2012 (4) TMI 402 - AT - Income Tax

Invoking the provisions of section 50B to sale of assets of the M Seal Division of the Appellant - assessee contented that it was an itemized sale - Slump sale Held that - A close analysis of the agreement and the deeds entered into by the appellant with PIL confirms that the business as a whole was sold and not an itemized sale of assets - Directors report and Auditors report also talk about sale of business - the business of Sealants and Adhesives of assessee includes all the processes from manufacturing to marketing and as per the Agreement to Grant Appellant had agreed to sell/transfer and assign all rights, benefits, titles, interests of any nature in relation thereto business of Sealants and Adhesives , thus leading to sale of entire business as a result of the nine agreements/ deeds entered with PIL business of Sealants and Adhesives carried out by the Appellant had gone to PIL irrevocably - agreements/deeds entered in to by both the parties prove that they are part of the one transaction only and to considered as slump sale against assessee.

Issues Involved:

1. Applicability of Section 50B of the Income Tax Act to the sale of assets.
2. Determination of whether the sale was an itemized sale or a slump sale.
3. Computation of capital gains for the sale of M-Seal Division.

Issue-wise Detailed Analysis:

1. Applicability of Section 50B of the Income Tax Act to the Sale of Assets:

The Appellant challenged the order of the CIT (A) upholding the AO's decision to apply Section 50B to the sale of assets of the M-Seal Division. Section 50B, inserted by the Finance Act, 1999, effective from April 1, 2000, provides for the computation of capital gains in the case of a slump sale. The Tribunal noted that Section 50B is a special provision that prevails over general provisions in case of conflict, and it deems the net worth of the undertaking as the cost of acquisition for capital gains computation.

2. Determination of Whether the Sale was an Itemized Sale or a Slump Sale:

The Appellant argued that the sale was an itemized sale with separate considerations for individual assets, not a slump sale. However, the Tribunal examined the agreements and deeds between the Appellant and PIL, including the sale of trademarks, copyrights, know-how, goodwill, and plant and machinery. The Tribunal concluded that the business of Sealants and Adhesives was sold entirely and exclusively to PIL, indicating a sale of the business as a whole, not just individual assets. The Tribunal emphasized that the substance of the transaction, rather than its form, should be considered, and the sale of the business as a going concern was evident from the agreements.

3. Computation of Capital Gains for the Sale of M-Seal Division:

The AO computed the net worth of the Sealant and Adhesive business transferred and calculated the long-term capital gain under Section 50B. The Tribunal upheld the AO's computation, noting that the Appellant had not provided a proper valuation report as required by Section 50B(3). The Tribunal also rejected the Appellant's claim that the lower authorities had not considered Section 2(42C) of the Act, as the Appellant had not raised this issue before any of the authorities.

Conclusion:

The Tribunal dismissed the appeal, upholding the CIT (A)'s decision that the sale of the M-Seal Division was a slump sale under Section 50B, and the computation of capital gains by the AO was correct. The Tribunal emphasized the importance of considering the substance of the transaction and the comprehensive transfer of the business as a whole.

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