2018 (6) TMI 1807 - HC - Income Tax

Slump sale - sale of entire undertaking of a tea estate - as per AO sale of a tea estate by the assessee the land and the agricultural part of the business was given a particular value and all other assets of the tea estate were given another combined value and the AO perceived the sale to be a slump sale where the entire undertaking was perceived to have been sold without any itemization - HELD THAT - In course of the assessee s appeal before the Commissioner (Appeals) the Commissioner (Appeals) not only discovered that some of the liabilities pertaining to the tea estate had not been transferred to the transferee but also that the sale consideration was reduced from the written down value of the block of depreciable assets and disclosed as deemed short-term capital gain under Section 50. Commissioner (Appeals) also found that in the valuation report and the books of accounts specific values were consciously assigned to specific classes of assets by the parties to the transfer and the quantum of profit was also separately worked out on the transfer of agricultural land and plantation. The assessee disclosed the profits separately because plantation land was not a depreciable asset. The valuer found the value of the land and plantation to be about Rs.12.20 crore. The cost of such land and plantation in the assessee s books was about Rs.6.97 crore. A profit of about Rs.5.23 crore was disclosed on the transfer which was separately provided for in the balance-sheet as agricultural development reserve. On the Commissioner s detailed inquiry as to the manner in which the sale was conducted Commissioner (Appeals) was satisfied that it was not a slump sale. Commissioner (Appeals) referred to several judgments; but at the end of the day it was a pure consideration on facts and it is such factual finding which has been endorsed by the Appellate Tribunal in the judgment and order impugned dated November 6 2015. Even though the Assessing Officer found that a certain value had been attributed to the land and plantation and another value attributed to the plant machinery buildings and non-agricultural assets the Commissioner (Appeals) found the break-up backed by valuation reports and the like

Summary

Issues:
1. Circumstances for a sale to be considered a slump sale.
2. Transfer of liabilities in a sale of an undertaking.
3. Valuation of assets in a sale transaction.
4. Determination of profit in a sale of agricultural land and plantation.
5. Assessment of whether a sale qualifies as a slump sale based on factual findings.

Analysis:
1. The primary issue in this case revolves around the circumstances that determine whether a sale of an entire undertaking can be classified as a slump sale. The Assessing Officer initially perceived the sale of a tea estate as a slump sale due to the perceived transfer of the entire undertaking without itemization. However, upon appeal, the Commissioner (Appeals) found that specific values were consciously assigned to different classes of assets by the parties involved, and the profit was separately disclosed based on the transfer of agricultural land and plantation. The Commissioner (Appeals) conducted a detailed inquiry and concluded that it was not a slump sale, a finding upheld by the Appellate Tribunal.

2. Another crucial aspect addressed in the judgment is the transfer of liabilities in a sale transaction. The Commissioner (Appeals) noted that some liabilities related to the tea estate had not been transferred to the transferee. This discrepancy, along with the reduction of sale consideration from the written down value of depreciable assets, led to the disclosure of deemed short-term capital gain under Section 50 of the Income Tax Act, 1961.

3. The valuation of assets in the sale transaction played a pivotal role in determining the nature of the sale. The parties involved consciously assigned specific values to different classes of assets, with a separate valuation for the agricultural land and plantation. The valuation report indicated a significant difference between the value of the land and plantation as per the books of accounts and the actual sale value, resulting in a disclosed profit that was separately provided for in the balance-sheet.

4. The judgment also delves into the determination of profit in the sale of agricultural land and plantation. The valuer assessed the value of the land and plantation at approximately Rs.12.20 crore, whereas the cost in the assessee's books was around Rs.6.97 crore. This valuation difference led to a disclosed profit of about Rs.5.23 crore, which was specifically earmarked as agricultural development reserve in the balance-sheet.

5. Lastly, the assessment of whether the sale qualified as a slump sale hinged on factual findings. Despite the initial perception by the Assessing Officer, the Commissioner (Appeals) and the Appellate Tribunal, after detailed inquiries, concluded that the sale did not meet the criteria for a slump sale. The factual findings regarding the valuation of assets and the conscious assignment of values to different asset classes played a crucial role in determining the nature of the sale.

Overall, the judgment emphasizes the importance of factual inquiries and detailed assessments in determining the nature of a sale transaction, particularly in cases involving the transfer of entire undertakings and the valuation of assets.