,000 Total 18,00,00,000 In view of the above, stated that the valuation report, according to Ld. Counsel Shri Agarwal, the vendee and vendor passed entries in the respective books regarding transfer and purchase of assets with reference to the valuation described to the different categories of fixed assets and also filed its return of income disclosing profit on sale of these assets. From the cumulative reading of various clauses of agreement dated 14.09.1999 and valuation report dated January 2000 of Shri A. K. Ghosh, Chartered Surveyor and Valuer it appears that under the agreement dated 14.09.1999, the assessee agreed to transfer specific assets comprised in or situated or lying at Nagrijuli Tea Estate for consideration specified in the agreement. In view of these facts, Ld. Counsel for the assessee argued that business undertaking always consist of immovable and movable tangible and intangible, fixed and current assets, which comprises of various rights/obligations/corporeal and other rights. According to him, an undertaking is financed either out of capital or by unsecured and secured loans and current liabilities....
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..... Ld. CIT, DR drew our attention to the agreement dated 14.09.1999 clauses - D & E at pages 2 & 3 of the agreement, which reads as under: "D. the Vendor is desirous of selling the said tea estate with tea manufacturing factory, godowns, plant, machinery, fixtures fittings, furniture, quarters and structures etc. lying and situate thereat, more fully described, hereafter as a going concern. E. The Purchase being desirous of purchasing the said tea estate with tea manufacturing factory, plant, machinery, fixtures, fittings, furniture, building and structures etc. has made an offer to the Vendor to purchase the said tea estate as a going concern with effect from 11th October, 1999." From the above, Ld. CIT, DR stated that the vendee sold to the vendor the said tea estate as a going concern w.e.f. 11.10.1999. In view of the above, Ld. CIT, DR requested the bench to restore the order of the AO treating the same as slump sale and charging capital gains. 12. We find from the above facts of the case that as per clause 3(b) of the agreement segregated consideration of Rs. 18 cr. amongst fixed assets situated at Nagrijuli Tea Estate i.e. the land, tea plantation, nursery and allied agric....
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....it or loss is not assessed. In the case of slump sale, in view of section 2(42C) of the Act, the undertaking as a whole is transferred but for a slump sale consideration and, therefore, there can be profit or loss of transfer of undertaking, which can be assessee. However, both in slump sale and de-merger an undertaking is the subject matter of transfer and transfer of all assets and liabilities associated with and which form part of undertaking, which is a necessary condition for application of provisions of section 2(42C) of the Act. 14. Now we have to go through the case laws cited by Ld. Counsel for the assessee whereby he has referred to first leading case of slump sale in the case of CIT v. Magniram Bangur & Co. (Land Department) [1965] 57 ITR 299 (SC), wherein the partnership firm transferred its business as a going concern to a Limited Company and the consideration was received by the partners in the form of shares. In the course of transfer of all assets and liabilities of the business were taken over by the company for a lump sum consideration. The AO and the Tribunal held that though the assessee has disclosed in its books goodwill at Rs. 2.5 lacs but firm did not enjoy....
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....ule was the cost price, as it stood in the books of the vendors. Even if the sum of Rs. 2,50,000 attributed to goodwill is added to the cost of land, it is nobody's case that this represented the market value of the land. In our view the sale was the sale of the whole concern and no part of the slump price is attributable to the cost of land. If this is so, it is clear from the decision of this court in Commissioner of Income-tax v. West Coast Chemicals & Industries Ltd.* and Doughty's case** that no part of the slump price is taxable. We, therefore, answer question No. 3 in the negative. As stated before, in view of this answer, it is not necessary to answer questions Nos. 2 and 4." 15. Ld. Counsel for the assessee also relied on the judgment of Hon'ble Bombay High court in the case of Premier Automobiles Ltd. v. ITO [2003] 264 ITR 193 (Bom), wherein Hon'ble High Court considered similar issue, wherein the assessee's sold its Kalyan Undertaking engaged in manufacturing of car for lump sum consideration. Hon'ble High court on close scrutiny of documents connected with the transfer and conduct of the parties found that the intention of the parties was to tr....
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....14) would include an undertaking acquired as a whole. Therefore, the Kalyan business acquired as a whole by PPL, constituted property in the definition of "capital asset". In the case of demerger, all assets and liabilities stand transferred at book value. There is no such condition prescribed for a slump sale. In the case of a slump sale, there is a sale for consideration. That consideration is paid to the transferor-company and not to shareholders. A slump sale agreement is contractual in nature. The only condition in the case of slump sale is that the sale should be for a lump sum price. Therefore, in the case of a slump sale, there is a transfer of the entire business activity for a fixed price and, therefore, sale value is not attributed to individual items of assets. In the present case, all the tests laid down by the Bombay High Court in the case of CIT v. Narkeshari Prakashan Ltd. [1992] 196 ITR 438 stand satisfied. In our view, principles for computing capital gains are the same, both under section 41(2) as it stood at the relevant time and under section 50 of the Income-tax Act. In the present case, having held that the transaction was a slump sale, the Assessing Officer ....
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....ces the sale value of the paint shop from Rs. 70 crores to Rs. 68 crores. Further, in this case, the controversy in computation of capital gains by the Assessing Officer is, whether the Assessing Officer was justified in taking into account valuation of assets done by PPL in September, 1996. At this stage, it may be mentioned that PAL sold the entire Kalyan business for a net consideration of Rs. 247 crores (see page 267 of the paper-book). As per the returns filed by PAL, the book profit/surplus was Rs. 81.31 crores. The Assessing Officer has increased the book profits by 17.92 crores on the basis of revaluation of assets. However, in our view, the Assessing Officer was wrong because revaluation is considered for arriving at a profit on sale for the purposes of books of account of PAL. For the purposes of computing assessable profits, one has to go by the provisions of the Income-tax Act. If the income/profit is the long-term capital gain, one has to take original cost with indexation. For short-term capital gain, one has to take the amount shown under the block of assets on the first day of the previous year. Lastly, the valuation of assets done by the transferee-PPL in this case....
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....sing the issue reversed the order of CIT(A) and held that it is not a slump sale by observing in para 34 to 47 as under: "34. We considered the matter in detail. The assessee-company is engaged in different types of business like running of plantations, executing turnkey projects, clearing and forwarding agency and shipping business, etc. In its agricultural division, the assessee-company is having a number of estates growing tea, rubber, cocoa, cardamom, etc. In the case of rubber itself, the assessee is having about 12 different estates. During the previous year relevant to the assessment year under appeal, the assessee-company has sold one of its rubber estates known as "Boyce Estate". The estate has been sold on the basis of a detailed agreement executed between the vendor and vendee. The total consideration stipulated for the transfer of the estate has been spilt over different assets both movable and immovable enumerated in different schedules and annexure. 35. The assessee-company has assigned specific consideration/value for the rubber plantation as such along with the standing trees. The consideration for the extent of land has been specifically mentioned. Thereafter, th....
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....h an expression in the agreement that the rubber estate is sold as a going concern, the nature of the asset has become "a continuous asset". Even, in the absence of such a specific clause, by its nature, a rubber plantation is in the nature of a "going concern". Unless and until the yielding rubber trees are usually slaughtered and once tapping is started, it always partakes of the character of a "going concern". 38. Therefore, it is to be seen that while adding an expression in the agreement that the rubber estate was transferred as a going concern, the purpose was only to refer to the state of affairs and refer to an existing fact and not to create any legal proposition in the context of the sale deed. 39. Therefore, in the facts and circumstances of the case, we are of the considered view that the Commissioner of Income-tax (Appeals) has been highly carried away by the commercial expression reflected in the 'agreement like "going concern". At the cost of repetition, we have to state that a rubber plantation is always a "going concern". Even if the parties to the contract do not say so, still the estate in the nature of a rubber plantation is a going concern. Therefore, the....
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....4] 279 ITR (AT) 1; [2005] 95 ITD 380 has held that where the price had been fixed before hand in respect of identifiable assets of undertaking and no liability was transferred to the buyer, the transfer of undertaking would not constitute a slump sale. 44. The Income-tax Appellate Tribunal, Kolkota Bench "D", in the case of Deputy CIT v. ICI (India) Ltd. [2008] 23 SOT 58 has held the same view that there cannot be a case of slump sale, if all the assets and liabilities of an undertaking have not been transferred to the vendee. 45. As rightly relied on by the learned chartered accountant appearing for the assessee, the same view was taken by the Income-tax Appellate Tribunal, Ahmedabad Bench, in the case of Camphor and Allied Products Ltd. v. Deputy CIT [2001] 79 ITD 489. 46. In the present case, the rubber estate has been sold by the assessee excluding cash in hand, stock in hand, receivables, finance, assets and liabilities. It was not a case of sale by lock, stock and barrel. The assessee company has made conscious exclusions. The assets sold by the assessee have been listed out in different schedules and annexure. The consideration has been specifically assigned to the sale o....
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....mp sale' as a transfer of one or more undertakings as a result of the sale for a lump sale consideration without values being assigned to the individual assets and liabilities in such sales. The Explanation I to section 2(42C) of the Act further provides that 'undertaking' shall have the meaning assigned to it in the Explanation I of clause (19AA) of section 2 of the Act, whereby an undertaking means, in an inclusive sense, any part of an undertaking, or a unit or division of an undertaking or a business activity taken as a whole, but does not include individual assets or liabilities or any combination thereof not constituting a business activity. The Explanation 2 to section 2(42C) of the Act further provides 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. 18. The admitted facts of the case are that the assessee company carried on business of growing and manufacture of tea, which owned two tea gardens by the names - Tongani Tea Estate and Nagrijuli Tea Estate. According to AO, ou....
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....Therefore, the agreement with the buyer that the new owners would absorb the existing labour force was not a salient feature to decide whether the sale was a slump sale or not. The meaning of the expression 'going concern' has to be understood in the light of the peculiar nature of the property tram/erred in the instant case. What was transferred in the instant case was a tea estate. The activities in a tea plantation/estate are continuous and un-interrupted ones and tapping operations have to be carried out on a regular basis and all other activities have to be carried out without any interruption. Therefore, by nature of the activities of the Tea estate itself, it is a 'going concern'. Therefore, while adding an expression in the agreement that the Tea estate was transferred as a going concern, the purpose was only to refer to the estate of affairs and to an existing fact and not to create any legal proposition in the context of the sale deed. Therefore, the AO and CIT(A) had been carried away by the commercial expression reflected in the agreement like 'going concern '. Therefore, the said expression is not a test to be relied on to decide the exact natur....