2021 (12) TMI 143 - HC - Income Tax

Addition on account of slump sale of chemical undertaking u/s 50B - HELD THAT - As per case AKZO NOBLE INDIA LIMITED FORMERLY KNOWN AS I.C.I. (INDIA) LIMITED 2019 (8) TMI 659 - CALCUTTA HIGH COURT issue decided in favour of assessee.

Summary

Issues:
1. Disallowance of sum under Section 50B of the Income Tax Act, 1961 for assessment years 2006-07 and 2007-08.
2. Whether the Tribunal erred in deleting the disallowance based on its own decision for assessment year 1994-95.

Analysis:
The High Court of Calcutta heard an appeal filed by the revenue challenging the order of the Income Tax Appellate Tribunal regarding the disallowance of sums for the assessment years 2006-07 and 2007-08 under Section 50B of the Income Tax Act, 1961. The substantial question of law raised was whether the Tribunal erred in law by deleting the disallowance of sums on account of slump sale of a chemical undertaking. The revenue contended that the Tribunal should not have relied on the decision in the assessee's own case for the assessment year 1994-95. However, the respondent assessee argued that the Tribunal's decision in the earlier case had been upheld by the Hon'ble Division Bench of the Court, and there was no evidence of reversal or modification of that decision.

The Tribunal had analyzed the agreements related to the transfer of the businesses and concluded that the transfer was genuine, even though certain assets were excluded. The revenue argued that the exclusion of assets meant it was not a slump sale of the entire undertaking. However, the Tribunal upheld that the transfer was a slump sale, considering various factors such as the transfer of assets, liabilities, employees, and the sale consideration fixed at a "slump price." It also referred to relevant case laws to support its decision on the treatment of capital gains in such transactions.

The Court discussed the concept of slump sale and the computation of capital gains based on the value of assets transferred. It cited relevant Supreme Court judgments to determine whether the gains should be taxed as capital gains or business income. The respondent assessee also referred to a Supreme Court case related to the nationalization of a bank to support its argument regarding the computation of capital gains in complex transactions where the full value of consideration cannot be allocated to individual assets.

The issues before the Tribunal were whether the transfer agreement was genuine, whether the transaction constituted a slump sale, and how the gain or profit from the transaction should be computed. The Court found that the earlier decision in the assessee's case favored the assessee, leading to the dismissal of the revenue's appeal and the answering of substantial questions of law against the revenue.