2019 (8) TMI 145 - AT - Income Tax

Slump sale - section 50B applicability - assessee sold sea food business undertaking for a lumpsum consideration as a going concern - assessee claimed that it was sale of depreciable assets and should be reduced from block of assets - HELD THAT - Clauses of the sale deed that the assets of the assessee including goodwill, intellectual property rights, trademark were sold for a lumpsum consideration. The terms of agreement are very specific and clear and there is no need for importing any other meaning. Since the assets and liabilities of the sea food business undertaking were sold by the agreement cited supra, the sale will consequently fall in line with the idea of slump sale as per the provisions of section 2(42C). Since the assessee sold the entire undertaking with all its assets and liabilities together with all licences, permits, approvals, registration, contracts, employees and other contingent liabilities also for a slump price, this kind of sale falls under the purview of section 50B. In our opinion, the provisions of section 50B are applicable so as to ascertain computation of capital gain in this case. No infirmity in the order of the CIT(A) and the same is confirmed. This ground of appeal of the assessee is dismissed.

Summary

Issues Involved:
1. Justification for reopening the assessment.
2. Treatment of sale value of depreciable assets under the block system.
3. Applicability of section 50(2) of the Income Tax Act (Slump Sale).

Issue-wise Detailed Analysis:

1. Justification for Reopening the Assessment:
The assessee contended that the officers were not justified in reopening the assessment. However, the judgment does not provide specific details on this issue, suggesting that it was not a primary focus of the tribunal's decision.

2. Treatment of Sale Value of Depreciable Assets under the Block System:
The assessee argued that the sale of depreciable assets should reduce the Written Down Value (WDV) of the particular block of assets, and not be treated as capital gains. The assessee claimed that the sale value was deducted from the WDV and depreciation was computed accordingly. The contention was that this treatment should result in business receipts rather than capital gains. However, the tribunal noted that the sale involved the entire business unit as a going concern, which falls under the definition of a slump sale as per section 2(42C) of the Income Tax Act. This section defines a slump sale as the transfer of one or more undertakings for a lump sum consideration without assigning values to individual assets and liabilities.

3. Applicability of Section 50(2) of the Income Tax Act (Slump Sale):
The primary issue revolved around whether the sale should be treated under section 50(2) as business receipts or under section 50B as capital gains from a slump sale. The CIT(A) and the tribunal both held that the sale was a slump sale under section 50B, which deals with the transfer of long-term capital assets. The tribunal emphasized that the sale agreement clearly indicated the transfer of the entire seafood business undertaking as a going concern for a lump sum consideration, which qualifies as a slump sale. The tribunal cited the definition of "undertaking" under section 2(19AA) and the explanation to section 2(42C) to support this conclusion.

The assessee relied on the Supreme Court judgment in the case of Equinox Solutions Pvt. Ltd., which held that the sale of an entire business as a running concern should not be considered as short-term capital assets under section 50(2). However, the tribunal distinguished this case by noting that the provisions of section 50B, introduced by the Finance Act, 1999, were applicable from AY 2000-01 onwards, and therefore, the sale in question should be treated as a slump sale under section 50B, resulting in long-term capital gains.

Conclusion:
The tribunal upheld the CIT(A)'s decision that the sale of the seafood business undertaking was a slump sale under section 50B, resulting in long-term capital gains. The appeal filed by the assessee was dismissed, confirming the treatment of the sale as capital gains rather than business receipts. The order was pronounced in the open court on 10th April 2019.