TaxTMI 
TaxTMI 
2017 (2) TMI 912
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....ld not be ignored while working out the capital gains in cases involving slump sale u/s 50B of the Income Tax Act, 1961 (hereinafter the Act). This factual matrix was not controverted by Shri Nitesh Joshi, ld. counsel for the assessee. 2.1. We have considered the rival submissions and perused the material available on record. In view of the above, we are reproducing hereunder the relevant portion from the aforesaid order of the Special Bench for ready reference and analysis:- "This appeal by the Revenue arises out of the order passed by the Commissioner of Income-tax (Appeals) on 05.06.2009 in relation to the assessment year 2006-2007. The following two effective grounds have been raised in this appeal:- "1. On The facts and in the circumstances of the case and in law, the learned CIT(A) erred in computing the sales consideration at Rs. 143 crore as against the same being computed at Rs. 300 crore by the A.O. on account of transfer of assessee's power transmission business without appreciating the facts of the case. 2. Whether on the facts and circumstances of the case, the CIT(A) was justified to hold that the negative figure of net worth has to be ignored ....
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....rnational Limited (formerly KEC Infrastructure Limited), Bespoke Finvest Limited (subsidiary of the company), KEC Holdings Limited and the respective shareholders u/s 391 of the Companies Act, 1956 was approved by the Hon'ble High Court of Judicature at Mumbai on 27.09.2005. The composite Scheme was for sale of "Investments" by the assessee-company to KEC Holdings Limited and sale of the "Power Transmission Business" (hereinafter called "PTB") to KEC Infrastructure Limited (later on came to be known as KEC International Limited) and the merger of Bespoke Finvest Limited with KEC Holdings Limited. The Scheme was presented to the Hon'ble Bombay High Court on 28.06.2005 and it was approved on 27.09.2005 with effect from the closure of the business hours on 31.3.2005 or say with effect from 01.04.2005. Pursuant to the Scheme, the whole of the undertaking and properties including all the movable and immovable assets and all debts and liabilities of every kind of PTB were transferred to KEC International Limited for a total consideration of Rs. 143.00 crore. The assessee claimed this transaction as a slump sale u/s 50B of the Incometax Act, 1961 (hereinafter called "the Act") and audit r....
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....the `Net worth' as defined u/s 50B cannot be a negative figure and in case it is so, that is, where the liabilities are more than the value of assets as computed u/s 50B, then for the purposes of computing capital gain u/s 48, the net worth would be considered as Nil. In taking this view, he relied on Zuari Industries Ltd. Vs. ACIT [(2007) 105 ITD 569 (Mum.)] and Paper Base Co. Ltd. Vs. CIT [2008) 19 SOT 163 (Del)]. He thus overturned the assessment order on this score by holding that it was not permissible to compute sale consideration of Rs. 300 crore as against the actual sale consideration of Rs. 143 crore. As can be noticed from the two effective grounds reproduced above, the Revenue's objection is two-fold. First, that the sale consideration ought to have been computed at Rs. 300 crore and second, which appears to be alternative, that the negative figure of net worth should not have been ignored. 6. The entire gamut of the controversy can be summed up as follows :- In the present case the sale consideration of the PTB is Rs. 143 crore and there is negative `net worth' of Rs. 157 crore as per section 50B, that is, the value of liabilities (Rs. 1517 crore) as per the books o....
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....tion for capital gains in general cases. Sub-section (1) of section 45 provides that any profits or gains arising from the transfer of a capital asset effected in the previous year shall, save as otherwise provided in certain sections allowing exemptions, be chargeable to income-tax under the head "Capital gains", and shall be deemed to be the income of the previous year in which the transfer took place. The mode of computation of the income chargeable under this head has been prescribed in section 48. This section provides that the income chargeable under the head `Capital gains' shall be computed by deducting from full value of consideration received or accruing as a result of a transfer of the capital assets, the following amounts, namely, (i) expenditure incurred wholly and exclusively in connection with such transfer; and (ii) the cost of acquisition of the asset and the cost of any improvement thereto. 9. Charge u/s 45 is attracted only if the asset transferred falls with in the definition of `Capital assets' as per section 2(14). Such capital assets in case of a business enterprise can be ordinarily classified into four broad categories, viz., (i) Depreciable ass....
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....lant and machinery was purchased for Rs. 5 and at the time of its transfer, its w.d.v. is Rs. 3 and it is transferred for a sum of Rs. 5, then the amount of capital gain shall be Rs. 2 (Full value of consideration received at Rs. 5 - w.d.v. of Rs. 3) (ii) Non-depreciable tangible assets In contrast to the depreciable assets, where an assessee transfers nondepreciable capital assets, the capital gain is computed by deducting its cost of acquisition and cost of improvement from the full value of consideration received or accruing as a result of transfer. It is so for the reason that any increase in the value of asset when so realized vis-à-vis the cost at which such asset was acquired should be brought to tax as income chargeable under the head `Capital gains'. Here it is relevant to note that section 48 provides that where long term capital gain arises from the transfer of a long term capital asset, other than those specifically excluded, the cost of acquisition of the asset and the cost of any improvement thereto shall be substituted with the indexed cost of acquisition and the indexed cost of any improvement. Further Explanation to section 48 defines the meaning of `i....
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....s is the full value of consideration itself. To illustrate if self created Goodwill or Trade mark of Brand name is transferred for a sum of Rs. 20, then the amount of capital gain shall be Rs. 20 (Full value of consideration received at Rs. 20 - Cost of acquisition and cost of improvement of Rs. 0). (iv) Other assets A business enterprise, apart from the above three types of capital assets, may also hold other assets such as cash in hand, stock, bank balance and debtors etc. The realizable or market value of such assets as on a particular date is usually equal to the book value or insignificantly different. Suppose the book value of such assets is Rs. 2, its market value will also be in the close vicinity of Rs. 2 and the sale price of such assets at any point of time shall be at Rs. 2. There can be no income or loss from the transfer of such assets as the their realizable value is usually equal to the book value. It is notwithstanding the fact that stock is not a capital asset as per section 2(14) of the Act. In other words, the amount of capital gain will be Rs. 0 (Full value of consideration received at Rs. 2 - Cost of acquisition and cost of improvement of Rs. 2) 10. F....
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....t is observed that the transferee buyer has assigned value of Rs. 240 crore to Brand and Rs. 4 crore to the Goodwill in its books of account. Not only such value has been assigned to these intangible assets, but the transferee also claimed deprecation on such assets, which has been eventually allowed by the tribunal. Copy of the tribunal order passed in the case of transferee has been placed on record. In case of sale of all the assets of the undertaking- tangible or intangible, movable or immovable, those recorded or unrecorded in the books - as one unit, a lump sum amount of consideration is determined without reference to any specific assets. Despite the fact that no reference is made to the value of individual assets in case of full value of consideration of all the assets taken together, but it is in fact the current value of all such assets that is taken into consideration by both the sides to arrive at a composite value. In such a case, the computation of capital gain poses difficulty because full value of consideration cannot be attributed to distinct assets and for computing capital gain not only the full value of consideration but also the cost of acquisition and cost of ....
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....cer held that since the assessee had submitted its own computation of the fair market value of the undertaking as on 01.01.1954, the only question which was required to be considered was the correctness of the figure of capital loss submitted by the assessee. The AAC held that it was not feasible to allocate the full value of consideration received amounting to Rs. 10.20 crore between various assets of the undertaking and consequently it was not possible to determine the cost of acquisition and cost of improvement under the provisions of section 48 of the Income-tax Act, 1961. In this view of the matter it was laid down that the provisions of section 45 would not be attracted. When the matter finally reached the Hon'ble Supreme court, it came to be held that no capital gains could be charged to tax u/s 45 as the compensation received by the assessee on nationalization of its banking undertaking which included intangible assets tenancy rights etc. was not allocable item-wise. In para no.5 of this judgment, the Hon'ble Supreme Court noted that by an amendment to section 50B inserted by the Finance Act, 1999 with effect from 1st April, 2000, the cost of acquisition is now notionally f....
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.... transfer of long-term capital assets and shall be deemed to be the income of the previous year in which the transfer took place : Provided that any profits or gains arising from the transfer under the slump sale of any capital asset being one or more undertakings owned and held by an assessee for not more than thirty-six months immediately preceding the date of its transfer shall be deemed to be the capital gains arising from the transfer of short-term capital assets. (2) In relation to capital assets being an undertaking or division transferred by way of such sale, the "net worth" of the undertaking or the division, as the case may be, shall be deemed to be the cost of acquisition and the cost of improvement for the purposes of sections 48 and 49 and no regard shall be given to the provisions contained in the second proviso to section 48. (3) Every assessee, in the case of slump sale, shall furnish in the prescribed form along with the return of income, a report of an accountant as defined in the Explanation below sub-section (2) of section 288 indicating the computation of the net worth of the undertaking or division, as the case may be, and certifying that the....
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....dertaking. (b) Where an industrial undertaking is transferred under slump sale which was owned and held by the assessee for not more than 36 months immediately preceding the date of its transfer, the profit or gains arising from such transfer is deemed to be capital gain arising from the transfer of short term capital assets. The relevant criteria for considering whether the undertaking is a short term or long term is the period of owning and holding the undertaking as a whole and not individual assets of such undertaking. Suppose the undertaking was set up four years ago and some of the assets were purchased and held for a period of not more than 36 months, it is the entire undertaking which will be treated as long term capital asset for the purposes of computing capital gain on its transfer. The period of holding of separate assets of the undertaking has been delinked for computing capital gain on the transfer of undertaking. In such a case even if some assets of the undertaking were purchased a day before its transfer, they will also form part of the undertaking as a long term capital asset. So long as the undertaking is owned and held by the assessee for a period of mo....
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....n the figure as determined as per second step is reduced from the figure as per the first step, it gives us the amount of `net worth' or in other words the cost of acquisition and cost of improvement of the undertaking. In other words, net worth of an undertaking under transfer is nothing but the cost of acquisition and cost of improvement of `All assets minus All liabilities of the undertaking'. (d) It has been clarified by Explanation 2 to section 2(42C) that the determination of the value of 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. Value of an asset for the purposes of payment of stamp duty etc. ordinarily indicates its market value. By making such value of asset for the purposes of payment of stamp duty etc. as alien to the value of assets or liabilities, the concept of market value of the specific assets and liabilities of the undertaking or division has been made redundant insofar as the computation of capital gain is concerned. (e) Sub-section (2) of section 50B makes it abundantly clear that the undert....
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....for the computation of capital gain in the case of slump sale of the undertaking on one hand and on the transfer of individual assets, whether depreciable or otherwise, we find that the basic intent is same and that is to charge tax on the transfer of capital assets. Only different modes have been provided to make such computation of capital gain workable. It can be noticed that the amount of profit or gain chargeable under the head `Capital gains' from individual assets represents the excess of amount received or accruing, normally representing their market value, over the book value or depreciated value of such assets, as the case may be. So if all the assets of the undertaking are separately transferred, the amount of capital gain will be equal to the Agreed/Market value of the all assets taken separately minus the w.d.v/book value of all the assets taken separately. Here it is paramount to note that the Act permits computation of capital gain on the transfer of capital assets and not on any liabilities. It is so for the reason that unlike the value of assets that undergoes change at a given time over the purchase price, the current value of liabilities at a given time is equal ....
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.... the undertaking in the shape of a slump sale, then the consideration to be received will be net, that is agreed/market value of all the assets as reduced by the amount of liabilities to be discharged. And when we compute capital gain on the transfer of undertaking, the book value/w.d.v. of all the assets of the undertaking as reduced by the amount of liabilities appearing the balance sheet shall be reduced from the full value of consideration representing net value of agreed/market price of the assets over its liabilities. The result in both the cases will remain same, that is, it is in fact the computation of capital gain on the transfer of positive capital assets as one unit which are embedded in the undertaking. The illustrations taken above can be summarized in a tabular form as under :- Table A - Position as on the date of slump date Sl. No. Particulars Book value Market value Agreed value 1. WDV of depreciable assets as per Balance Sheet 3 2 Non-depreciable tangible assets as per Balance Sheet 5 108 105 3 Non-depreciable intangible assets 0 4 Other assets 0 2 &nbs....
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....nsideration towards the transfer of all the assets of the undertaking as one unit, whether recorded or unrecorded in the books of account, is inherent in the full value of consideration of the undertaking though not distinctly specified. If we increase the book value of liabilities to the total sale consideration of the undertaking as a whole, what comes is the agreed value of all the assets of the undertaking as one unit. In other words, the full value of the consideration of the undertaking is the aggregate value of `All assets minus All liabilities' of the undertaking. It has to be so because the capital asset itself is nothing but `All assets minus All liabilities' of the undertaking. To match with the capital asset and the full value of consideration, the cost of acquisition and cost of improvement can not be any thing but the Book value/w.d.v of `All assets minus All liabilities' of the undertaking. This is what section 50B specifically provides that the cost of acquisition and cost of improvement of the undertaking, being the `net worth' is `the aggregate value of total assets of the undertaking or division as reduced by the value of liabilities of such undertaking or divisi....
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.... out to him that the Special Bench has been constituted not only to answer the question posted but also to dispose the entire appeal of the Revenue, which is against the computation of capital gain by the CIT(A) at Rs. 143 crore instead of Rs. 300 crore determined by the A.O., he advanced his arguments supporting the impugned order to the extent of adopting zero as cost of acquisition and cost of improvement of the asset instead of negative figure of net worth. 15.4 The learned A.R. was hesitant in conceding that the question of adopting zero in place of the negative worth for the purposes of computing capital gain may also be looked into by this special bench. It is manifest that notwithstanding the fact that the question posted for consideration before the special bench is confined to the determination of full value of consideration, but the subject matter of the appeal before us is the computation of capital gain. This special bench has not only to answer the specific question but also dispose the entire appeal. Obviously there can be no fetters on the power of the Tribunal to consider the point of negative net worth also as the ultimate question for determination before us i....
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....pe of enquiry before the Tribunal can be wider than the points which are raised before the Tribunal. The Tribunal, therefore, would ordinarily have the power to allow additional points to be raised before it so long as they arise from the subject matter of proceedings and not necessarily only the subject matter raised in the memorandum of appeal. In the present case it is not as if the ld. DR has taken leave to argue any additional ground. Ground no.2 of the Revenue's appeal specifically challenges the finding of the ld. CIT(A) to the extent of directing that the negative figure of net worth be ignored. Further it is worth noting that no fresh investigation of facts is required in deciding this question. In view of the above discussion we are of the considered opinion that it is not only within the power of the tribunal but also our duty to determine the point as to whether the figure of negative net worth should be taken as zero or in negative, which has a direct bearing on the overall question of computation of capital gain in case of slump sale, which is subject matter of appeal before us. FULL VALUE OF CONSIDERATION RECEIVED OR ACCRUING 16.1 Having noted supra the unique ....
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....lding or both shall lose its significance for the purposes of computing capital gain u/s 48. The stamp value shall be substituted with the actual amount received or accruing to the assessee which shall constitute full value of consideration received or accruing for the purposes of section 48. It is pertinent to note that section 50C is not applicable to all the capital assets but only to a capital asset which is land or building or both. Explanation 2 to section 2(42C) defining `slump sale' has made it clear that the determination of the value of asset or liability for the purposes of payment of stamp duty etc. shall not be regarded as assignment of values to the individual assets or liabilities. It is, therefore, manifest that even if the assets of the undertaking, which is subject matter of transfer, include land or building or both, the stamp value shall be ignored insofar as the computation of full value of consideration of the undertaking as a whole is concerned. 16.2 It is pertinent to note that the expression `fair market value' of a capital asset has been used in different provisions under the head `Capital gains' for denoting in certain cases as the `full value of consi....
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....eferred to in section 17(2)(vi), the `cost of acquisition' of such security or shares shall be the `fair market value' which has been taken into account for the purpose of the said sub-clause. Section 55(2)(b) provides in relation to any other capital asset which became the property of the assessee before 01.04.1981, the `cost of acquisition' shall mean the cost of acquisition of the asset or the `fair market value' of the asset as on 1st April, 1981, at the option of the assessee. Similarly section 55(3) provides that where the cost for which the previous owner acquired the property cannot be ascertained, the `cost of acquisition' to the previous owner means the `fair market value' on the date on which the capital asset became the property of the previous owner. 16.4. Thus it can be noticed that the concept of "fair market value" in relation to a capital asset, as defined in section 2(22B), has been used interchangeably in certain sections of this Chapter to represent the `cost of acquisition' while in others as the `full value of consideration received or accruing'. The principle which thus follows is that the full value of consideration for the purposes of section 48 has to b....
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....urposes of this Chapter, the Assessing Officer may refer the valuation of capital asset to a Valuation Officer if, inter alia, he is of the opinion that the fair market value of the asset exceeds the value of the asset as claimed by the assessee by more than such percentage of the value of the asset as so claimed or by more than such amount as may be prescribed in this behalf. It is well known that the process of determining the fair market value of an asset requires specific knowledge, qualification and skill, which cannot be decided by a person who is not so equipped. That is why the legislature has left the matter of determining the fair market value of a capital asset to a Valuation Officer. It is further relevant to note that in determining such fair market value, the Valuation Officer also obeys the mandate of relevant provisions of the Wealth-tax Act as have been referred to in section 55A itself. This indicates that the Assessing Officer cannot suo moto determine the fair market value of a capital asset. Coming back to the facts of the instant case it is observed that the A.O. had not made any reference to the Valuation Officer for determining the so called fair market valu....
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....rtaking as one unit. From the above Table A it can be seen that the total assets of the undertaking having book value of Rs. 10 have the market value of Rs. 108 but due to mutual negotiations, such price has been agreed at Rs. 105 and further the book value as well as the market value of liabilities as on the date of sale of undertaking is consistent at Rs. 5. That is how the agreed value of the undertaking (All assets minus All liabilities) is Rs. 100 (Rs. 105 for Assets minus Rs. 5 for Liabilities). 16.9. The contention of the ld. DR was that since the liabilities have been taken over by the transferee then it would mean that the full value of consideration of the undertaking be taken as the amount actually received plus the liabilities which will be discharged by him. We do not find any merit in such contention. The full value of consideration of the undertaking in Table A at Rs. 100 indicates its two inbuilt components, that is, the value of all assets (Rs. 105) and all liabilities (Rs. 5), which have submerged into this value of consideration of the undertaking. It is wholly improper to argue that since the transferee after paying Rs. 100 will also discharge liabilities of ....
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....ndertaking. If we add the negative net worth of Rs. 157 crore to the full value of `All assets minus All liabilities' at Rs. 143 crore, the components of the undertaking as capital asset will become incompatible with those of the full value of consideration of such undertaking. In that case the full value of consideration will show the figure of that of the undertaking plus part of such figure once again. As the figure of Rs. 143 crore has been reached by considering not only the value of all the assets but also all the liabilities of the undertaking, a part of such liabilities representing negative net worth cannot be again added to the sale consideration. In the case of George Henderson & Co. Ltd. (supra) it has been categorically held that "the consideration for the transfer of a capital asset is what the transferor receives in lieu of the asset he parts with, viz. money or money's worth ........". It follows that the expression "full value of consideration" in section 48 cannot be construed as anything other than the full value of the thing received by the transferor as a consideration for transfer of undertaking. This case is thus of no help to the Revenue. Similar is the posi....
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....vable property having full value of consideration at Rs. 5.62 lakh. Out of such sale price realized, the State discharged the liability due by the assessee to it and paid over the remaining amount to the assessee. Since the full value of consideration was the amount of sale consideration at Rs. 5.62 lakh of the immovable property, it was held that the entire amount was to be considered as full value of consideration for the purpose of computing capital gain. In the instant case the capital asset transferred is the undertaking which comprises not only its positive assets but the liabilities as well. The assessee realized a sum of Rs. 143 crore as full value of consideration of the undertaking as a whole. This amount of Rs. 143 crore represents excess of the agreed/market value of all the assets of the undertaking as reduced by the liabilities undertaken to be discharged. In other words, the value of total liabilities including Rs. 157 crore is already included in Rs. 143 crore. The situation would have been different if the transferee company paying Rs. 143 crore to the assessee had also undertaken to discharge certain other liabilities of the assessee unrelated with the undertaking....
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.... on the due consideration of all the aspects of the Scheme including the sale consideration for the transfer of PTB, the Hon'ble High Court got satisfied with it. Once the sale consideration has been approved by the Hon'ble High court, it is wholly unrealistic on the part of the Revenue to contend that the consideration of Rs. 143 crore does not represent the full value of consideration of the undertaking. As such, we are not inclined to find any assistance to the Revenue's case from the judgment of the Hon'ble Gujarat High Court in so far as the question of the adequacy of the sale consideration is concerned. 16.13. In the light of the above discussion it is held that the full value of consideration of the undertaking for the purposes of computing the capital gain u/s 48 should be taken at Rs. 143 crore and not Rs. 300 crore. The Departmental contention in this regard is jettisoned. NET WORTH 17.1 The `net worth' of the undertaking has been determined by the assessee's auditor u/s 50B(2) as under :- Free hold Land 4,85,107 Leasehold Land 15,37,83,274 Depreciable assets at w.d.v. 35,43,13,503 CWIP at book value 15,21,72,070 Current assets at book....
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....ital gain on the transfer of undertaking, what we actually compute is the capital gain on the transfer of all the assets of the undertaking as one unit. The full value of consideration is settled as a lump sum figure of the undertaking as a whole comprising of all the assets minus all the liabilities. To attain the ultimate end of computing capital gain on the transfer of assets which are embedded in the undertaking, the process of calculating net worth of the undertaking is taken up so as to match it with the full value of consideration which is settled at a lump sum figure for all the assets minus all liabilities of the undertaking. When we reduce the full value of the consideration from the net worth of the undertaking, what we in fact get is the capital gain on the transfer of bundle of assets of the undertaking by impliedly negating the effect of the value of liabilities from both the full value of consideration and the cost of acquisition at the same figure because the book value and current value of liabilities remains the same as discussed in para 14.4 above. 17.5 Section 50B stipulates that the net worth of an undertaking is equal to the aggregate value of total assets ....
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.... of assets but all the liabilities in the amount of net worth. It has to be of all the assets and all the liabilities. If we consider agreed value for all the assets but reduce book value of only some of the assets or we consider full value of all the bundle of assets but cost of acquisition at more than book value of such assets, the computation will give absurd results. Similarly we cannot ignore part of the liabilities from the net worth because the full value of consideration is determined by considering the effect of all the liabilities. If only a part of the liabilities are included in the net worth, the computation of capital gain will be incorrect as the full value of consideration has been determined by reducing the value of all the liabilities. Thus it is evident that for the purposes of working out the amount of capital gain u/s 45, the computation u/s 48 can be correctly done only by keeping intact all the assets and all the liabilities of the undertaking in full value of consideration and also net worth. 17.7 The figure from Table A will demonstrate the calculation of capital gain as under : - Capital gain on transfer of `Undertaking' (All assets minus All liabiliti....
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....the full value of consideration also needs to be determined in the same manner of (All assets minus All liabilities). In the like manner net worth of the undertaking i.e. the cost of acquisition and cost of improvement also needs to be worked out of (All assets minus All liabilities). When we take the figures from Table B, the position which emerges is that the full value of consideration of the undertaking comes to Rs. 90 as against the net worth at a figure of Rs. (-)5. Whereas the case of the assessee is that negative net worth of Rs. (-)5 be ignored and capital gain be worked out at Rs. 90, the Revenue is contending that the net worth of Rs. (-)5 should be taken at a negative figure so that the capital gain on the transfer of undertaking comes to Rs. 95 [Rs. 90 +5 {-(-5)}]. When we consider Tables A & B above it can be easily noticed that though the agreed value of all the assets of the undertaking as on the date of transfer is Rs. 105, but the full value of consideration of the undertaking in Table A has come to Rs. 100 because of the value of liabilities at Rs. 5 and in Table B it has come to Rs. 90 because of the value of liabilities at Rs. 15. The value of assets being equa....
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....n transfer of `Undertaking' (All assets minus All liabilities) is Rs. 95 (Rs. 95 minus Rs. 0), that is Full value of consideration received or accruing (All assets minus All liabilities) as a result of the transfer of the undertaking Rs. 90 (Rs. 105 minus Rs. 15) - `Net worth' or in other words the cost of acquisition and cost of improvement (All assets minus All liabilities) of the undertaking Rs. - 5 (Rs. 10 minus Rs. 15) 17.10 Now we will take up various arguments put forth by the learned A.R. in support of his case that the figure of negative net worth be ignored and taken at nil value for the purpose of computing capital gain. The following broad submissions have been made in this regard which we will take up one by one for consideration. (i) Cost of acquisition cannot be in negative. 17.11.1 The ld. AR argued that since the net worth of the undertaking represents cost of acquisition and cost of improvement of the undertaking, such cost can never be in negative. In other words it cannot be contemplated that a person purchases an asset without paying anything but rather taking something more from the seller. He contended that the Act has not ascribed any meaning to ....
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....eme Court in the case of CGT v. N.S.Getti Chettiar [(1971) 82 ITR 599 (SC)] noted that the dictionary gives various meanings to the words but those meanings do not help. It has been specifically observed : "We have to understand the meaning of those words in the context in which they are used. Words in the section of a statue are not to be interpreted by having those words in one hand and the dictionary in the order. In spelling out the meaning of the words in a section, one must take into consideration the setting in which those terms are used and the purpose that they are intended to serve." In the case of CIT v. Anand Theaters etc. [(2000) 244 ITR 192 (SC)] it has been held by Their Lordships that dictionary meaning of a word should not be adopted where the context conveys a different meaning. It has been laid down : "In our opinion dictionary meanings, however helpful in understanding the general sense of the words, cannot control where the scheme of the statute or the instrument considered as a whole clearly conveys a somewhat different shade of meaning. It is not always a safe way to construe a statute or a contract by dividing it by a process of etymological diss....
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.... AR argued in that view of the matter this logic should have then been extended to the entire liabilities of the undertaking worth Rs. 1517 crore undertaken by the transferee and not only the negative net worth of Rs. 157 crore which is a fraction of total liabilities. 17.12.2 This contention of the learned AR defies the very rationale behind the computation of capital gain in case of slump sale. It has been noticed above that the value of assets fluctuates over the period vis-à-vis their book value/w.d.v. but the amount of liabilities appearing in the balance sheet as on a particular date normally coincides with the current value of such liabilities on a given date. In that view of the matter the figure of net worth is the result of consideration of current value of liabilities which also happens to be their book value vis-à-vis the only written down value / book value of the assets. If the amount of all liabilities is added to the full value of consideration of the undertaking, it will mean that current/book value of liabilities to the extent it equalizes book value/w.d.v. of the assets has been considered twice in the computation of capital gain on the sale of u....
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.... be reduced to zero. 17.13.2 This contention is again devoid of merits. The reason is obvious for using the words "deducting from" in section 48 and not "deducting from or adding to" to the full value of consideration received or accruing as a result of transfer of the capital asset. When we talk of "deducting" net worth from the full value of consideration for computing capital gain u/s 48, it automatically implies that whatever way the net worth be, that is positive or negative, it will be taken care of accordingly. If the net worth is positive, "deducting from" the full value of consideration shall mean that the positive figure as supplied by section 50B in absolute terms shall be deducted. However, if it is negative then deducting a negative figure will ultimately mean adding to the full value of consideration for determining the income chargeable under the head "Capital gains". If the legislature had used the expression "deducting from or adding to", as contended by the ld. AR, in between the `full value of consideration' and `net worth', then the ridiculous results would have followed. Talking of the net worth in negative and considering it in juxtaposition to "adding to" ....
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.... the total full value of consideration of the undertaking, though not separately indicated, will be depressed accordingly. In case the book value of all the liabilities is more than the book value/w.d.v. of all the assets, it is quite natural that the capital gain on the transfer of undertaking will be more than the full value of consideration because of the reason that the value of liabilities undertaken by the transferee stands embedded in and has the effect of reducing the full value of consideration accordingly. As such we are not inclined to accept this contention raised on behalf of the assessee. (v) The words `as reduced by' pre-suppose that preceding figure is higher than the succeeding 17.15.1 The ld. AR contended that Explanation 1 to section 50B provides that the net worth `shall be the aggregate value of total assets of the undertaking or division as reduced by the value of liabilities of such undertaking as appearing in the books of account'. He emphasized on dictionary meaning of the word "reduced" as referring to "diminish in size, amount, extent or number : make smaller". As the word `reduce' refers "to bring down", the learned AR contended that "the value of ....
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.... at the very outset. The further argument that if the value of liabilities is more than the aggregate value of total assets then the "net worth" should be restricted to zero, runs contrary to the main argument that the words `as reduced by' can never mean that the value of liabilities will be more than the aggregate value of the assets. 17.15.3 Insofar as the reliance of the learned AR on clause 315 of the Direct Tax Code Bill, 2010 is concerned, we find that the same does not advance his case any further. The said clause reads as under:- "315. In this Code, unless otherwise stated, - (a) a reference to any income, or to the result of any computation, shall be construed as a reference to both the negative and positive variation of the income or the result, as the case may be; (b) any direction for aggregation of two or more items, which are expressed as amounts, shall be construed also to include a direction for aggregation of negative and positive amounts in all their combinations; (c) the value of any variable in a formula shall be deemed to be nil, if the value of such variable is indeterminable or unascertainable." 17.15.4 The first com....
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.... has been brought in to the Code by way of insertion of Clause 315 providing that the income or aggregation of two or more items shall include both positive and negative amounts. What was earlier implied has now been sought to be expressed. We, therefore, find this contention as bereft of any force. 17.15.5 It is relevant to note that the cost of acquisition and cost of improvement of an undertaking or its net worth has been incorporated in section 50B(2) by way of a deeming provision. It has been made clear in sub-section (2) that : "the `net worth' of the undertaking or the division, as the case may be, shall be deemed to be the cost of acquisition and the cost or improvement for the purposes of sections 48 and 49". It is trite that a deeming provision or a legal fiction presumes a hypothetical state of affairs and mandates to substitute it with the real. Such an artificial meaning is enacted with a specific purpose which is confined to that provision alone. In this way, the deeming provision tends to ignore the characteristics normally attaching to a particular connotation. In such a situation the commonly understood meaning of a word or phrase or expression is given a go-by ....
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....ofits. The facts of that case are that there was a loss of Rs. 6.86 crore from the export of trading goods and profit of Rs. 3.78 crore from export of selfmanufactured goods. The assessee claimed deduction u/s 80HHC on a sum of Rs. 3.78 crore by ignoring the loss of Rs. 6.86 crore from the export of trading goods. The Assessing Officer did not allow any deduction u/s 80HHC for the reason that there was a net loss from export of goods and hence deduction was not permissible. The Hon'ble Supreme Court eventually upheld the Assessing Officer's stand by holding that the negative figure of loss of Rs. 6.86 crore cannot be ignored for computing the income eligible for deduction u/s 80HHC. It is on this strength of this judgment that the learned AR contended that the figure of negative net worth computed u/s 50B be also ignored and taken as nil as has been done by the Hon'ble Supreme Court in this case. 17.15.7 There is no merit what so ever in this contention. The ratio decidendi in the case of IPCA Laboratory Ltd.(supra) operates in an altogether different field, being the eligibility or otherwise of deduction u/s 80HHC in case there is loss from one set of exports and profit from th....
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....me. Thus in respect of `income based deductions', there has to be some positive qualifying income so as to avail the benefit of deduction. And no deduction is available when there is either no eligible income at all or a loss. In both such cases the amount of deduction will be Nil. Section 80HHC falls in Chapter VI-A - C. "Deductions in respect of certain incomes". Unless there is an income from exports included in the gross total income, there cannot be any deduction in respect of section 80HHC. The existence of a positive income is a requisite condition to claim deduction under the relevant section falling within this sub-Chapter. Reverting to the case of IPCA Laboratory Ltd. it can be seen that there was a loss from export of trading goods at Rs. 6.86 crore and income from export of selfmanufactured goods at Rs. 3.78 crore thereby giving the net loss of Rs. 3.08 crore from the export of goods. As section 80HHC provides for deduction in respect of `income' from export of goods, naturally there could not have been any question of granting deduction. On the contrary we are dealing with section 45 read with sections 48 and 50B providing for the computation of capital gain on the tra....
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....rs of the transferor company plus the liabilities of the transferor company transferred to the transferee company. The Hon'ble Bombay High Court found this contention to be "contrary" to the meaning of the word "conveyance" as provided u/s 2(g)(iv) of the Bombay Stamp Act, 1958. It is on the basis of this finding of the Hon'ble jurisdictional High Court rendered in the context of Bombay Stamp Act, 1958 that the learned A.R. canvassed the view that for the purpose of computing capital gain only the full value of consideration should be taken and the net worth representing excess of liabilities over the book value of assets should be ignored. 17.15.9. Stamp duty is always charged on the sale consideration. In that case the Hon'ble High Court held that the stamp duty was payable on the sale consideration of the undertaking as one unit without increasing it with the amount of liabilities transferred. In fact it supports the contention of the ld. AR, which has been accepted by us above, that for the purposes of calculating full value of consideration for the transfer of undertaking there cannot be any addition towards the value of liabilities transferred to the agreed consideration o....
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....e assessee sold one of its business undertakings as a whole to the joint venture company for a lump sum consideration. The Assessing Officer took it as a case of sale of itemized assets and allocated sale value to building, plant and machinery and paint shop. After deducting written down value there from, he calculated short term capital gain. The Hon'ble Bombay High Court held that it was an entire business undertaking which was sold as a going concern and not any distinct asset such as land, building and plant and machinery etc. Along with such assets, the assessee also transferred intangible assets and business advantages like licences, quotas etc. It was eventually held that in a case of sale of business as whole, there is no allocation of price to any particular assets and, therefore, the computation of capital gains in such a case should have been done on the business as a whole which business itself is a capital asset. The matter was eventually remanded to the Assessing Officer for computation of capital gain on sale of business in its entirety u/s 45 read with sections 2(42C) and 50B. We fail to appreciate as to how this case supports the assessee's contention in any manner....
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....it would mean that for computing capital gain on the transfer of undertaking `All assets minus All liabilities', the cost of acquisition and cost of improvement has been taken for `All assets minus Part of all liabilities' i.e. (Rs. 1360 crore towards All assets minus only Rs. 1360 crore towards Part of all liabilities{total liabilities are Rs. 1517 crore}). Obviously it cannot be so because the computation of capital gain is from the transfer of `All assets minus All liabilities' and hence both the Full value of consideration and Net worth must be of `All assets minus All liabilities'. 20. In view of the detailed discussion made above, we are with utmost respect unable to concur with the view expressed by the Mumbai Bench of the Tribunal in the case of Zuari Industries Ltd. (supra) and Delhi Bench of the Tribunal in the case of Paper Base Co. Ltd. (supra). Thus the question referred to the Special Bench is answered in negative by holding that the Assessing Officer was not right in adding the amount of liabilities being reflected in the negative net worth ascertained by the auditors of the assessee to the sale consideration for determining the capital gains on account of slump s....