2018 (11) TMI 113 - AT - Income Tax

Computation of capital gains arising on slump sale - overriding title - nature of sale - Full value of consideration received or accruing as a result of Transfer of the capital asset - sale consideration receivable or accruing on slum sale - terms of agreement - whether said that ₹ 25.50 crores accrued as a result of the Transfer or was received at a later point of time by the Assessee towards slump sale? - Held that - A reading of clause 3.2 of the Agreement dated 16.3.2007 in particular clause 3.4 would show that if on or before 31st December, 2007 if the Assessee does not get waiver of MGT from CPT then the Assessee will not be in a position to claim the sum equivalent to the amount due as MGT to CPT limited to a sum of ₹ 5 Crores. Therefore, there is an overriding title in so far as the receipt of ₹ 5 Crores is concerned by the Assessee from KCPL which is part of the sale consideration receivable or accruing on slum sale of Kochi Terminal Undertaking. In such circumstances it would not be correct to say that the sale consideration for the slump sale is a sum of ₹ 25.50 Crores by reading clause 3.1 of the Agreement dated 16.3.2007 in isolation. The evidence with regard to how much was the due to CPT towards MGT payable by the Assessee and how much was not waived by CPT have not been brought on record by the Assessee. The Assessee parted with the Kochi Terminal Undertaking on its slump sale as early as 16.3.2007 and the time for completion of condition precedent for slump sale as per the agreement, expired in December, 2007. KCPL refused to give any further extension of time for completion of the terms of the agreement by the Assessee. Therefore, there is merit in the contention of Assessee that it could not procure the required details from CPT and M/s. Aegis Logistics Ltd., who were the subsequent transferee of the Kochi Terminal Undertaking refused to co-operate. The issue should be remanded to the AO for consideration afresh on these aspects with a direction to the AO to exercise his powers under the Act, on specific request from the Assessee on the information required and the party from whom it is required, to establish its case that a sum of ₹ 5 Crores or such other lesser sum was in fact not receivable by the Assessee as per the terms of the Agreement dated 16.3.2007. Decided in favour of assessee for statistical purpose.

Summary

Issues Involved:
1. Determination of the full value of consideration received or accruing as a result of the transfer under a slump sale.
2. Computation of long-term capital loss (LTCL) on the slump sale.
3. Compliance with conditions precedent for the slump sale agreement.

Detailed Analysis:

1. Determination of the Full Value of Consideration Received or Accruing as a Result of the Transfer under a Slump Sale:
The primary issue in this case revolves around the determination of the full value of consideration received or accruing from the transfer of the Kochi terminal under a slump sale. The Assessee argued that the sale consideration should be ?20,50,00,000, as they failed to fulfill the condition of obtaining a waiver of Minimum Guarantee Throughput (MGT) from Cochin Port Trust (CPT). Consequently, the Assessee contended that the withheld amount of ?5,00,00,000 should not be included in the sale consideration. The Assessing Officer (AO), however, maintained that the full value of consideration was ?25,50,00,000 as per the agreement, leading to a dispute over the actual consideration amount.

2. Computation of Long-Term Capital Loss (LTCL) on the Slump Sale:
The Assessee computed the LTCL at ?9,19,09,841 by deducting the net worth of the Kochi undertaking (?29,69,09,841) from the sale consideration received (?20,50,00,000). In contrast, the AO computed the LTCL at ?4,19,09,841 by considering the sale consideration as ?25,50,00,000. The Tribunal emphasized that the computation of capital gains arising from a slump sale is governed by Section 50B of the Income-tax Act, 1961, which stipulates that the capital gains are calculated as the difference between the sale consideration and the net worth of the undertaking. The Tribunal noted that the net worth of the undertaking was undisputedly ?29,69,09,841.

3. Compliance with Conditions Precedent for the Slump Sale Agreement:
The Tribunal examined the conditions precedent outlined in the agreement dated 16.3.2007 between the Assessee and KCPL. Clause 3.2.2 of the agreement specified that a sum of ?5,60,00,000 would be retained by KCPL until certain conditions were fulfilled by the Assessee, including obtaining a waiver of MGT from CPT. Since the Assessee failed to obtain the MGT waiver, the Tribunal concluded that the consideration payable by KCPL was effectively reduced to ?20,50,00,000. The Tribunal also highlighted the importance of reading the agreement as a whole, emphasizing that the consideration payable should be ?20,50,00,000 in the absence of the MGT waiver.

Remand for Further Consideration:
The Tribunal acknowledged that the Assessee had faced difficulties in obtaining confirmation from KCPL and M/s. Aegis Logistics Ltd. regarding the actual payment and waiver of MGT. Consequently, the Tribunal remanded the matter to the AO for fresh consideration. The AO was directed to exercise his powers under the Act to obtain the necessary information from CPT and M/s. Aegis Logistics Ltd. to ascertain the exact amount of MGT payable and whether the Assessee was entitled to the withheld amount of ?5,00,00,000.

Conclusion:
The Tribunal allowed the appeal for statistical purposes, remanding the case to the AO for further investigation and verification of the facts related to the MGT waiver and the actual sale consideration. The Tribunal emphasized the need for a thorough examination of the conditions precedent and the actual payments made to determine the correct computation of capital gains arising from the slump sale.