2020 (7) TMI 604 - HC - Income Tax

Capital Gains - Slump sale or sale of individual assets - whether the Tribunal was right in affirming the order passed by AO and holding that the transfer of the division is to be treated as a 'slump sale' and not sale of individual items and consequently, Section 50B was attracted? - to be taxed u/s 41(2) or under the head capital gains - HELD THAT - CIT(A) rendered a factual finding that the assessee has assigned separate values for the immovables consisting of land and building and movables consisting of furnitures and fixtures, plant and machinery, patents, net current assets and therefore, concluded that the consideration for transfer cannot be called as a lump sum consideration. - It was decided that, the sale effected by the assessee does not constitute slump sale as per Section 2(42C) of the Act and hence the provisions of Section 50B will not be applicable. We find that all that the Revenue stated was that CIT(A) erred in holding that the sale effected by the assessee does not constitute slump sale as per Section 2(42C) of the Act and hence provisions of Section 50B will not be applicable. The same grounds have been repeated, but not in the same format, but by adopting a different style. Substantial question of law framed for consideration in this appeal undoubtedly are mixed questions of fact and law. The question of remanding the matter to the Tribunal for fresh consideration would not arise for the simple reason that the fact that the individual assets were separately valued as recorded by the CIT(A) was never disputed by the Revenue before the Tribunal. Therefore, on such admitted facts, if we examine the finding of the Tribunal, more particularly, in paragraph 13 of the order, we find that the same calls for interference. As decided in Artex Manufacturing Company 1997 (7) TMI 7 - SUPREME COURT value of the plant, machinery and dead stock though not mentioned in the agreement, but information was furnished by the assessee before the Income Tax Officer from which it became evident that the plant, machinery and dead stock were separately valued and therefore, it was held that it is not a case in which it cannot be said that the price attributed to the items transferred is not indicated and hence Section 41(2) of the 1961 Act cannot be applied. This decision would clearly support the case of the assessee, who had succeeded before the CIT(A) by establishing that the individual assets were separately valued and documents to the said effect were produced. Added to that the Revenue did not dispute such a factual position before the Tribunal and consequently, the finding rendered by the Tribunal does not merit acceptance. - Decided in favour of the assessee

Summary

Issues Involved:
1. Whether the transfer of the division should be treated as a 'slump sale' or sale of individual items.
2. Whether the provisions of Section 50B of the Income Tax Act, 1961 are attracted in computing the capital gains arising from the transfer of the API division as a going concern.

Issue-wise Detailed Analysis:

1. Treatment of Transfer as 'Slump Sale' or Sale of Individual Items:

The core issue was whether the transfer of the API division should be treated as a 'slump sale' or as a sale of individual items. The assessee argued that the transfer was done on an individualized method, assigning specific values to different assets, including furniture and fixtures, plant and machinery, land, building, and patents. The assessee provided detailed break-ups and sale bills to support this claim, showing separate values for each asset.

The Assessing Officer, however, treated the sale as a 'slump sale' under Section 50B of the Act, arguing that the sale was entered as a going concern without individual values mentioned in the agreement. The CIT(A) analyzed the conditions in the agreement and the sale bills provided by the assessee, concluding that separate values were assigned to individual assets, thus negating the 'slump sale' classification.

The Tribunal, however, upheld the Assessing Officer's view, stating that no individual values were assigned in the agreement. The High Court noted that the CIT(A) had made a factual finding based on the documents provided, showing separate valuations for individual assets, which the Revenue did not dispute before the Tribunal. As a result, the High Court found the Tribunal's decision to be erroneous and restored the CIT(A)'s order, concluding that the transfer was not a 'slump sale'.

2. Applicability of Section 50B:

The second issue was whether Section 50B, which deals with the computation of capital gains in the case of a 'slump sale', was applicable. The Assessing Officer applied Section 50B, treating the entire transfer as a 'slump sale'. The CIT(A) disagreed, stating that since the assets were individually valued, Section 50B was not applicable.

The High Court supported the CIT(A)'s view, emphasizing that the factual finding of separate valuations for individual assets was not contested by the Revenue. The High Court referred to the case of Commissioner of Income Tax vs. Artex Manufacturing Company, where it was held that if individual values are provided, Section 41(2) (similar to Section 50) would apply instead of treating the transfer as a 'slump sale'.

The High Court concluded that the Tribunal failed to consider the factual findings and the evidence provided by the assessee, leading to an incorrect application of Section 50B. Consequently, the High Court set aside the Tribunal's order and restored the CIT(A)'s decision, affirming that Section 50B was not applicable.

Conclusion:

The High Court allowed the appeal, set aside the Tribunal's order, and restored the CIT(A)'s decision, concluding that the transfer of the API division was not a 'slump sale' and that Section 50B of the Income Tax Act, 1961 was not attracted. The substantial questions of law were answered in favor of the assessee.