1995 (2) TMI 91 - AT - Income Tax

Summary

Issues Involved:
1. Applicability of section 263 of the Income-tax Act.
2. Nature of the sale of the business undertaking.
3. Tax treatment of the sale proceeds under sections 41(2) and 45 of the Income-tax Act.
4. Consideration of judicial precedents in determining the nature of the sale.

Issue-wise Detailed Analysis:

1. Applicability of section 263 of the Income-tax Act:
The appeal was filed by the assessee against the revisionary order passed by the CIT under section 263 of the Income-tax Act. The CIT considered the assessment order passed by the ITO as erroneous and prejudicial to the interests of revenue. The CIT directed the ITO to re-do the assessment, emphasizing that the difference between the original costs of the assets and their written down values (WDV) should be charged to tax under section 41(2) and not under section 45.

2. Nature of the sale of the business undertaking:
The assessee argued that the sale was of the entire business concern as a going concern, including goodwill, and thus should be considered a winding-up sale. The CIT, however, noted that the sale price had been fixed separately for the building, furniture, goodwill, etc., and therefore, it was not a slump sale. The Tribunal agreed with the assessee that the sale was of the entire business undertaking as a going concern, but also noted that the separate pricing of assets indicated it was not a slump sale.

3. Tax treatment of the sale proceeds under sections 41(2) and 45 of the Income-tax Act:
The ITO initially treated the entire surplus from the sale as capital gains under section 45. The CIT, however, held that the difference between the actual cost of the assets and their WDV should be assessed as profit under section 41(2), with the excess amount being taxed as capital gains under section 45. The Tribunal upheld the CIT's view, stating that since separate prices were mentioned for the building and other assets, the balancing charges under section 41(2) should be computed for such items.

4. Consideration of judicial precedents in determining the nature of the sale:
The assessee relied on several judicial precedents, including the Supreme Court cases of Mugneeram Bangur & Co., West Coast Chemicals & Industries Ltd, and Artex Mfg. Co., to argue that the sale should be treated as a slump sale. However, the Tribunal distinguished these cases, noting that in the present case, itemized values were fixed for different assets, unlike in the cited cases where a slump price was fixed without itemization. The Tribunal also considered decisions from the Gujarat High Court in Jayantilal Bhogilal Desai v. CIT and the Allahabad High Court in Chandra Katha Industries v. CIT, which supported the view that itemized pricing negates the application of slump sale principles.

Conclusion:
The Tribunal ultimately upheld the CIT's order, agreeing that the sale of the business undertaking was not for a slump consideration and that the provisions of section 41(2) were applicable. The appeal filed by the assessee was dismissed.