2016 (6) TMI 958 - HC - Income Tax

Slump sale of an undertaking - whether corresponding WDV is required to be reduced from the remaining block and depreciation on such reduced block can only be allowed as held by ITAT? - Held that - It is to be noted that Section 43(6) which provides written down value , more particularly clause (C) whereby Section 43 (6)(c) was amended on 01/04/2000 and therefore the observations in paragraph No.19.1 of ITAT are contrary to the law which was prevailing in the relevant assessment year. The said provision came into force on 01/04/2000 and therefore it can be made applicable for the assessment year 2001-2002 and the applicability of the same without referring the same, in our view is bad in law and therefore the said issue is required to be answered in favour of assessee and against the department. Thus, the issue No.1 is answered in favour of assessee and against the department. Cost of bonus shares taken at Rs.nil - the said bonus shares are issued prior to the amendment to S.55(2)(aa) - Held that - As so far as the finding of the AO rejecting the claim of the appellant on the ground that the cost of the bonus shares is to be taken at NIL as per the amended provisions of law, in view of the judgment of the Constitutional Bench in case of CIT V. Gold Co. Ltd. 1969 (4) TMI 29 - SUPREME Court which has been referred to in Escorts Farms (Ramgarh) Ltd. (1996 (9) TMI 4 - SUPREME Court ), Section 55(2)(aa) which came into operation on 01/04/1996 and therefore the transaction of disposing of original share on average price is required to be benefited to the appellant and ought to have been accepted by the AO which has been referred by the Tribunal. Thus, this issue is also answered in favour of appellant-assessee

Summary

Issues:
1. Whether in a slump sale of an undertaking, the corresponding WDV should be reduced from the remaining block for allowing depreciation?
2. Whether it is possible to determine the individual WDV of an asset even if it goes into a block of assets?
3. Whether the cost of bonus shares should be taken at nil even if the shares were issued before the amendment to Section 55(2)(aa) of the Income Tax Act?

Analysis:

Issue 1:
The appellant challenged the ITAT's order regarding the reduction of WDV in a slump sale of an undertaking and the allowance of depreciation on the reduced block. The Tribunal held against the appellant, citing Section 43(6) which defines "written down value." However, the Tribunal's decision was deemed contrary to the law prevailing during the relevant assessment year as Section 43(6)(c) was amended on 01/04/2000. The High Court found the Tribunal's observation in this regard to be incorrect and held that the amendment could only be applicable from 01/04/2000 onwards, not for the assessment year in question. Consequently, Issue 1 was resolved in favor of the appellant and against the department.

Issue 2:
The appellant also contested the rejection of their claim by the AO regarding the cost of bonus shares, arguing that the shares should be valued at nil as per the amended law. The High Court referred to the judgment in the case of CIT v. Gold Co. Ltd. and noted that Section 55(2)(aa) came into operation on 01/04/1996. The Court agreed with the appellant that the transaction of disposing of original shares at an average price should benefit the appellant, as per the Tribunal's reference. Therefore, Issue 2 was also decided in favor of the appellant and against the Department.

Final Decision:
The High Court disposed of the appeal by ruling in favor of the appellant on both issues discussed above. The Court held that the Tribunal's decisions were not in line with the prevailing laws during the relevant assessment year and, therefore, the appellant's contentions were valid and should be upheld.