2016 (4) TMI 519 - AT - Income Tax

Slump sale u/s. 2(42C) read with section 50B - sale of assets of chemical units - Held that - Hon ble Calcutta High Court in the case of Kwality Ice Cream (India) Ltd. v. CIT (2011 (1) TMI 905 - Calcutta High Court ) in which also though the sale of the undertaking was for a lump sum consideration it was held that sec. 50 of the Act in respect of depreciable assets will override all other previsions and for depreciable assets, the value has to be determined in accordance with the principles of block of assets read with sec. 43(6) of the Act. In view of the aforesaid facts and circumstances, we are of the view that sale and transfer of some of the assets of the undertaking for which sale prices had been predetermined and agreed and disclosed in the agreement itself without transferring other assets and without transferring any of the liabilities cannot be treated as slump sale. The assessee has sold the chemical unit not as a going concern but itemized sale was made vide agreement and hence, the sale cannot be treated as slump sale. We reverse the orders of the lower authorities and this issue of assessee is allowed.

Summary

Issues Involved:
1. Whether the sale of assets of the chemical unit by the assessee constitutes a slump sale under Section 2(42C) read with Section 50B of the Income Tax Act, 1961.

Detailed Analysis:

Issue 1: Classification of Sale as Slump Sale

Facts and Arguments:
The primary issue in this appeal is whether the sale of assets of the chemical unit by the assessee should be treated as a slump sale under Section 2(42C) read with Section 50B of the Income Tax Act, 1961. The assessee argued that the sale was an itemized sale of assets rather than a transfer of an entire undertaking as a going concern. The AO, however, treated the transaction as a slump sale, leading to the assessment of short-term capital gains.

CIT(A) Observations:
The CIT(A) upheld the AO's decision, observing that the sale was for a lump sum consideration and that the business activity was transferred as a going concern. The CIT(A) noted that the intention of the parties, the documents, and the facts supported the classification as a slump sale. The CIT(A) emphasized that the absence of liabilities transfer does not negate the slump sale classification if the business can continue without them.

Relevant Case Laws:
1. Rohan Software Pvt. Ltd v. ITO: Held that even if not all assets and liabilities are transferred, if the purchaser can continue the business, it can be considered a slump sale.
2. CIT v. Polychem Ltd: Agreement did not contain itemized valuation; the total consideration was for the transfer of the business as a whole, constituting a slump sale.
3. ECE Industries Ltd. vs. DCIT: Sale of a unit as a going concern for a lump sum was treated as a slump sale.
4. Max India: Sale of a going concern was treated as a slump sale even if some assets were retained by the transferor.
5. Premier Automobiles Ltd. v. ITO: Transfer of business as a whole for a lump sum consideration was treated as a slump sale.

Tribunal's Analysis and Decision:
The Tribunal examined the agreement and the nature of the transaction. It was found that the sale agreement specified individual asset values and the sale was not for a lump sum consideration for the entire undertaking. The Tribunal referred to several case laws, including the Supreme Court's decision in CIT v. Artex Manufacturing Co., which held that predetermined sale prices for individual assets do not constitute a slump sale.

Key Findings:
- The sale agreement specified individual values for assets, indicating an itemized sale rather than a lump sum consideration for the entire business.
- The liabilities were not transferred to the purchaser, and the seller retained them, further supporting the classification as an itemized sale.
- The Tribunal cited decisions from various cases, including Harrisons Malayalam Ltd. v. ACIT and Mahindra Sintered Products Ltd. v. DCIT, which supported the view that the sale of individual assets with predetermined values does not constitute a slump sale.

Conclusion:
The Tribunal concluded that the sale of the chemical unit's assets by the assessee was an itemized sale and not a slump sale under Section 2(42C) read with Section 50B of the Income Tax Act. Consequently, the Tribunal reversed the orders of the lower authorities and allowed the appeal in favor of the assessee.

Final Judgment:
The appeal of the assessee is allowed, and the sale of the chemical unit's assets is classified as an itemized sale rather than a slump sale. The Tribunal directed the AO to reassess the capital gains accordingly.