TaxTMI 
TaxTMI 
2016 (4) TMI 519
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....s of the Chemical Unit of your petitioner as being slump sale and accordingly confirming the AO's action in aggregating the consideration of Rs. 41,98,00,000/- as being consideration towards slump sale u/s 2(42C) read with Sec. 5OB although such provision was not at all applicable. Even otherwise and without prejudice the Ld. CIT (A) failed to appreciate that neither the liability of such unit were not transferred nor whole of the assets of such unit were transferred and the sale of assets was itemized sale and as such it cannot be treated as slump sale within the meaning of section 2(42C) of the I. T. Act, 1961. Thus, the CIT(A) erred in confirming the action in such respect is without appreciating the fact and in the law in such respect and the sale of such assets has to be considered as per the computation of your petitioner and in view of the facts and in the circumstances of the case it may kindly be held accordingly." 3. Brief facts relating to this issue are that the assessee is engaged in the business of manufacturing and selling of chemicals, castings, steel wires, wagons etc. The AO during the course of assessment proceedings noticed that the assessee company is ha....
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.... d. The consideration is a lump sum or a single consideration for various assets/basket of assets e. no values have been assigned to individual assets and liabilities i.e. there is no valuation report showing the price consideration break up for each assets and liabilities f. The intention of the parties was to sale the undertaking as a going concern for a lump sum without assigning values to individual assets and liabilities. 28. In section 2(19AA) a specific condition has been prescribed for transfer of all assets and liabilities of an undertaking. There is no such condition prescribed in section (2)(42C) that all liabilities must be transferred for slump sale. If the above conditions are satisfied, then even if liabilities are not transferred it may be deemed to a slump sale. Essentially, as long as the buyer can continue the business as is it does not vitiate the concept of Slump Sale even if certain assets and liabilities are not taken over. One of the most important questions to ask in such a purchase or sale of a business is whether it is only some the assets that are being sold by seller or a business activity is sold as a 'going concern'. In the itemized....
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....s been retained by the assessee; as such this cannot be treated as a slump sale. But the fact to be considered is assessee is in the field of intellectual property rights. Computers, furniture, etc. which is linked with the business of the assessee has. been sold. The items that the assessee kept separately, has nothing to do with assessee's business, which is sold/handed over to the purchaser, i.e., IISL. The business has been sold. The purchaser could very well carry on the business, which was carried by the assessee before the sale, without purchasing any independent items. In view of the above, the plea of the revenue that the assessee has not sold the undertaking as a whole, is difficult to accept." 30. The Hon'ble Bombay High Court in the case CIT v. Polychem Ltd 343 ITR 114 held that the agreement did not contain an itemized valuation in respect of the land, building and fixed assets transferred. The total consideration of Rs. 10.6 crores determined under the agreement was for. the transfer of the business and undertaking as a whole comprising but not limited to the land, building and fixed assets. The transaction involved was a slump sale. 31. In ECE Industrie....
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....1020/Ko1/2007) reported in (2008) 23 SOT 58 (Kol) has held that the question is whether it is a "slump sale" of the undertaking as a whole or it is the sale of the depreciable assets within the meaning of s. 50. The fertilizer business of the assessee has been transferred as a going concern to CCFC. All assets and liabilities relating to fertilizer business has been transferred, only assets excluded are bank balance and the outstanding Insurance claim on the date of transfer. Merely because these two assets have been excluded from the assets transferred, it cannot be said that it is not the transfer of the undertaking as a "going concern". It was further held that exclusion of some of the liabilities in the agreement does not in any way affect the smooth transfer of the going concern. 35. In this case, all the attributes are of a slump sale. A slump sale contemplates sale of a going concern with lock, stock and barrel. The agreement of itemised sale is a device to prevent the Assessing Officer from computing the correct liability of the assessee. In this case, there is transfer of the undertaking with lock, stock and barrel. In this case, the entire undertaking was almost transf....
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....found that several items mentioned in the agreement were such that they could not be independently purchased then the transaction was a slump sale. It further held as follows:- "Only two contentions are raised' before us on behalf of the Revenue: (i) Each branch could not be treated as a separate entity and, therefore, did not have independent goodwill. (ii) In view of the specification of the price of items of assets and liabilities in the agreements, it could not be said that the sales were of the going concerns as a whole for a slump price. It is not possible to accept these submissions. The first submission pertains to a factual aspect. As a matter of pure principle, even a branch of a publishing house like this can have different goodwill which depends upon a host of factors such as popularity, performance, circulation, peculiarities of the region, etc. As regards the second submission, a mere look at the agreements would clearly indicate that what was sold was the entire branch business as a whole - lock, stock and barrel. Several items were such as would not be independently purchased. The value of the liabilities is adjusted against the value of assets. An inve....
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....rices had been predetermined and agreed and disclosed in the agreement may be taken as sale price for slump sale and accordingly shall be determined in accordance with Sec. 50 read with Sec. 43(6)(c) for depreciable assets and for stock its business income u/s. 28 and long term capital gain on land. The Assessing Officer directed to reduce the cost of such assets transferred from the value of the consideration realised for determining the capital gain in the slump sale. 41. The appellant has taken ground 1 to 9 stating to reduce the cost of assets transfer from the sale value of the unit. The plea of the appellant has not been dealt by the Assessing Officer in the, order. The Assessing Officer has take out the entire sale consideration without reducing the liability as profit of the appellant. The provision of section 50B(2) provides that the net worth of the undertaking will be deemed to be the cost of acquisition and the cost of improvement for the purposes of Section 48 & 49 and further no record was to be given to the previous contended in the 2nd proviso to Section 48. The Assessing Officer has not taken the aggregate value of total assets as per Explanation-2(2) Section-50....
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....s part of slump sale. The plea of the appellant is accepted. The appellant has filed the said calculation which is attached as Annexure-A of this order. The Assessing Officer is directed to allow the depreciation on the assets in the depreciation chart without reducing the value of the sold assets considered as part of slump sale The Assessing Officer will verify this figures and the appellant is directed to produce the relevant records before the Assessing Officer to get it verified. The Assessing Officer on verification, if find any discrepancy will pass a detailed speaking order giving reasons for the same. 44. The appellant has filed as an alternative plea that the sale price and aggregate value of assets as per Explanation-2 to Section 50B determining the long term capital gain on the various assets which is attached as Annexure-A of this order. The Assessing Officer will verify the figures and the appellant is directed to produce the various details. The appellant on being asked has determine the value by taking capital assets in proportion of value for less than 36 months and the balance as discussed under Para 42 of this order. The Assessing Officer on verification of th....
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....REED BY AND BETWEEN THE PARTIES HERETO AS FOLLOWS:- HEIL will sell the property to the Promoters and/or their nominee the said Private Limited Company at and for the total consideration of Rs. 41,98, 00, 000/- (Rupees forty one crores ninety eight lacs only). Land & Building (including railway siding) Plant and Machinery Rs.10,00,00,000/- (Rupees ten crores only) Stores & Spares Rs.25,75,00,000/- (Rupees twenty five crores seventy five lakhs only) Raw Petroleum Coke approximately 5473 MT @ Rs. 9684/- per MT Rs. 93,00,000/- (Rupees ninety three lacs only) Rs. 5,30,00,000/- (Rupees five crores thirty lacs only) The assessee was asked to produce the list of assets which constituted the plant & machinery which have been stated to have been sold and the details given by the assessee are as under: Particulars Railway Siding Machinery Electric Installation Water & Sanitation System Tools & Equipments Furniture & Fixtures Motor Cars & Vehicles We find from the agreement, which provided that purchaser will bear and pay all expenses for running of the said chemical unit from the date of sale but all liabilities incurred by him to the said date ....
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....ur attention to Explanation - I to clause 2(19AA), which is also reproduced hereunder: " Explanation 1 - For the purposes of this clause, "undertaking" shall include 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 assessee explained that it owning different units/undertakings for Manufacturing and Selling of Chemicals, Casting Steel, Wires, Wagons, Points & Crossings, Jute, Petrochemicals etc. During previous year relevant to A.Y 2009-10, assessee entered into a Memorandum dated 25.10.2007 followed by Addendum to the Memorandum dt.26.1 0.2007 with M/s M/s Khatau Narbheram & Company (a unit of Narbheram Vishram), a Partnership Firm to sale some of the assets of this unit as under at a predetermined sale price as under to them or their nominee for selling some of the assets belonging to petrochemicals unit at Haldia. The assesse agreed to sell only some of the assets of this unit and for which prices of each individual assets were determined and fixed at an predetermined and agreed value and in ....
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....s through a common agreement with different amounts of consideration ultimately culminating into a total consideration. This was not a "slump sale" under sec. 50B of the Act. The profits arising on sale of agricultural land was agricultural income in nature and, therefore, the surplus did not fall within the meaning of capital assets and it would not come under the provisions of sec. 50B of the Act. " Further, Hon'ble Supreme Court in the case of CIT v, Artex Manufacturing Co. (1997) 227 ITR 260 in which though the issue involved was regarding determination of income u/s. 41(2) of the Act but the sale in this case was of the entire business as a going concern for a lump sum but where sale prices of plant & machinery and dead stock had been predetermined and hence it was held not to be slump sale and hence principles enunciated in this case will apply in the case assessee. Further, Hon'ble Calcutta High Court in the case of Kwality Ice Cream (India) Ltd. v. CIT (2011) 336 ITR 100 in which also though the sale of the undertaking was for a lump sum consideration it was held that sec. 50 of the Act in respect of depreciable assets will override all other previsions and for d....
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....bove from Doughty's case** that the vendor's business was a business of purely buying and selling land. In our opinion, on the facts of this case it cannot be said that the vendors were carrying on the business of purely buying and selling land. In this case the vendors were engaged in buying land, developing it and then selling it. The agreement itself shows that the vendors had already incurred debts and liabilities for development expenses such as opening out roads, laying out drains and sanitary arrangements, providing electricity and providing for a school. It seems to us that in the case of a concern carrying on the business of buying land, developing it and then selling it, it is easy to distinguish a realisation sale from an ordinary sale, and it is very difficult to attribute part of the slump price to the cost of land sold in the realisation sale. The mere fact that in the schedule the price of land is stated does not lead to the conclusion that part of the slump price is necessarily attributable to the land sold. There is no evidence that any attempt was made to evaluate the land on the date of sale. As the vendors were transferring the concern to a company, c....
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....the paper-book was Rs. 210 crores and not Rs. 37.84 crores (approx.) as the value of the net current asset did not give rise to any profits and, therefore, that value had to be ignored. These accounts of PAL support the slump sale agreement because the accounts are not based on the sale of itemized assets. This aspect has been lost sight of by the Assessing Officer. There was a separate ledger for the Kalyan business which contains various heads of accounts, viz., building account, land account, plant and machinery account, in which debit/credit entries were made as per the figures given on page 341 of the paper-book. Rs. 81.31 crores was the book surplus and not a tax surplus. In order to decide the tax surplus, one has to take into account cost of acquisition of building, plant and machinery, paint shop, etc. Therefore, Rs. 81.31 crores did not represent taxable profits. That, figure represented only book profits. These accounts of PAL support the slump sale agreement. Therefore they are relevant. Under section 2(14), capital asset is defined to mean property of any kind held by an assessee whether connected or not connected with his business or profession. In the case of West....
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.... machinery. For example, the sale price attributed to plant and machinery has been taken at Rs. 97.73 crores. Similarly, the sale price for building is fixed at Rs. 23.24 crores. Similarly, the sale price for paint shop is taken at Rs. 68 crores. Basically, the Assessing Officer has apportioned Rs. 210 crores over land, building, plant and machinery. However, he has not given any sale value to intellectual property, the right to use the name "Premier", technical proprietary information and intangibles like licences, quotas, permits, etc., all of which have been transferred to PPL and consequently the liability of PAL stood increased arbitrarily. Moreover, there is arbitrariness in the assignment of sale value by the Assessing Officer. For instance, the Assessing Officer has assigned sale values to buildings, plant and machinery on the basis of the report of the valuer of September, 1996. However, when it came to assignment of the sale value to the paint shop, the Assessing Officer, arbitrarily, without reasons, has reduced the value of the paint shop from Rs. 70 crores to Rs. 68 crores although the paint shop is valued at Rs. 70 crores in the said report. The reason is obvious. If ....
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....k out the cost of each item. We are dealing with the case concerning the assessment year 1995-96. At that time, there was no definition of slump sale. The concept of slump sale is based on judge-made law. Under the circumstances, even if we were to accept the contention of the Department, namely, that there was a sale of itemized assets, the computation of capital gains tax liability in this case is erroneous as Rs. 210 crores is not apportioned over all the transferred assets." 16. Similarly, the coordinate Bench of this Tribunal exactly on identical facts in the case of Harrisons Malayalam Ltd. Vs. ACIT (2009) 32 SOT 497 (Cochin) discussing the fact that the assessee company was engaged in various business activities like growing and manufacturing tea, rubber plantation, agriculture operation, executing engineering contracts etc. During the relevant year the assessee sold one of its rubber estates with standing trees and all other paraphernalia known as 'Boycee Estate' as a going concern. The CIT(A) held that the surplus arising out of the sale of its 'Boycee Estate' was taxable as capital gain u/s. 50B of the Act read with section 2(42C) of the Act, as the rub....
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....nt. The Commissioner of Income-tax (Appeals) has pointed out that the workers on the rolls of the assessee have also been absorbed by the buyers along with the estate. That does not change the character of the transaction. Rubber plantation is a highly labour oriented activity. It is not easy to retrench all the experienced workers only for the reason that the property has been changed hands. Retrenchment of the workers will create serious labour problems and it will not be possible either for the assessee or for the buyer to dose the contract without having a clear cut understanding on the engagement of labour deployed in the rubber estate. Therefore, the agreement with the buyer that the new owners would absorb the existing labour force is not a salient feature to decide whether the sale was a slump sale or not. 37. The meaning of the expression "going concern" has to be understood in the light of the peculiar nature of the property transferred in the present case. What is transferred in the present case is a rubber estate. The activities in a rubber plantation/estate is a continuous and uninterrupted one and that tapping operations have to be carried out on a regular ba....
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....it sale vis-a-vis slump sale. In that case, the Tribunal observed that the liabilities did not enter into a transaction in question and what was sold were the assets, movables and immovables and not the liabilities. The agreement made it clear that the liabilities would be the responsibility of the vendor. The Tribunal held that it was not a slump sale for the reason that only the assets excluding the investment and deposits were sold and the liabilities remained with the assessee. 42. In the present case before us, the answers are exactly to the facts and circumstances of the case decided by the Bangalore Tribunal as mentioned above. As in the case of Kampli Co-operative Sugar Factory Ltd, v. Joint CIT [2002] 83 ITD 460 in the present case also, the items sold did not include liabilities. The sale agreement did not include investments and deposits. All the investments, deposits, receivables, stock and such other current assets in the form of financial and other assets remained with the assessee-company along with the liabilities. Only those assets enumerated in the schedules and annexure were sold to the vendee. Therefore, in the light of the above judgment of the Bangalo....
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....ferent Benches of the Tribunal as stated in the above paragraphs, we hold that this is not a "slump sale" answerable to section 50B of the Act. 47. Moreover, in the light of the decisions: (a) Manubhai A. Sheth's case (supra); (b) S. Mutyam Reddy's case (supra); (c) Alanickal Co. Ltd.'s case (supra); (d) All India Tea and Trading Co. Ltd.'s case (supra) and; (e) Singhai Rakesh Kumar's case (supra) The profits arising on sale of agricultural land is agricultural income in nature and therefore, the surplus does not come within the meaning of capital assets and by the nature of the income, it will not come under the provisions of section 50B, Therefore, in the facts and circumstances of the case, we hold that the Commissioner of Income-tax (Appeals) has erred in directing the Assessing Officer to levy long-term capital gains under section 50B on the surplus arising to the assessee on sale of its "Boyce Estate". The said direction is set aside. This issue is decided in favour of the assessee." 17. In view of the above facts and circumstances of the case, we find that Section 50B of the Act provides th....