2004 (6) TMI 25 - HC - Income Tax

Capital gains tax - Whether Tribunal is right in law and had valid materials to hold that the consideration for the purpose of computing the capital gains should be taken at Rs. 3 crores and that the Commissioner of Income-tax should not have directed the Assessing Officer to replace Rs. 3 crores by Rs. 5.97 crores? - agreement with subsidiary company for sale of manufacturing unit as a going concern for a sum of Rs. 3 crores. The Assessing Officer came to the conclusion that sum of Rs. 3 crores received as sale consideration would be subject to capital gains tax - Since the appeal filed by the assessee challenging the levy of capital gains tax on the transfer of its manufacturing unit on the basis that it was a slump sale would not attract the levy of capital gains tax is pending before the Tribunal on determination of the said question regarding the liability of the assessee to pay the tax on the transfer of the assets the question regarding quantum of amount of capital gains need not be gone into. We are therefore of the view the interest of justice would be met by setting aside the order of the Income-tax Appellate Tribunal which is adverse to the interest of the Revenue and remit the matter to the Appellate Tribunal

Summary

Issues:
1. Interpretation of capital gains tax computation.
2. Jurisdiction of Commissioner of Income-tax under section 263.
3. Validity of the direction to replace sale consideration amount.

Interpretation of Capital Gains Tax Computation:
The case involved an appeal by the Revenue against the Income-tax Appellate Tribunal's order regarding the computation of capital gains for the assessment year 1992-93. The central question was whether the consideration for computing capital gains should be Rs. 3 crores or Rs. 5.97 crores. The respondent-company sold its manufacturing unit for Rs. 3 crores, which the Assessing Officer deemed subject to capital gains tax. The Commissioner of Income-tax revised the consideration to Rs. 5.97 crores under section 263 of the Act. The Tribunal upheld the Commissioner's jurisdiction but determined that the original consideration of Rs. 3 crores should stand. The High Court framed a substantial question of law on this issue, emphasizing the need for a correct computation of capital gains.

Jurisdiction of Commissioner of Income-tax under Section 263:
The Commissioner of Income-tax, Tamil Nadu, exercised his power of revision under section 263 of the Act to alter the sale consideration from Rs. 3 crores to Rs. 5.97 crores. The Tribunal confirmed the Commissioner's authority to invoke revisional powers but disagreed with the revised consideration amount. The High Court acknowledged the finality of the Tribunal's decision on the Commissioner's jurisdiction under section 263. However, it emphasized that the remand was solely for determining the quantum of capital gains if the transfer attracted capital gains tax, without delving into the merits of the Commissioner's jurisdiction.

Validity of the Direction to Replace Sale Consideration Amount:
The High Court set aside the Tribunal's decision adverse to the Revenue's interests and remitted the matter for fresh consideration. It directed the Tribunal to address both appeals together, focusing on the liability to pay tax on the asset transfer. The Court clarified that the remand pertained to the quantum of capital gains, emphasizing that the remand did not decide on the merits of the case regarding the amount of capital gains. The Court's decision aimed to ensure a just resolution of the appeal regarding the levy of capital gains tax.

In conclusion, the High Court's judgment addressed the interpretation of capital gains tax computation, the jurisdiction of the Commissioner of Income-tax under section 263, and the validity of the direction to replace the sale consideration amount. The Court emphasized the importance of accurately determining capital gains, upheld the Commissioner's revisional powers, and remitted the matter for fresh consideration regarding the quantum of capital gains if the asset transfer attracted capital gains tax.