1987 (11) TMI 105 - AT - Income Tax

Summary

Issues Involved:
1. Profit under section 41(2)
2. Addition of Rs. 4,38,789
3. Disallowance of gifts of Rs. 4,256 and sales tax penalty of Rs. 2,401
4. Exchange difference of Rs. 1,20,387
5. Payment of Rs. 25,000 to S. V. Ghatalia & Co.
6. Interest under section 139 & 215

Issue-wise Detailed Analysis:

1. Profit under section 41(2):
The primary issue was whether the transfer of assets by the assessee to its subsidiary was a slump sale or a sale of individual items, which would attract tax under section 41(2). The assessee argued it was a slump sale, thus not attracting section 41(2). The Income Tax Officer (ITO) and the Commissioner of Income Tax (Appeals) (CIT(A)) disagreed, arguing that the transfer of individual items, especially with the exclusion of land and buildings, did not constitute a slump sale. The Tribunal, considering the facts and the legal precedents, concluded that the transfer was not a slump sale. The learned Vice-President opined that the transfer included substantial intangible assets and intellectual properties, which were not accounted for in the balance sheet, thus justifying the valuation of goodwill at Rs. 6 crores. However, the learned Judicial Member and the Third Member concluded that the sale was not of a going concern due to the exclusion of significant assets like land and buildings, and thus, the provisions of section 41(2) were applicable. The matter was remitted back to the ITO for a fresh inquiry to ascertain the correct profit under section 41(2).

2. Addition of Rs. 4,38,789:
The assessee received Rs. 21,93,944 from an Indonesian company, out of which Rs. 4,38,789 was deducted as withheld tax, and only Rs. 17,55,155 was remitted to India. The ITO taxed the entire amount, but the Tribunal, referencing Supreme Court decisions, held that only the net amount received (Rs. 17,55,155) should be taxed, and the addition of Rs. 4,38,789 should be deleted. The Tribunal also noted that the assessee could apply for relief under section 91 if eligible.

3. Disallowance of gifts of Rs. 4,256 and sales tax penalty of Rs. 2,401:
These grounds were not pressed by the assessee and were thus rejected.

4. Exchange difference of Rs. 1,20,387:
The Tribunal upheld the disallowance of the exchange difference of Rs. 1,20,387, following the decision of the Special Bench of the Tribunal in Poysha Industrial Co. Ltd. v. ITO.

5. Payment of Rs. 25,000 to S. V. Ghatalia & Co.:
The assessee claimed this expenditure for the valuation of goodwill as a business expense. Both the ITO and the CIT(A) disallowed the claim, and the Tribunal upheld the disallowance, stating that the expenditure was not related to the running business of the company.

6. Interest under section 139 & 215:
The assessee's challenge to the levy of interest under sections 139 and 215 was rejected by the CIT(A) on the ground that no appeal lay in respect of it. The Tribunal upheld this decision, noting that the denial of liability should refer to the denial of liability to be taxed, which was not the case here.

Conclusion:
The Tribunal partly allowed the appeal. The addition of Rs. 4,38,789 was deleted, and the issue of profit under section 41(2) was remitted back to the ITO for a fresh inquiry. All other grounds were rejected.