2015 (11) TMI 925 - AT - Income Tax

Addition under the head capital gains in term of section 50B treating the sale of unit as slump sale - CIT(A) deleted the addition - Held that - Section 50B of the Act provides that any profit or gain arising from the slump sale effected in the previous year shall be chargeable to income-tax as capital gain 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. The admitted facts of the case are that the assessee company carried on business of growing and manufacture of tea, which owned two tea gardens by the names - Tongani Tea Estate and Nagrijuli Tea Estate. According to AO, out of these two tea estates, the assessee by an agreement dated 14.09.1999 sold Nagrijuli Tea Estate, to Russel Tea Ltd. for a total value of ₹ 18 cr. Ld. Counsel for the assessee Sh. Agarwalla first of all narrated the facts that according to agreement dated 14.09.1999 between the assessee and Russel Tea Ltd. sale consideration paid by vendee was for specific assets mentioned in the agreement and which were purchased/acquired for specific consideration. We find that this estate had been sold on the basis of detailed agreement executed between the vendor and the vendee. The total consideration stipulated for the transfer of the estate had been split over different assets, both movable and immovable enumerated in different schedules and annexures. The assessee had assigned specific consideration/value for the tea estate as such along with the standing trees. The consideration for the extent of land had been specifically mentioned. Thereafter, the assessee had listed out every item of movable property transferred to the buyer and value had been assigned to those movable assets. The assessee had not transferred the estate with all the assets and liabilities. All the financial assets available to the assessee up to the date of the transaction were not transferred as per the agreement but had been retained by the assessee. The assessee had assumed all the liabilities including the statutory liabilities till the date of transfer. Therefore, it could not be said that the transfer was a slump sale only for the reason that the rubber estate was transferred to the buyer as a going concern. In the instant case, the items sold did not include liabilities. The sale agreement did not include investments and deposits. Accordingly, all the investments, deposits, receivables, stock and such other current assets in the form of financial and other assets remained with the assessee-company along with the liabilities. Only those assets which were enumerated in the Schedules and Annexures were sold to the vendee. Therefore, the instant case was one of split sale and not a case of slump sale. Sale of Nagrijuli Tea Estate was not a slump sale within the meaning of sec. 2(42C) of the Act read with section 50B of the Act and, therefore, not even assessable to capital gains. - Decided against revenue.

Summary

Issues Involved:
1. Whether the sale of Nagrijuli Tea Estate constituted a slump sale under Section 50B of the Income-tax Act, 1961.
2. Whether the capital gains from the sale were assessable under Section 50B of the Act.

Detailed Analysis:

Issue 1: Whether the sale of Nagrijuli Tea Estate constituted a slump sale under Section 50B of the Income-tax Act, 1961.
The primary issue in this case was whether the sale of Nagrijuli Tea Estate by the assessee to Russel Tea Ltd. for Rs. 18 crores constituted a slump sale under Section 50B of the Income-tax Act, 1961. The Assessing Officer (AO) treated the sale as a slump sale and assessed the capital gains under Section 50B, adding Rs. 10,54,73,587/- to the assessee's income. The AO's rationale was that the tea estate was sold as a going concern, and the consideration was apportioned among various assets.

The CIT(A) disagreed with the AO, holding that the sale did not constitute a slump sale. The CIT(A) noted that the agreement specified the sale of fixed assets situated at Nagrijuli Tea Estate, and not the business undertaking as a whole. The CIT(A) observed that no intangible assets like licenses, quotas, or brand names were transferred, and there was no continuity in the business or management of the tea gardens before and after the sale. The CIT(A) also pointed out that the sale consideration was apportioned among different categories of fixed assets, and the tax computations were made accordingly. Therefore, the CIT(A) concluded that the AO was factually and legally wrong in invoking Section 50B of the Act.

Issue 2: Whether the capital gains from the sale were assessable under Section 50B of the Act.
The Tribunal upheld the CIT(A)'s decision, agreeing that the sale did not constitute a slump sale. The Tribunal noted that the agreement dated 14.09.1999 between the assessee and Russel Tea Ltd. specified the sale of individual assets with assigned values, rather than the entire business undertaking. The Tribunal also observed that the liabilities of the tea estate were not transferred, and the assessee retained all financial assets and liabilities up to the date of the transaction. The Tribunal emphasized that a slump sale under Section 50B requires the transfer of an entire business undertaking, including all assets and liabilities, which was not the case here.

The Tribunal cited several case laws to support its decision, including the Supreme Court's judgment in CIT v. Magniram Bangur & Co. (Land Department) [1965] 57 ITR 299 (SC) and the Bombay High Court's judgment in Premier Automobiles Ltd. v. ITO [2003] 264 ITR 193 (Bom). These cases established that a slump sale involves the transfer of a business as a whole for a lump sum consideration, without assigning values to individual assets and liabilities. The Tribunal also referred to the Cochin Tribunal's decision in Harrisons Malayalam Ltd. v. ACIT [2009] 32 SOT 497 (Cochin), which held that the sale of a rubber estate with assigned values to individual assets did not constitute a slump sale.

The Tribunal concluded that the sale of Nagrijuli Tea Estate was not a slump sale within the meaning of Section 2(42C) read with Section 50B of the Act. Therefore, the capital gains from the sale were not assessable under Section 50B. The Tribunal dismissed the revenue's appeal and upheld the CIT(A)'s order.

Conclusion:
The Tribunal ruled that the sale of Nagrijuli Tea Estate by the assessee to Russel Tea Ltd. did not constitute a slump sale under Section 50B of the Income-tax Act, 1961. Consequently, the capital gains from the sale were not assessable under Section 50B. The Tribunal upheld the CIT(A)'s decision and dismissed the revenue's appeal.