TaxTMI 
TaxTMI 
2022 (8) TMI 1348
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....es. Section 50B of the Act, provides the mechanism for computation of capital gains arising on slump sale and is as follows: Special provision for computation of capital gains in case of slump sale. 50B. (1) Any profits or gains arising from the slump sale effected in the previous year shall be chargeable to income-tax as capital gains arising from the 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....
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.... acquisition and cost of improvement for section 48 and section 49 of the Act. As per section 50B, no indexation benefit is available on cost of acquisition, i.e., net worth. 3. The assessee is a company engaged in the business of manufacture and sale of aluminum extrusion with anodizing and power coating. During the previous year, the assessee effected a slump sale of its aluminum extrusion business to M/s. Bhoruka Extrusions Pvt. Ltd., under business transfer agreement (BTA) dated 01.03.2013. The AO noticed that as per the business transfer agreement clause 3.1.1, the total consideration agreed upon between the parties was a sum of Rs.110 Crores. However, in the computation of capital gain, the assessee has adopted the slump sale consideration at Rs.103,47,21,564/-. The AO was of the view that since the slump sale consideration was Rs.110 Crores, that should have been the starting point of computation of capital gain. The AO therefore called upon the assessee to clarify as to how the capital gain of slump sale was computed by the assessee. 4. The assessee, in reply, submitted that Clause No.3.1.2. of the BTA it has been provided that out of the total enterprise value of Rs.110,....
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....e assessee's contention is that the remaining Rs.10,00,00,000/- is payable upon fulfilling of certain conditions and therefore the said sum will be offered to tax as and when the same is received by the Assessee was not accepted by the AO. In this regard, the AO referred to clause 3.1.2 of the BTA, which are again extracted for the sake of clarity:- a. Rupees Five Crores on achieving prescribed Sales and Collection Targets within first 2 years; , b. Rupees Five Crores on clearing all the legal issues and other lax disputes. According to the AO, the fulfillment of the aforesaid clauses is a not a condition precedent for the transfer of the undertaking from the Assessee to the transferee and are purely condition to be satisfied subsequent to slump sale and will therefore not postpone the year of transfer and chargeability of capital gain on slump sale. The AO also observed that the assessee offering to tax the remaining consideration in a subsequent year cannot alter the year of taxability since the capital gains had already accrued in the year of sale, there being no express clause to the contrary in case of non-fulfilment of the conditions under clause 3.1.2. of the BTA. H....
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.... received within 3(three) months from the date of the last shipment for such sales, Then an amount of INR 50,000,00 (Indian Rupees Fifty Million Only) shall be payable within 30 (thirty) days from the fulfillment of the conditions specified above, subject to deduction of amounts pursuant to Clause 3.13 (ii) the remaining amount of INR 50,000,000 (Indian Rupees Fifty Million Only) shall be payable within 30 days from the date which is the third anniversary of the closing date only if the purchaser achieves the sales and collection target mentioned in Clause 3.1.2 (c)(i) above, subject to deduction of amounts pursuant to Clause 3.1.3. 3.1.3 it is agreed and understood that the Subsequent Business Transfer Consideration shall be payable by the purchaser to the seller, subject to adjustments of the following amounts, if applicable: a) Any claim of indemnity by any if the Purchaser Indemnified Parties against the seller and/or the Promoter Group under any of the Transaction Documents inclosing for breach of the provisions of this Agreement; b) Any loss to any Purchaser Indemnified Party arising out of or in connection With the pending tax disputes of the seller with the G....
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....ed to it on the fulfillment of certain conditions which could not be predicated. On appeal by the Revenue, the Tribunal (ITAT) held as under : "6.10 In view of the deeming fiction contained in section 45(1), it is held that the whole of consideration accruing or arising or received in different years is chargeable under the head capital gains in the year in which the transfer of shares has taken place. It may be mentioned here that the exception to sub-section (1) are provided in other sub-sections. The case of the assessee does not fall in any of the exceptions. Undoubtedly and admittedly the shares have been transferred in this year. Therefore, we agree with the AO that the whole consideration of Rs. 86.25 lakh is chargeable to tax as capital gains in this year. The assessee has also claimed the whole cost. Therefore, the order of the ld. CIT(Appeals) is set aside and that of the AO is restored." Against the decision of the Hon'ble Tribunal, the assessee filed appeal before the Hon'ble Delhi High Court. The Hon'ble Delhi High Court agreed with the reasoning of the Tribunal and held as follows: "7. The reasoning of the Tribunal is premised upon the fact that capital assets we....
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....ation and offer one portion in one AY and another portion in another AY and such a procedure is unknown to law. He therefore submitted that the AO was justified in adopting Rs.110 crores as the full value of consideration on slump sale for computation of capital gain on slump sale. 9. Learned Counsel for the assessee on the other hand placed reliance on the decision of the Hon'ble Bombay High Court in the case of CIT Vs. Mrs.Hemal Raju Shete ITA No.2348 of 2013 dated dated 29th March, 2016. In that case, under an agreement dated 25.1.2006, Shete family sold their business for a sale consideration of Rs.20 Crores. The AO considered the entire sale consideration of Rs.20 crores for the purpose of computation of capital gain. The CIT(A) observed that the agreement dated 25th January, 2006 also provided for deferred consideration which was capped at Rs.20 crores, which had to be paid in terms of formula prescribed in the agreement dated 25th January, 2006. The working out of the formula could lead and in fact had led to a situation where no amount on account of deferred consideration for the sale of shares was receivable by the assessee in the immediate succeeding assessment year i.e.....
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....ly. It is only the maximum that could be received. Therefore it is not a case where any consideration out of Rs.20 crores or part thereof (after reducing Rs.2.70 crores) has been received or has accrued to the respondent assessee. As observed by the Apex Court in Morvi Industries Ltd. vs. CIT (1971) 82 ITR 835. "The income can be said to accrue when it becomes due.... The moment the income accrues, the assessee gets vested right to claim that amount, even though not immediately." In fact the application of formula in the agreement dated 25th January, 2006 itself makes the amount which is receivable as deferred consideration contingent upon the profits of M/s.Unisol and not an ascertained amount. Thus in the subject assessment year no right to claim any particular amount gets vested in the hands of the respondent-assessee. Therefore, entire amount of Rs.20 crores which is sought to be taxed by the Assessing Officer is not the amount which has accrued to the respondentassessee. The test of accrual is whether there is a right to receive the amount though later and such right is legally enforceable. In fact as observed by the Supreme Court in E.D. Sassoon & Co. Ltd. Vs. CIT (1954) 2....
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....fer of shares. 9. The contention of the Revenue that the impugned order is seeking to tax the amount on receipt basis by not having brought it to tax in the subject assessment year, is not correct. This for the reason, that the amounts to be received as deferred consideration under the agreement could not be subjected to tax in the assessment year 2006-07 as the same has not accrued during the year. As pointed out above, accrual would be a right to receive the amount and the respondent-assessee alongwith its co-owners have not under the agreement dated 25th January, 2006 obtained a right to receive Rs.20 crores or any specified part thereof in the subject assessment year. 10. In the above view there could be no occasion to bring the maximum amount of Rs. 20 crores, which could be received as deferred consideration to tax in the subject assessment year as it had not accrued to the respondent-assessee. 11. We find that both the Commissioner of Income-Tax (Appeals) and the Tribunal have in view of the clear clauses of agreement dated 25th January, 2006 have in the facts of the present case correctly held that the respondent-assessee and the co-owners of the shares did not hav....
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....ference between 'the aggregate value of total assets of the undertaking or division' and 'the value of its liabilities as appearing in books of account'. The 'aggregate value of total assets of the undertaking or division' is the sum total of: WDV as determined u/s.43(6)(c)(i)(C) in case of depreciable assets, The book value in case of other assets. Net worth is deemed to be the cost of acquisition and cost of improvement for section 48 and section 49 of the Act. There is no scope for any deviation from the aforesaid statutory provisions. Even the provisions of Sec.45(1) provides that any profit or gains arising from transfer of a capital asset effected in the previous year shall 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 learned counsel for the Assessee referred to the provisions of Sec.48 of the Act and submitted that income chargeable under the head "Capital gains" shall be computed, by deducting from the full value of the consideration received or accruing as a result of the transfer of the capital asset the following amounts, namely :- (i) expenditure incurred wholly....