TaxTMI 
TaxTMI 
2008 (11) TMI 7
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....said compensation was received during the accounting year ending 31.12.1969 corresponding to the assessment year 1970-71. 4. During the assessment year 1970-71, appellant had to compute capital gains under Section 48 by deducting from the sale consideration the cost of acquisition as increased by the cost of improvement and expenses incurred in connection with the transfer. Under the law then prevailing, assessee could index the cost of acquisition by applying cost inflation index which became indexed cost of acquisition. 5. Incidentally, it may be noted that by an amendment to Section 50B inserted by the Finance Act, 1999 w.e.f. 1.4.2000, cost of acquisition is now notionally fixed in case of "slump" sale. Under the said arrangement, assessee is required to draw up his Balance Sheet as on the date of transfer for its undertaking and net worth of that date is now required to be taken into account. Under the said amendment, net worth consists of written down value (WDV) of depreciable assets and the book value of the current assets minus liabilities taken over. Therefore, after 1.4.2000 cost of acquisition is notionally fixed in case of slump sale. However, no such formula exi....
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....ssee claimed a capital loss. The AO held that since the assessee had submitted its own computation of the fair market value of the undertaking as on 1.1.1954 the only question he was required to consider was the correctness of the figure of capital loss submitted by the assessee vide its covering letter dated 30.9.1970. In this connection, it may be noted that compensation of Rs. 10.20 cr. was paid to the assessee from which assessee claimed deduction of Rs. 17,22,73,246 (market value of the undertaking as on 1.1.1954 fixed at Rs. 10,41,51,625 plus cost of improvement fixed at Rs. 6,81,21,621). This is how the assessee contended that it had in the above transaction suffered a capital loss of Rs. 7.02 cr. This calculation was not accepted by the AO who proceeded to hold on the basis of capitalization of last 5 years profits the capital gains of Rs. 1,65,34,709 (see page 42 of the Paper Book). 9. Aggrieved by the decision of the AO, the matter was carried in appeal by the assessee to the Appellate Assistant Commissioner who by his order dated 16.10.1974 came to the conclusion that, in this case, it was not possible to allocate the full value of the consideration received (compensa....
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.... on the facts and in the circumstances of the case Section 41(2) was applicable as the amount of Rs. 11,50,400, being the consideration, stood arrived at by taking into consideration the value of the plant, machinery and dead stock. It was further held that, the surplus resulting from transfer of plant, machinery and dead stock was either taxable as income under Section 41(2) or as capital gains under Section 45. It was held that since income was chargeable to tax under Section 41(2), the impugned decision of the High Court that such income was chargeable to tax as capital gains was erroneous. 13. In order to decide the applicability of the judgment of this Court in Artex Manufacturing Co. (supra) we need to examine the scope of Section 41(2). At the outset, it may be noted that, in this case, the Department has not relied upon Section 41(2). In fact, none of the authorities below, apart from the High Court, has relied upon Section 41(2). For the first time, relying upon Section 41(2), the High Court has dismissed the Reference initiated at the behest of the assessee. 14. Section 41(2) stands attracted only in the case of a sale of building, machinery, plant or furniture in t....
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....g Co. (1997) 227 ITR 278 has held that whether the business of the assessee stood transferred as a going concern for slump sale price, in the absence of evidence on record as to how the slump price stood arrived at, Section 41(2) had no application. It is interesting to note that the judgment in the case of Electric Control Gear Manufacturing Co. (supra) is given by the same Bench which decided the case of Artex Manufacturing Co. In fact, both the judgments are reported one after other in 227 ITR at pp. 260 and 278 respectively. In the present case, as can be seen from the impugned judgment of the Delhi High Court, the judgment of this Court in Electric Control Gear Manufacturing Co. (supra) is missed out. That judgment has not been considered by the High Court. As stated above, this Court has clarified its judgment in Artex Manufacturing Co. (supra) in its judgment in the case of Electric Control Gear Manufacturing Co.. Therefore, Section 41(2) has no application to the facts of the present case. 17. As regards applicability of Section 45 is concerned, three tests are required to be applied. In this case, Section 45 applies. There is no dispute on that point. The first test is ....