2014 (1) TMI 87 - HC - Income Tax

Taxability of sale consideration of a going concern - Slump sale or not - Held that - Following CIT v. B.C. Srinivasa Setty 1981 (2) TMI 1 - SUPREME Court - When in a case, the computation provisions do not apply, such a case would not come within the ambit of Section 45 - In the case of assessee - The material on record discloses that it is a case of slump sale - The said sale has taken place prior to the amendment introducing Section 50B, which has come into effect from 01.04.2000 - As per the law stood then, it was not taxable - Merely because the assessee has given split up figures of how he has claimed and received the consideration from the purchaser, it would not take the goods out of slump sale -Tthe authorities were justified in holding that Section 45 of the Act is not attracted - Decided against Revenue.

Summary

Issues:
1. Taxability of sale consideration of a going concern under capital gain.

Analysis:
The appeal was filed by the Revenue challenging the Tribunal's order regarding the taxability of the sale consideration of a going concern under capital gain. The case involved an assessee company that was part of the Nutrine group, engaged in marketing biscuits and confectionery items. M/s. Sara Lee Bakery India expressed interest in acquiring the manufacturing and marketing business of the Nutrine group, entering into multiple agreements with the companies. The Assessing Officer treated the entire consideration received by the assessee as goodwill and subjected it to tax. However, the Commissioner of Income Tax (Appeals) held that, before the introduction of Section 50B, the consideration received in a slump sale was not taxable. The Tribunal upheld this decision, leading to the Revenue's appeal.

The main question for consideration was whether the sale consideration of Rs.23.05 crores, excluding Rs.1 crore for goodwill, received for the sale of the assessee company was liable to capital gain tax. Referring to the Supreme Court's judgment in PNB Finance Ltd. v. Commissioner of Income-Tax, it was highlighted that the charging section and computation provisions form an integrated code. In cases where the computation provisions do not apply, the transaction may not fall under the charging section, such as Section 45 dealing with capital gains. The judgment emphasized the concept of slump sale and the inability to allocate the consideration to individual assets in such transactions. As the sale in this case occurred before the amendment introducing Section 50B, the authorities were justified in holding that Section 45 was not applicable, thereby ruling in favor of the assessee and dismissing the appeal by the Revenue.

In conclusion, the High Court upheld the Tribunal's decision, stating that the sale consideration for the going concern in this case was not liable to capital gain tax under the prevailing legal provisions at the time of the transaction. The judgment provided clarity on the tax treatment of slump sales and the application of relevant provisions in determining the taxability of such transactions.