1983 (4) TMI 70 - AT - Income Tax

Summary

Issues Involved:
1. Taxability of surplus realized on the takeover of the undertaking by the Gujarat Electricity Board.
2. Classification of the sale as a slump sale or individual asset sale.
3. Inclusion of consumers' contributions in the computation of capital gains and profit under section 41(2).
4. Taxability of the solatium amount received.

Issue-wise Detailed Analysis:

1. Taxability of Surplus Realized:
The ITO found that the original cost of the assets was Rs. 31,02,608, with depreciation granted amounting to Rs. 9,07,738, leading to a written down value of Rs. 7,11,626. The assessee received Rs. 14,83,144 by way of consumers' contribution. The ITO held that the excess of consideration received over the written down value was income under section 41(2) of the Income-tax Act, 1961. The Commissioner (Appeals) upheld this view, treating the surplus as taxable income.

2. Classification of Sale:
The assessee argued that the transfer was a slump sale of the entire undertaking, not an individual asset sale, citing the Supreme Court decision in CIT v. Mugneeram Bangur & Co. and the Gujarat High Court decision in Artex Manufacturing Co. The Tribunal, however, found that the transaction did not constitute a slump sale. The assets were taken over individually, free from any debt, mortgage, or similar obligation, and the consideration was fixed for each asset. The Tribunal concluded that section 41(2) was applicable.

3. Inclusion of Consumers' Contributions:
The assessee contended that consumers' contributions should not be considered in computing capital gains, arguing that the definition of 'actual cost' in section 43(1) was only for computing business income, not capital gains. The Tribunal noted the lack of clarity on the exact norms for consumers' contributions and their relation to specific assets. The Tribunal directed the ITO to ascertain the extent of contributions relevant to each asset and adjust the profit under section 41(2) and capital gains accordingly.

4. Taxability of Solatium:
The assessee claimed that the solatium amount of Rs. 2,20,000 was not taxable, citing the Supreme Court decision in CIT v. B.C. Srinivasa Setty. The Tribunal disagreed, referencing the Gujarat High Court decision in Vadilal Soda Ice Factory v. CIT, which held that solatium represents consideration for the property acquired and should be included in computing capital gains. The Tribunal concluded that the solatium was part of the purchase consideration and taxable under section 41(2) and as capital gains.

Conclusion:
The Tribunal affirmed the liability of the assessee to tax under section 41(2) and for capital gains, remitting the matter back to the ITO for a detailed computation. The ITO was directed to ascertain the consideration for each asset, determine the market value as on 1-1-1954, and adjust for depreciation and consumers' contributions. The solatium amount was held to be taxable as part of the purchase consideration. The appeal was partly allowed.