2019 (2) TMI 419 - HC - Income Tax

Nature of transaction - slump sale or transfer of shares - transfer of entire shareholding in its subsidiary UHEL to a third party - Held that - transfer of shares in a company will not result in a transfer of an undertaking or part of the undertaking to make it a slump sale. - Tribunal has invoked the correct principle of law to draw a distinction between transfer of shares and transfer of undertaking. In the present facts, what has been transferred are mere shares of the respondent in UHEL. There has been no transfer of an undertaking of UHEL. The undertaking continues to be vested in UHEL. Only there has been change in pattern of its share holdings which would not make it slump sale. This position is evident from the statutory definition of slump sale and the term undertaking as defined in the Act read with the binding decision of the Apex Court in 2012 (1) TMI 52 - SUPREME COURT OF INDIA and 1954 (10) TMI 2 - SUPREME COURT - Decided against the revenue.

Summary

Issues:
Interpretation of provisions of Section 2(42C) and Section 50B of the Income Tax Act, 1961 regarding the nature of a transaction involving the transfer of shares in a company.

Analysis:
The case involved a dispute regarding the nature of a transaction between the assessee and a company, specifically whether it constituted a share transfer or a slump sale. The respondent, engaged in various media-related businesses, declared long-term capital gains from the sale of its shares in a subsidiary to a third party. The Assessing Officer initially considered it a slump sale of an undertaking, resulting in short-term capital gain under Section 50B of the Act.

Upon appeal to the Commissioner of Income Tax (Appeals) and subsequently to the Tribunal, it was argued that the respondent only held 49% shares in the subsidiary, and other shareholders also sold their shares to the same third party. The Tribunal analyzed the definitions of "slump sale" and "undertaking" under the Act and concluded that the transfer of shares did not amount to a transfer of an undertaking, relying on legal precedents such as Bacha F. Guzdar Vs CIT and Vodafone International Holdings Vs. Union of India.

The Tribunal held that the transfer of shares was a simple transfer of shares and not a slump sale of an undertaking, making Section 50B inapplicable. The High Court upheld this decision, emphasizing the distinction between a transfer of shares and a transfer of an undertaking. It was clarified that in this case, only the shareholding pattern changed, and the undertaking remained with the subsidiary, thus not constituting a slump sale as per the statutory definition and legal precedents.

The Court found that the Tribunal correctly applied the law in distinguishing between share transfer and undertaking transfer. Since there was no transfer of the undertaking itself, the question raised did not give rise to any substantial legal issue, leading to the dismissal of the appeal. The judgment highlighted the importance of understanding the legal definitions and principles governing transactions involving shares and undertakings under the Income Tax Act.