2000 (8) TMI 237 - AT - Income Tax

Summary

Issues Involved:
1. Computation of capital gains under section 50 of the Income-tax Act, 1961.
2. Applicability of section 50(2) for the sale of the Pinsel unit.
3. Determination of the full value of the sale consideration.

Detailed Analysis:

1. Computation of Capital Gains under Section 50 of the Income-tax Act, 1961:
The primary issue revolves around the computation of capital gains arising from the sale of the Pinsel unit, which was engaged in the manufacture of computer diskettes and chemicals. The sale was made to M/s. Vidarbha Iron & Steel Corpn. Ltd. (VISCO). The Assessing Officer computed short-term capital gains amounting to Rs. 1,74,26,035 by applying the provisions of section 50 of the Income-tax Act. The computation was based on the aggregate of the Written Down Value (WDV) increased by additions of plant and machinery and other assets made during the year, and this amount was deducted from the aggregate sale proceeds of the assets.

2. Applicability of Section 50(2) for the Sale of the Pinsel Unit:
The assessee argued that since the Pinsel unit was sold as a going concern, section 50(2) should not be invoked. The CIT(A) rejected this contention, and the ITAT upheld this decision. The ITAT noted that the sale agreement dated 17-4-1989 and the supplementary agreement dated 1-6-1990 clearly indicated itemized values for various assets, thus making section 50(2) applicable. The sale consideration was specifically attributed to various assets, including plant and machinery, stock-in-trade, and furniture. The ITAT referenced the Supreme Court's decision in CIT v. Artex Mfg. Co. [1997] 227 ITR 260, which supported the application of section 50(2) when specific values for assets are provided.

3. Determination of the Full Value of the Sale Consideration:
The assessee contended that only Rs. 55,00,000 should be considered as the sale consideration since this amount had become due and payable during the year. The ITAT rejected this contention, supporting the CIT(A)'s decision. The ITAT emphasized that section 45 of the Income-tax Act provides for the levy of capital gains on any profits or gains arising from the transfer of a capital asset effected in the previous year. Section 50, introduced w.e.f. 1-4-1988, specifically deals with depreciable assets and mandates considering the full value of the consideration received or accruing as a result of the transfer. Therefore, the Assessing Officer was correct in adopting Rs. 2,10,08,445 as the full value of the sale consideration.

Conclusion:
The ITAT upheld the CIT(A)'s decision to apply section 50(2) of the Income-tax Act, 1961, for computing short-term capital gains on the sale of the Pinsel unit. The sale agreement and supplementary agreement clearly indicated itemized values for various assets, justifying the application of section 50(2). The full value of the sale consideration was rightly determined at Rs. 2,10,08,445, rejecting the assessee's contention to consider only Rs. 55,00,000. The ITAT's decision aligns with the principles established in relevant Supreme Court judgments, ensuring that the provisions of the Income-tax Act are correctly applied.