2016 (4) TMI 640 - HC - Income Tax

Computation of capital gain - CIT(A) has opined that the capital gains have to be computed under section 2(42C) r.w.s. 50B whereas as per assessee capital gains have to be computed on the basis of section 2(11) read with section 50 - Held that - It is unable to conclude as to why and how can the sale be treated as a slump sale. It is unable to dispute that in the assessment year 2002-03, the plant and machinery of all the gardens had a written down value of ₹ 2,77,34,222/-. For the year under consideration, a separate standard could not have been insisted upon. That would not also be in accordance with the concept of block of assets. Once the fact that the block of assets computed at a sum of ₹ 2,77,3,222/- for the assessment year 2002-03 is admitted, there remains no further controversy as regards the fact that during the year under consideration there was an addition of a sum of ₹ 4.41 crores approximately. The opening balance and the addition during the year aggregate to a sum of ₹ 7,18,62,306/-. The sale took place at a sum of ₹ 8,23,75,000/-. The difference between the two would be a sum of ₹ 1,05,12,694/- as computed by the assessee.We find that the computation made by the assessee is a correct computation - Decided in favour of assessee Interest free loans or advances to its sister concerns - disallowance u/s 36 - Held that - It is not in dispute that the assessee had advanced interest free loans or advances to its sister concerns whereas the assessee had borrowed money in respect whereof the assessee was liable to pay interest. Mr. Khaitan s submission that the loans or advances made to the sister conccerns were from out of the own funds of the assessee and the money was borrowed for the purpose of business unable to be accepted. The question essentially is a question of fact. Both the CIT(A) and the Tribunal have come to a concurrent finding that the amount of interest spent by the assessee could not allowed to be deducted in the facts and circumstances of the case. We cannot interfere with the aforesaid finding of fact. - Decided against assessee.

Summary

Issues:
1. Disallowance of interest expenditure under section 36(1)(iii) of the Income Tax Act, 1961.
2. Computation of capital gains on the sale of tea estates.
3. Determination of short term capital gains on the sale of plant and machinery of tea estates.

Issue 1 - Disallowance of Interest Expenditure:
The High Court addressed the first issue regarding the disallowance of interest expenditure incurred by the appellant for business purposes. The Tribunal partly allowed the appeal by the assessee, leading to a challenge by the revenue. The Court upheld the findings of the CIT(A) and Tribunal, stating that the interest spent by the assessee could not be deducted based on concurrent factual findings. The Court emphasized that no question of law was involved, and the findings were justified, ultimately deciding in favor of the revenue.

Issue 2 - Computation of Capital Gains on Tea Estates Sale:
Regarding the computation of capital gains on the sale of tea estates, the High Court analyzed the agreements for sale, where individual asset values were assigned. The assessing officer disputed the assessee's contention and concluded that the entire transaction of selling the tea estates as going concerns was subject to capital gains. The CIT(A) and Tribunal agreed, emphasizing that what was sold was a profit-generating commercial unit, not just individual assets. The Tribunal dismissed the assessee's appeal, upholding the CIT(A)'s speaking order with logical reasoning, leading to the decision in favor of the revenue.

Issue 3 - Short Term Capital Gains on Plant and Machinery Sale:
The Court further examined the determination of short term capital gains on the sale of plant and machinery of the tea estates. The assessee's computation of income showed short term capital gain, which the assessing officer disagreed with, leading to a detailed analysis of the written down value of assets and the concept of block of assets. The Court found the assessee's computation to be correct, answering question no. 2 in the negative and question no. 3 in the affirmative, both in favor of the assessee. The Court clarified the application of relevant sections and the concept of block of assets in determining capital gains.

In conclusion, the High Court's judgment addressed multiple issues related to the assessment year 2003-04, providing detailed analyses of interest expenditure disallowance, capital gains computation on tea estates sale, and short term capital gains on plant and machinery sale. The decision involved interpretations of relevant sections of the Income Tax Act, factual assessments, and the application of legal principles to determine the outcome in each issue.