2017 (4) TMI 925 - SC - Income Tax

Slump sale - deduction u/s 48(2) - sale of depreciable assets - taxable as LTCG or STCG - whether the case of the assessee was covered u/s 50(2) because it was in the nature of short term capital gain? - Held that - The case of the respondent (assessee) does not fall within the four corners of Section 50(2) of the Act. Section 50 (2) applies to a case where any block of assets are transferred by the assessee but where the entire running business with assets and liabilities is sold by the assessee in one go, such sale, in our view, cannot be considered as short-term capital assets . In other words, the provisions of Section 50 (2) of the Act would apply to a case where the assessee transfers one or more block of assets, which he was using in running of his business. Such is not the case here because in this case, the assessee sold the entire business as a running concern. As rightly noticed by the CIT (appeal) that the entire running business with all assets and liabilities having been sold in one go by the respondent-assessee, it was a slump sale of a long-term capital asset . It was, therefore, required to be taxed accordingly. Our view finds support with the law laid down by this Court in Commissioner of Income Tax, Gujarat vs. Artex Manufacturing Co. 1997 (7) TMI 7 - SUPREME Court .

Summary

Issues:
Appeal by Revenue against High Court order; Interpretation of Sections 48(2), 50(2) of Income Tax Act, 1961; Nature of sale - slump sale or short-term capital gain; Tribunal and High Court's decisions on deduction claim; Applicability of Section 50(2) to entire running business sale.

Analysis:
The appeal before the Supreme Court stemmed from the Revenue challenging the High Court's dismissal of their appeal, contending it lacked substantial legal questions under Section 260-A of the Income Tax Act, 1961. The case involved the respondent-assessee selling their entire running business to a company in one go, claiming deduction under Section 48(2) as a "slump sale" for long-term capital gain. However, the Assessing Officer disagreed, invoking Section 50(2) for short-term capital gain treatment. The Commissioner of Appeals overturned this decision, emphasizing that selling the entire business as a running concern did not align with Section 50(2) criteria for short-term capital assets. The Tribunal upheld this view, leading to the High Court's dismissal of the Revenue's appeal due to the absence of substantial legal questions.

The Supreme Court, after hearing both parties' counsels, affirmed the decisions of the CIT (appeal) and the Tribunal, finding no fault in their reasoning. The Court determined that the sale of the entire running business did not fall under Section 50(2) but rather constituted a slump sale of a long-term capital asset, warranting tax treatment accordingly. Citing precedent from the case of Commissioner of Income Tax, Gujarat vs. Artex Manufacturing Co., the Court emphasized the distinction between block asset transfers and selling an entire business as a running concern. Additionally, referencing Premier Automobiles Ltd. vs. Income Tax Officer, the Court aligned with the legal position established in prior judgments, dismissing the Revenue's appeal for lack of merit.

In conclusion, the Supreme Court upheld the lower authorities' decisions, affirming that the respondent's sale of the entire running business qualified as a slump sale of a long-term capital asset, not falling under the purview of Section 50(2) for short-term capital assets. The Court found no grounds for interference, ultimately dismissing the appeal by the Revenue.