TaxTMI 
TaxTMI 
TaxTMI 
2001 (1) TMI 201
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....l Machinery Associates as a going concern including leasehold land, buildings, plants and machinery, goodwill, electrical fittings and equipments, furniture and fixtures and dead stock and vehicles, located at 87/P, Green Space Between 87/P, 88,96 & 107, GIDC Industrial Estate, Odhav, Ahmedabad 382 415. The intention between the parties is that the entire undertaking with all its assets and liabilities, rights and obligations secured and unsecured loans, current assets and current liabilities except certain liabilities stipulated hereinafter shall in terms of this agreement be transferred to the purchaser. The sale and purchase shall be together with present arrangement and obligations, licences, quotas etc., relating to the undertaking to be transferred." 4. Clause 3 of the agreement provides for payment of sale consideration of Rs. 1.25 crores agreed as under: "The consideration payable in respect of the above shall be as under: (a) Allotment of 10,000 equity shares of the face value Rs. 100 at a premium of 400 per share in the capital of the purchaser. (b) Allotment of 3500 8% Non-Cumulative Redeemable preference shares of face value of Rs. 100 each Redemption to be effecte....
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....,874.00 Fixed assets Rs. 14,43,603.00 Debtors Rs. 3,78,014.00 Cash & bank balances Rs. 64,170.00 Loans &,advances Rs. 11,43,667.00 Rs. 1,37,42,329.00 ------------------------ Net asset value Rs. 21,19,31 1.00 ----------------------------------------------------------------------------------- The Assessing Officer observed that the aforesaid net asset value of the undertaking is attributable to stock in trade held by the assessee firm as on 31-12-1992. Treating the stock-in-trad....
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....f acquisition of the asset the CIT(A) observed that since the capital gain arising in the transaction is attributable to stock in trade, it has correctly been treated as short-term capital gain by the Assessing Officer. 5. Aggrieved with the order of the CIT(A) the assessee has come up in appeal before us. Shri J.P. Shah, the ld. counsel the assessee argued that once the revenue has accepted that the business undertaking has been sold by the assessee as a going concern and it is a case of slump sale as per the definition contained under section 2(42C) introduced w.e.f. 1-4-2000 the transaction in question would be beyond the purview of taxation under section 45. The ld. counsel argued that section 50B introduced by the Finance Act, 1999 w.e.f. 1-4-2000 brought the transaction of slump sale within the purview of capital gains under section 45 w.e.f. assessment year 2000-01 and since the transaction in question pertains to assessment year 1993-94, no capital gains tax would be chargeable by invoking the provisions of section 50B. According to the ld. counsel section 50B constitutes a self contained code for levy and computation of capital gains on the transaction of slump sale for a....
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....d be considerably less than the value indicated in the agreement as above particularly looking into the fact that the purchaser company Shah & Parikh Agencies Pvt. Ltd. has been incorporated on 25-10-1985 and the premium of Rs. 400 per share in the case of a private limited company does not represent real and substantial value of the share. On this ground it is argued that the sale value of the consideration adopted at Rs. 1.25 crores does not represent the real value. The ld. counsel argued that the action of the CIT(A) in sustaining the computation of short-term capital gain is factually and legally unjustified and deserves to be deleted. 6. Shri S.M. Dubey, the ld. D.R. supporting the order of the ld. CIT(A) strongly urged that section 50B is retrospective in nature and would apply for assessment year 1993-94 under appeal. According to the ld. D.R. section 50B is merely a procedural section and section 45 brings to charge the profit realised on transfer of a capital asset. Relying upon the decision of Supreme Court in the case of Rustom Cavasjee Cooper v. Union of India AIR 1970 SC 564 the ld. D.R. argued that the business undertaking as a going concern is a capital asset in te....
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....ed under section 48. 9. Before we consider the aforesaid questions, it may be pointed out that it is common ground in the instant appeal that the business undertaking of the assessee firm has been sold lock, stock and barrel by way of a slump sale and no part of the lump sum sale consideration is attributable to specified assets of the business undertaking. This is admittedly not the case of a disjunctive sale inasmuch as the business undertaking has not been sold by any itemised value or item by item price fixed for the different assets of the firm. The entire business of the undertaking together with the assets and liabilities are sold for a lump sum consideration of Rs. 1.25 crores to be paid by the vendor company in the form of shares and pronotes as detailed in the clause 3 of the agreement. Under these circumstances, applying the ratio of Supreme Court decision in Artex Mfg. Co.'s case and Electric Control Gear Mfg. Co.'s case cited at the Bar the surplus realised by the slump sale was not assessable under section 41(2) and the issue of levy of capital gains under section 45 would have to be decided on the basis of the slump price for the entire business undertaking as a goi....
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....e (c) of clause (6) of section 43; and (b) in the case of other assets, the book value of such assets. Explanations 1 and 2 above have been substituted in place of the earlier Explanation, by the Finance Act, 2000, w.e.f. the same date on which section 50B comes into force i.e., April 1, 2000. With the introduction of section 50B, the legislature simultaneously inserted clause (42C) after clause (42B) of section 2 by the Finance Act, 1999 containing the definition of slump sale which reads as under: "(42C) 'Slump sale' means the transfer of one or more undertakings as a result of the sale for a lump sum consideration without values being assigned to the individual assets and liabilities in such sale." Amendments were correspondingly made by the Finance Act, 1999 by introducing sub-item (C) after sub-item (B) of item (i) of sub-clause (c) of clause (6) of section 43 providing for computation of written down value in the case of a slump sale. From the aforesaid set of provisions it clearly emerges that section 50B along with the ancilliary sections has been introduced by the Legislature by the Finance Act, 1999 by way of a special provision for levy and computation of capital gai....
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....anifestly clear that section 50B introduced by the Legislature for levy and computation of capital gains in slump sale is effective from assessment year 2000-01 and subsequent years and would not apply for the earlier assessment years. The contention of the ld. D.R. regarding retrospective operation of section 50B and its applicability to assessment year 1993-94 under appeal is therefore contrary to express legislative intendment and is liable to be rejected. In our opinion section 50B would not apply for assessment year 1993-94 under appeal. 11. Apart from the aforementioned Board Circulars expressly providing for retrospective operation of section 50B, in our considered opinion section 50B is intrinsically a charging section which provides that 'any profit or gain arising from the slump sale....................... shall be chargeable to income-tax as capital gains . ...................... The phraseology used by the legislature while enacting section 50B(i) is strikingly similar to the language used in section 45 which is undoubtedly a charging section. If section 45 had already brought within its sweep the slump sale, there was obviously no occasion for the legislature to enact....
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.... when the Board Circulars No. 779, dated 14-9-1999 and No. 794, dated 9-8-2000 quite categorically state that the section would be operative from assessment year 2000-01. The contention of the ld. D.R. is therefore rejected. 12. Now coming to the second question whether slump sale would be liable to capital gains under section 45, we have considered the rival submissions. For the levy of capital gains under section 45 three ingredients should coexist. (1) There should be a capital asset. (2) There should be transfer of such capital asset and (3) profit or gain must arise from the transfer of such capital asset. So far as the first two ingredients are concerned no dispute has been raised on behalf of the assessee that a business undertaking as a whole would constitute a capital asset within the meaning of section 2(14) and further that the agreement dated 31-12-1992 for transfer of the business undertaking as a going concern constitutes transfer of a capital asset as per the definition contained under section 2(47) of the Income-tax Act. However with regard to the third ingredient regarding profits or gains arising from the transfer of the whole business undertaking as a going conc....
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....hin the charging section. Otherwise, one would be driven to conclude that while a certain income seems to fall within the charging section there is no scheme of computation for quantifying it. The legislative pattern discernible in the Act is against such a conclusion. It must be borne in mind that the legislative intent is presumed to run uniformly through the entire conspectus of provisions pertaining to each head of income. No doubt there is a qualitative difference between the charging provision and a computation provision. An ordinarily the operation of the charging provision cannot be affected by the construction of a particular computation provision. But the question here is whether it is possible to apply the computation provision at all if a certain interpretation is pressed on the charging provision. That pertains to the fundamental integrality of the statutory scheme provided for each head." 15. A similar proposition has been reiterated by the Hon'ble Supreme Court in the case of Sunil Sidharthbhai wherein it has been observed that the provision of section 48 is fundamental to the computation machinery incorporated in the scheme relating to the determination of the char....
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....ale of a going concern is beyond the purview of section 45. 18. The ld. D.R. has cited the decision of Kerala High Court in F.X. Periera & Sons (Travancore) (P.) Ltd's case. The facts and issues involved in the said decision are distinguishable. The main question involved in the said case was the date of transfer of the business undertaking and the year in which transfer has taken place. The assessee-company in that case executed an agreement on 12-1-1956 whereunder the Government was competent to run the factory as absolute owner. On the failure on the part of the Government to fulfil certain obligations under the agreement, the assessee instituted a suit for recovery of the properties. Finally the matter was compromised and sale deed was executed on 17-4-1971. The High Court held that the business was sold as a going concern to the Government on April 14, 1971 and not on 12-1-1956. The issue regarding levy and computation of capital gains under sections 45 and 48 was not involved and nor it was considered by the Kerala High Court. The decision therefore does not help the revenue. 19. Lastly we may refer to computation of capital gains as made by the Assessing Officer in the ins....
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....iance placed by the ld. D.R. on the decision of Supreme Court in Artex Mfg. Co.'s case, we may point out that this decision has been cited by the ld. counsel also in support of assessee's case. In this case the main question which fell for consideration was whether section 41(2) can be held to be applicable in the facts of the case whereunder the assessee firm sold the business undertaking as a going concern to\a private limited company. The Hon'ble Supreme Court relying upon the decision of the Privy Council in Doughty v. Commissioner of Taxes [1927] AC 327 and its earlier decisions in CIT v. West Coast Chemicals & Industries Ltd. [1962] 46 ITR 135 and CIT v. Mugneeram Bangur & Co. (Land Apartment) [1965] 57 ITR 299 held that the sale transaction was not a slump sale in the facts of the case and the difference between the actual cost and WDV of assets was assessable as business income under section 41(2) and excess of sale consideration over the cost price of the assets was assessable as capital gains. The Supreme Court further held that the assessment is to be made in the status of Body of Individuals and not as a registered firm. In the instant case before us the transaction is ....