2014 (1) TMI 1600 - AT - Income Tax

Application of Section 50B of the Act- Slump sale u/s 2(42C) of the Act - The entire assessment is based on the fact that the Assessing Officer has treated the transfer of assets to M/s. Novapan Industries Ltd. as a slump sale attracting the provisions of section 50B of the Act Held that - As per the scheme of amalgamation, there is no monetary consideration received by the assessee-company for transfer of the manufacturing division - Section 50B of the Act provides for computation of capital gains in the case of slump sale - Relying upon CIT vs. R.R. Ramakrishna Pillai 1967 (5) TMI 7 - SUPREME Court - where a person carrying on business, transfers assets to a company in consideration of allotment of shares, it would be a case of exchange but not of sale - since there is no monetary consideration involved in transferring the manufacturing division with all its assets and liabilities to M/s. Novapan Industries Ltd. under scheme of amalgamation approved by the Hon ble High Court - it cannot be considered to be a slump sale within the meaning ascribed under section 2(42C) of the Act so as to attract the liability of the capital gain under section 50B of the Act the order of the CIT(A) upheld Decided against Revenue.

Issues Involved:
1. Whether the transfer of the manufacturing division to M/s. Novapan Industries Limited constitutes a "slump sale" under section 50B of the Income Tax Act.
2. Applicability of capital gains tax on the transfer under section 50B of the Act.
3. Validity of the grounds raised by the Revenue in the appeal.

Issue-wise Detailed Analysis:

1. Whether the transfer constitutes a "slump sale" under section 50B of the Income Tax Act:

The Assessing Officer (AO) considered the transfer of the manufacturing division to M/s. Novapan Industries Limited as a "slump sale" under section 50B, which involves the transfer of an undertaking for a lump sum consideration without assigning values to individual assets and liabilities. The AO determined the capital gain by considering the share capital allotted and the value of investments transferred, totaling Rs.31,52,12,500, and after reducing the cost of acquisition, determined a long-term capital gain of Rs.24,70,90,500.

The assessee argued that the transfer was part of a scheme of arrangement under sections 391/394 of the Companies Act, approved by the High Court, and not a sale for monetary consideration. The assessee relied on judicial precedents, including the Supreme Court's decision in CIT vs. Motors and General Stores Pvt. Ltd., which held that a sale requires monetary consideration, and if the consideration is not money but some other valuable consideration, it may be an exchange or barter but not a sale.

The CIT(A) agreed with the assessee, holding that the transaction, being a scheme of arrangement under sections 391/394 of the Companies Act, did not amount to a sale and thus did not fall within the definition of a "slump sale" under section 2(42C). Consequently, the provisions of section 50B did not apply.

2. Applicability of capital gains tax on the transfer under section 50B of the Act:

The Revenue contended that the transfer should be treated as a slump sale and taxed under the head "Capital Gain" under section 50B. The assessee countered that the grounds raised by the Revenue pertained to demerger, not slump sale, and that the AO had not referred to demerger in the reasons recorded under section 148. The assessee further argued that since no monetary consideration was involved, the transaction could not be considered a sale.

The Tribunal examined the facts and judicial precedents, including the Supreme Court's decisions in CIT vs. Motors and General Stores Pvt. Ltd. and CIT vs. R.R. Ramakrishna Pillai, which clarified that a sale requires monetary consideration. The Tribunal concluded that since the transfer involved no monetary consideration, it could not be considered a slump sale under section 2(42C), and thus, section 50B did not apply.

3. Validity of the grounds raised by the Revenue in the appeal:

The Tribunal noted that the grounds raised by the Revenue related to demerger, whereas the AO had treated the transfer as a slump sale. The Tribunal held that the grounds could not be entertained as they did not pertain to the issue in dispute. The Tribunal also observed that the assessment was completed under section 143(3) read with section 147, and no reference to demerger was made in the reasons recorded under section 148.

Conclusion:

The Tribunal upheld the CIT(A)'s decision, concluding that the transfer of the manufacturing division to M/s. Novapan Industries Limited under a scheme of amalgamation approved by the High Court did not constitute a slump sale under section 2(42C) and thus did not attract capital gains tax under section 50B. The grounds raised by the Revenue were dismissed, and the appeal was also dismissed.

Order:

The appeal by the Revenue was dismissed, and the order was pronounced in the Open Court on 21.08.2013.

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