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2003 (5) TMI 46 - HC - Income TaxThe assessee contended that the undertaking having been sold at a slump price and no amount being attributable to depreciable and non-depreciable assets, distinctly, the decision of the learned Tribunal was a mistake apparent from the record that required to be corrected. This application under section 254(2) having been dismissed, the present appeal has been filed under section 260A - whether this slump price would be subjected to tax under the head Income from business having regard to section 41(2) We hold that the income on account of slump price in this case is subject to chargeability under the head Capital gains . - The matter is remitted to the learned Tribunal to determine the question afresh in the light of the observations made in this decision for deciding the amount of capital gains chargeable on the slump price in accordance with law, if necessary.
Issues Involved
1. Valuation of the undertaking acquired by the West Bengal State Electricity Board. 2. Assessment of the awarded sum under capital gains and income from business. 3. Applicability of section 41(2) of the Income-tax Act, 1961 to the slump price. 4. Determination of the amount attributable to depreciable and non-depreciable assets. 5. Correctness of the Tribunal's order and its dismissal of the application under section 254(2) of the Income-tax Act, 1961. Detailed Analysis Valuation of the Undertaking The undertaking of the assessee was acquired by the West Bengal State Electricity Board, and the valuation was to be determined under section 7A of the Indian Electricity Act. The absence of an agreement between the parties led to the appointment of an arbitrator, who awarded a sum of Rs. 1,02,82,000. This award was subject to litigation that reached the apex court, which ultimately appointed an arbitrator. Assessment under Capital Gains and Income from Business The Tribunal assessed the awarded amount under both capital gains and income from business, specifically under section 41(2) of the Income-tax Act, 1961. The undertaking was valued at Rs. 88 lakhs by the Tribunal's order dated May 15, 2000. The assessee filed an application under section 254(2), contending that the decision was a mistake apparent from the record, citing precedents such as CIT v. West Coast Chemicals and Industries Ltd. [1962] 46 ITR 135 (SC) and CIT v. Mugneeram Bangur and Co. (Land Department) [1965] 57 ITR 299 (SC). Applicability of Section 41(2) The core issue was whether the slump price could be subjected to tax under the head "Income from business" with the aid of section 41(2). The assessee argued that the slump price could not be taxed under this head because no amount was attributable to depreciable and non-depreciable assets distinctly. The balance-sheet did not indicate the amount payable on transfer or acquisition. The Revenue contended that the amount payable on acquisition could be ascertained from section 7A of the Indian Electricity Act and the balance-sheet. Determination of Depreciable and Non-Depreciable Assets The court noted that the cost of non-depreciable assets must be excluded for computing income from business under section 41(2). The arbitrator's award was a slump price without attributing any part of the amount to any particular head. The balance-sheet might indicate the value of different items, but without specific materials to determine the value of depreciable or non-depreciable assets, it is not possible to ascertain the amount attributable to each. Correctness of the Tribunal's Order The Tribunal's order rejecting the application under section 254(2) was set aside to the extent it related to tax on income from business. The court confirmed the part of the order dealing with capital gains, holding that the income on account of the slump price is subject to chargeability under the head "Capital gains." The matter was remitted to the Tribunal to determine the question afresh in light of the observations made in this decision, specifically regarding the amount of capital gains chargeable on the slump price. Conclusion The appeal was allowed to the extent that the slump price would not be subjected to tax under the head "Income from business" under section 41(2). The Tribunal's order was modified, confirming the principle relating to capital gains. The matter was remitted to the Tribunal for further determination within six months.
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