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Issues Involved:
1. Whether the balancing charge under Section 41(2) of the Income-tax Act can be brought to tax. 2. Determination of the amount to be assessed as the balancing charge. Detailed Analysis: 1. Balancing Charge under Section 41(2): The primary issue in this appeal is whether the department can bring the balancing charge under Section 41(2) of the Income-tax Act to tax. The assessee, an ordinary Hindu undivided family (HUF), was engaged in the business of leasing out a cinema hall. The cinema hall, along with machinery and furniture, was sold for Rs. 3,00,000 by a registered sale deed dated 2-11-1981. The Income-tax Officer brought Rs. 67,621 to tax as profit under Section 41(2), which was the difference between the written down value (WDV) and the sale price. The assessee contended that since the entire undertaking was sold as a going concern, no balancing charge could arise, relying on the decision of the Gujarat High Court in Artex Mfg. Co. v. CIT [1981] 131 ITR 559. 2. Determination of Amount to be Assessed: The Commissioner of Income-tax (Appeals) [CIT (A)] found that the valuation report by a civil engineer, dated 5-9-1981, provided an itemized valuation of the property, which influenced the market value fixed at Rs. 3 lakhs. The CIT (A) held that the difference between Rs. 3 lakhs and Rs. 2,71,000 represented goodwill or a pro-rata increase in asset values. The CIT (A) dismissed the appeal, confirming the Income-tax Officer's order. Arguments and Legal Precedents: - The assessee argued that the sale was for a slump price, and no itemized value was put against depreciable assets, citing decisions in Artex Mfg. Co.'s case and Sarabhai M. Chemicals (P.) Ltd. v. P. N. Mittal, Competent Authority, IAC [1980] 126 ITR 1. - The departmental representative contended that the Income-tax Act does not recognize slump sales and that the sale deed's recitals indicated the sale of depreciable assets. He cited Sampat Iyengar's Income-tax Law, which states that balancing charge under Section 41(2) is attracted even in the sale of an entire undertaking if the value of depreciable assets can be ascertained. Judgment Analysis: - The Tribunal examined whether the sale constituted a transfer of the whole business or just depreciable assets. It noted that the sale deed did not mention liabilities, stock-in-trade, or goodwill, and the vendors and vendees were strangers. - The Tribunal distinguished the case from Mugneeram Bangur & Co. (Land Department)'s case and Artex Mfg. Co.'s case, holding that the sale was of depreciable assets plus the unexpired lease rights, not the entire business. - The Tribunal found that the valuation report provided sufficient material to ascertain the market value of depreciable assets. It remanded the matter to the CIT (A) to ascertain the rent payable for the unexpired lease period and deduct it from the sale price to determine the price attributable to depreciable assets. Conclusion: The appeal was allowed for statistical purposes. The CIT (A) was directed to ascertain the rent payable for the unexpired lease period, deduct it from the sale price, and compute the balancing charge under Section 41(2) accordingly.
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