2009 (2) TMI 93 - HC - Income Tax

Transfer of business - undoubtedly transactions took place at book value and there is no evidence that the assessee received anything more than the stated consideration Finding that the transfer was at the book value, there would not be any balancing charge unless the book value was more than the written down value of the assets as per Income Tax records, is the finding of fact held that that neither capital gains was chargeable u/s 45 nor balancing charge was taxable u/s 41(2)

Summary

Issues:
1. Whether capital gain was leviable when the assessee transferred its business assets without consideration to Nirma Chemical Works and S.K. Family Trust in three installments?
2. Whether balancing charge under section 41(2) was imposable on the assessee?

Analysis:
1. The case involved the transfer of business assets by the assessee to Nirma Chemical Works and S.K. Family Trust without consideration in three installments. The Assessing Officer contended that the transactions were a colorable device to avoid tax liability under section 45 of the Income Tax Act, invoking provisions of Section 52(1) and seeking to tax profits under section 41(2) of the Act. However, the Commissioner (Appeals) and the Tribunal both ruled in favor of the assessee, citing the Apex Court decision in the case of COMMISSIONER OF INCOME-TAX, MADRAS Vs. SHIVAKAMI CO. P. LTD, (1986) 159 ITR 71. They found that there was no evidence to show that the assessee received anything more than what was stated in the document, thus rejecting the Revenue's challenge.

2. Regarding the balancing charge under section 41(2) of the Act, the Commissioner (Appeals) found that as the transfer was at book value, no balancing charge was applicable unless the book value exceeded the written down value of the assets. Since this was not the case, the addition under section 41(2) was deleted. The Tribunal upheld this decision, stating that there was no material to dislodge the finding that the book value was not more than the written down value of the assets. The Tribunal concluded that neither capital gains nor balancing charge was chargeable under the Act.

In summary, the High Court dismissed the appeal, upholding the decisions of the Commissioner (Appeals) and the Tribunal. The court found no legal infirmity in the orders, as there was no evidence to prove that the assessee received more than stated in the document. The court also affirmed that the balancing charge was not applicable as the book value did not exceed the written down value of the assets. The judgment highlighted the importance of evidence in establishing tax liability and reiterated the need for just and reasonable interpretation of tax laws.