TaxTMI 
TaxTMI 
2018 (8) TMI 919
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....achinery, good will etc have not been valued and the entire business is transferred as a going concern. 4. For these and other grounds that may be urged at the time of hearing, it is requested that the order of the Commissioner of Income Tax (Appeals) may be set aside and that of the Assessing Officer restored." 3. Briefly stated the facts of the case are as follows: 3.1 The assessee is a firm, engaged in the business of running a hotel at Ooty. During the relevant assessment year, it had sold its hotel premises at Ooty of land and building together as a whole to one M/s.BKR Hotels & Resorts Private Limited for a total consideration of Rs. 20 crore, vide sale deed executed on 18.01.2013. The Assessing Officer vide order dated 19.02.2016 passed u/s 143(3) of the I.T.Act, considered the sale as a 'slump sale' and invoked the provisions of section 50B of the I.T.Act. The relevant observation of the Assessing Officer in doing so, reads as follows:- "Slump Sale - Capital Gain 2.1 The assessee was engaged in hotel business under the name and style of M/s.Ooty Gate Hotel at Udhagamandalam (popularly known as Ooty), Tamil Nadu. The Assessee firm comprised o....
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....,882/- is given as under:- S. No. Particulars Amount (Rs.) Amount (Rs.) 1. Net profit before tax as per profit and loss account including LTCG & STCG 15,08,10,187 2. Add : In admissible as reported by the Assessee 74,500 15,08,84,687 3. Less : Income considered separately (relating to LTCG + STCG) 14,04,57,701 4. Income chargeable under the head business 1,04,26,986 1,04,26,986 5. Income from Capital Gain 5.1 LTCG on land (Refer Table No.1) 11,23,59,064 5.2 STCG on building (Refer Table No.1) 1,88,09,701 Income chargeable under the head "Capital Gain" 13,11,68,765 6 Less : Brought forward losses adjusted 2,66,23,869 7. Total income as per Assessee's computation 11,49,71,881 2.3 During the course of scrutiny proceedings, the Assessee was asked to justify the valuation of business at a value fo Rs. 1,10,00,000/-. In reply, the Assessee's AR stated that the sum of Rs. 1.10 crores is considered as business value because the total....
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....ent liabilities. Therefore the assessee's argument that there was no liability in existence at the time of sale is not acceptable. 2.4 Keeping the facts in view, it is exposed that the Assessee deliberately reported the sale proceeds under the head business and capital gain in order to avail adjustment of carry forward loss of Rs. 2,66,23,869/- only to avoid capital gain on slump sale. Therefore, the assessee's computation is not acceptable and the same is rejected. Accordingly, the capital gain on slump sale i.e. Capital Gain = (Net Consideration) - (Net worth) as per section 2(42C) read with section 50B is computed in the following manner:- Computation of Net Worth No Cost of acquisition or Cost of improvement No actual cost of acquisition or cost of improvement shall be taken for the computation of Net worth. Net worth shall be taken on the basis of: - Book values of assets & liabilities - As on the date of transfer No Indexation: No indexation is required since even cost of acquisition or improvement shall not been considered for the computation of Net worth. Unabsorbed losses and depreciation: ....
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.... Total income was declared at Rs. 11,49,71,882/-. The Assessing Officer held that selling land and building separately was an The Assessing officer held that selling land and building separately was an instrument or a colourable device to set -off carry forward losses. The Assessing officer held it to be a slump sale and re-computed the capital gains and as a result total income was assessed at Rs. 15, 14,82,700/- and set off of brought forward losses were denied. The appellant contends that the facts of its case does not quality it as a slump sale, as "slump sale" is an exclusive definition ( using the word "means" instead of "includes"), it can be considered as a slump sale only when both assets and liabilities of undertaking are transferred for a lump sum consideration. In this case, only the land and building have been sold for separate amounts of sale consideration and the assets and liabilities, available in the balance-sheet, have not been sold at all. And therefore this transaction cannot be held to be a slump sale. To support its contention, the appellant placed reliance on the decision of Hon'ble ITAT, Kolkata, 'B' Bench in ITA No. 1....
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....ilities were not sold at all. Therefore, this sale can not be termed as a slump sale in terms of provisions of section 50B of the Act. Conclusions drawn by the assessing officer cannot be sustained. This ground of appeal of the appellant is allowed, and addition made no this account is deleted. 5. Ground of appeal No.2 and 3 are consequential in nature as they relate to denial of set-off of brought forward losses as well as current years business loss. This happened because the assessing officer treated the transaction as slump sale. Since, I have allowed the 1st ground of appeal, the assessing officer is directed to allow the brought forward losses and current years business loss, as per the provisions of the Act. For statistical purposes, these grounds of appeal of the appellant are treated as allowed." 3.3 Aggrieved by the order of the CIT(A), the Revenue has filed the present appeal before us. The learned Departmental Representative, apart from relying on the grounds raised, strongly supported the assessment order. The learned AR, on the other hand, reiterated the submissions made before the Assessing Officer and has also filed a paper book comprising of 88 pages, i....
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....r where the wrong presumption is made, which reads "......In reply, the A.R. stated that no liabilities have been taken over by the buyers and no liability was in existence at the time of sale of Hotel......". In this part, an obvious mistake in the Assessment Order is that the assertion that "as the AR stated that no liability was in existence at the time of sale" is wrong in as much as AR has not stated during the course of hearing that "no liability was in existence at the time of sale". However, the Assessing Officer has corrected this wrong presumption by recording his finding that there was some liability shown under the current liabilities in the Balance Sheet of the Assessee vide Page 4 Para 2.3 last lines which reads as under "...... Besides, on perusal of balance sheet of the Assessee, there was some liability shown under the current liabilities, Therefore, the Assessee's argument that there was no liability in existence at the time of sale is not acceptable .........." In fact, so many liabilities such as South Indian Bank term loan liability for Rs. 4,77,63,766/- and overdraft facility for Rs. 51,01,347/- and other statutory liabilities were in exi....
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....lanation 1 to clause (19AA) of Sec.2. Explanation 1 to clause (19AA) of Sec.2 reads as follows: "For the purpose 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 "(emphasis supplied). Hence the word "undertaking" does not include combination of assets (land and building in this case), not constituting a business activity. What we have sold is land and building of a hotel, and as it does not constitute a business activity, it is not an undertaking as defined in Section 2(19AA) Explanation 1. As land and building is not an "undertaking", transfer thereof will not constitute "a slump sale" within the meaning of Section 2(42C). Hence sale of the land and building will not attract Section 50B, the special provision for computation of capital' gain in the case of "slump sale". C. Further, explanation 1 to Section 50B, the special provision for computation of capital gain in the case of "slump sale" reads as follows: Expla....
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....tary issue for our consideration is whether the sale deed executed on 18.01.2013 as regards the land and building of hotel was a 'slump sale' governed by the provisions of section 50B of the I.T.Act or not? 'Slump sale' is a sale of an undertaking as a going concern. The concept of slump sale is not new for purposes of income-tax law, though a special procedure has been prescribed for computation of income from slump sale under section 50B, with effect from 1.4.2000 i.e. A.Y. 2000-2001. In the case of Doughty v. Taxes Commissioner [(1927) AC 327 (PC)], the English Court had held that in the case of a slump sale, tax incidence cannot be with reference to any specific items of asset covered by such sale as for example, in respect of stock comprised in such business. The above principle was approved by the Hon'ble Supreme Court in CIT v. West Coast Chemicals and Industries Ltd.[(1962) 46 ITR 135 (SC)]. The test for determination of what constitutes a slump sale are laid down in Artex Manufacturing Co. [(1997) 227 ITR 260 (SC)] in a case where sevarality in sale was inferred and in CIT v. Electric Control Gear Manufacturing Co.[(1997) 227 ITR 278 (SC)], where the inference was that it ....
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....nly the sale of land and building for a total consideration of Rs. 20 crore. However, we notice from page 9 of the sale deed, what was sold by vendor includes also license for boarding, lodging, bar etc. The assessee was running a hotel business in Ooty. On sale of the property, the business of the assessee was closed down and the assets of the assessee as whole was transferred to the purchaser, viz., M/s.BKR Hotels and Resorts Private Limited. It is an admitted fact that the purchaser is in hotel business. It is also admitted fact that purchaser, after substantial investment on the property carried on the hotel business in the said premises. It is clear from reading of the entire clause of the sale deed that the assets of the assessee, including the license for boarding, lodging, bar etc. were also transferred to the purchaser along with land and building as a going concern. The entire business was sold for a total consideration of Rs. 20 crore consisting of land and building which includes furniture, equipments, kitchen equipments, telephone instruments, television, computer, etc. The building and other amenities are valued as a whole, without assigning value to any item of the a....