2010 (10) TMI 673 - HC - Income Tax

Slump sale - whether the sale of the industrial units by the respondent-assessees with the land, building, plant and equipments as going concerns to another company during the previous year cannot be assessed to tax for capital gains as slump sale under Section 50B but assessable for capital gain as sale of depreciable assets under Section 50 of the Income Tax Act. - Held that - sale of the undertaking is a slump sale within the meaning of Section 2(42C) assessable under Section 50B of the Act and assessee also rightly styled the transaction as such as slump sale in the sale documents and even got the Auditor s report prepared and filed along with return in terms of Section 50B(3) of the Act. - assessment was rightly made by the Officer under Section 50B treating the transaction as slump sale .

Issues Involved:
1. Whether the sale of industrial units by the respondent-assessees qualifies as a "slump sale" under Section 50B or as a sale of depreciable assets under Section 50 of the Income Tax Act.
2. Validity of the reopening of the assessment under Section 147 of the Income Tax Act.
3. Correctness of the computation of capital gains under Section 50B by the Assessing Officer.

Issue-Wise Detailed Analysis:

1. Qualification of Sale as "Slump Sale" or Sale of Depreciable Assets:
The primary issue is whether the sale of industrial units by the respondent-assessees should be assessed as a "slump sale" under Section 50B or as a sale of depreciable assets under Section 50 of the Income Tax Act. The Tribunal had previously held that the sale should be assessed under Section 50, treating it as a sale of depreciable assets. However, the High Court found that the sale of the industrial undertaking, which included land, building, machinery, and equipment as a going concern, for a lump sum consideration of Rs. 22.20 crores, qualifies as a "slump sale" under Section 2(42C) of the Act. The Court noted that the sale agreement explicitly stated that the sale was on a "slump sale basis" and that the assessee had initially treated the transaction as such by submitting the auditor's report in the prescribed form under Section 50B(3). The Court emphasized that Section 50 applies to the sale of depreciable assets, whereas Section 50B applies to the sale of an entire undertaking as a going concern, which includes depreciable assets. Therefore, the Court concluded that the transaction should be assessed under Section 50B as a "slump sale."

2. Validity of Reopening of Assessment under Section 147:
The second issue concerns the validity of the reopening of the assessment under Section 147 of the Income Tax Act. The first appellate authority had allowed the appeal on the grounds that the income escaping assessment was passed without jurisdiction. However, the Tribunal did not consider the validity of the reopening, as the issue became academic due to the Tribunal's decision on the merits in favor of the assessee. The High Court remanded the matter to the Tribunal to decide on the validity of the reopening of the assessment under Section 147 after hearing both sides. This indicates that the Court found it necessary to address this procedural aspect separately.

3. Correctness of Computation of Capital Gains under Section 50B:
The third issue is the correctness of the computation of capital gains under Section 50B by the Assessing Officer. The assessee contended that the computation itself was incorrect, but this issue was not considered by any of the appellate authorities because the first appellate authority and the Tribunal had decided in favor of the assessee on the merits. The High Court provided the assessee with an opportunity to raise this issue before the Assessing Officer if the Tribunal upholds the income escaping assessments and remands the matter for revision of assessment in terms of the Court's judgment.

Conclusion:
The High Court allowed the appeal by reversing the order of the Tribunal and the first appellate authority, holding that the assessment was rightly made by the Officer under Section 50B treating the transaction as a "slump sale." The Court remanded the matter to the Tribunal to decide on the validity of the reopening of the assessment under Section 147 and provided the assessee with an opportunity to contest the computation of capital gains under Section 50B if the Tribunal upholds the income escaping assessments. The Court also reversed the Tribunal's decision in a related case with similar facts, restoring the order of the CIT (Appeal) confirming the assessment.

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