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TMI Blog1987 (2) TMI 119X X X X Extracts X X X X X X X X Extracts X X X X ..... tre together with the unexpired portion of the lease rights in the site were sold to Sri N. China Satyanarayana, etc., by a registered sale deed dated 3-2-1965. The said cinema hall together with the unexpired portion of the lease rights in the site were sold by Sri N. China Satyanarayana, etc., in their turn to Sri V. Venkatarama Raju son of Sri Subbaraju on behalf of the assessee-HUF under the registered sale deed dated 6-3-1968. On behalf of the assessee-HUF Sri T. Krishnamurthy was requested to extend the lease period. In pursuance of the agreement Sri T. Krishnamurthy executed a registered lease deed dated 1-2-1968 extending the lease period from 20-4-1982 to 31-12-1992. The assessee-HUF leased out cinema hall to Sri K. Ramachandraraju and Sri K. Venkataramaraju on condition that they should pay rent of Rs. 12,050 per month. The lease is for five years, i.e., from 1-6-1980 to 1-5-1985. The Lease deed was registered. The lease amount was offered as business income derived by the assessee-HUF and it was accepted by the department in the income-tax assessments completed against the assessee in the previous years. Even while the lease was existing the assessee-HUF sold away the ci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contended that as the entire undertaking was sold away as going concern no question of any balance in charge under section 41(2) could arise and the assessee relied upon the decision of the Gujarat High Court in Artex Mfg. Co. v. CIT [1981] 131 ITR 559. The Income-tax Officer overruled this objection of the assessee stating that the facts of the case cited are quite different from the facts on hand before him and ultimately he brought the amount of Rs. 67,621 to tax in the hands of the assessee. 4. In the appeal before the CIT (A), Visakhapatnm the argument that the balancing charge cannot be brought to tax as the entire undertaking was sold without specifying any value in respect of each individual depreciable asset and the assessee relied upon besides the decision already cited before the Income-tax Officer on two more decisions, one of Gujarat High Court reported in Sarabhai M. Chemicals (P.) Ltd. v. P. N. Mittal, Competent Authority, IAC [1980] 126 ITR 1 at 22 and CIT v. Mugneeram Bangur Co. (Land Department) [1965] 57 ITR 299 of the Supreme Court. The learned CIT (A) firstly held that it was unfortunate that the Income-tax Officer did not and could not lay his hands on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 3 lakhs under sale deed dated 2-11-1981. The difference between Rs. 3 lakhs and Rs. 2,71,000 in the view of the learned CIT (A) would represent the goodwill for which no value was put by the valuer or this would represent the pro rata increase in the value of each asset in the course of bargain or negotiations. Later the learned CIT (A) held that the Supreme Court decision in Mugneeram Bangur Co. (Land Department)'s case and the Gujarat High Court decision in Artex Mfg. Co.'s case have been discussed and distinguished in Chandra Katha Industries v. CIT [1982] 138 ITR 168 (All.) Ultimately he held perhaps basing his decision on Chandra Katha Industries's case it is obvious that the assessee has consciously fixed separate cost for individual items two months before the sale. He held that it is against common sense that in a transaction of sale of this type a slump price could be just intuitively imagined and agreed upon. The slump price, if any, is only a convenient name for the aggregate of the prices individually determined after proper thought deliberately placed to avoid an assessment of the profits under section 41(2). Thus he confirmed the order of the Income-tax Officer an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... [1985] 155 ITR 618 as no itemised value was put against the depreciable assets, viz., building, plant and machinery, furniture and fixtures there is no scope to reckon the balancing charge under section 41(2). 6. On the other hand, the learned departmental representative Sri C. V. Padmanabhan contended that in the Income-tax Act there is no sale called slump sale recognised and to substantiate this contention he takes us through sections 45, 48 and 50 of the Income-tax Act, 1961. He contended that as per the recitals of the sale deed what is sold is building, plant and machinery and furniture which are all depreciable assets. He also invited our attention to a passage in Sampat Iyengar's Income-tax Law, 7th Edition, Volume 2, page 2071 under the head 'Slump sale' the learned commentator secured the law into his book as follows: "Slump sale: This section makes no differentiation between the sale of assets in the course of carrying on of the business or at the time of closing down or discontinuance of the business. A closing down sale will therefore be within the purview of the sub-section. It is also applicable to a case of transfer of assets as a part of the sale of an entir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e rent payable under the above lease deed dated 11-6-1980. It is also clearly admitted that all licences essential to run the cinema hall were already transferred in favour of the lessees. It was stipulated that the vendees should get transferred in their names all such licences from the lessees direct and in getting such licences from the lessees direct and in getting such transfer of licences in their favour if the presence of vendors will be necessary then the vendors would be ready to attend public offices or courts whenever necessary at the expense of the vendees. Therefore, Sri Padmanabhan argued that the licences were also not transferred in favour of the vendees. There is no specific stipulation whereunder the vendors allowed the vendees to run the cinema hall under the caption 'Srinivasa Mahal'. Therefore, there was no question of making over the goodwill of the cinema hall to the vendees. The learned departmental representative contended that the decision of the Supreme Court in Mugneeram Bangur Co. (Land Department)'s case was impliedly overruled by the amendment of proviso 2 to section 10(2) (vii) of the Indian Income-tax Act, 1922 and this position was made clear by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... portion in which the partners shared the profits or losses of the firm. The purchase consideration was fixed at Rs. 11,50,400 and this amount was paid in he shape of 11504 fully-paid equity of Rs. 100 each and the shares were allotted in accordance with the shares of the partners in the assessee-firm. The Income-tax Officer held that the surplus in respect of certain items was chargeable under section 41(2) whereas in appeal the Appellate Assistant Commissioner held the surplus is assessable under section 41(2) and the status of the assessee being that of registered firm the principle of mutuality was not attracted. In those circumstances the Gujarat High Court held that what was transferred and sold was he whole business of the undertaking together with its assets and liabilities for a slump price and it was not sold by any itemised value or item by item price fixed for the different assets of the firm. In those circumstances, the surplus was not assessable under section 41(2). Their Lordships of the Gujarat High Court no doubt followed the decision in CIT v. Mugneeram Bangur Co. [1963] 47 ITR 565 (Cal.). 9. In K. B. Kalikutty's case the facts are that the assessee was running ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the Schedule was the cost price of the land as it stood in the books of the vendor and even if the sum of Rs. 2,50,000 attributed to goodwill could be added to the cost of the land, there was nothing to show that this represented the market value of the land." Firstly, in this case we do not feel any difficulty to come to the conclusion that the substance of the transaction points out that it is a sale and not an exchange. The title of the deed is given as sale. We are also to hold that the sale does not comprise of the whole business. The assesses by themselves are not doing any business or running the cinema hall on their own. There are no liabilities to the business of the assesses. There is also no stock-in-trade to the assessee's business the goodwill also was never mentioned as one of the items sold. Further, the vendors and vendees are strangers to each other. None of the vendors subsequently joined the vendees in running the business. In those circumstances we are of the view that neither Mugneeram Bangur Co. (Land Department)'s case nor Artex Mfg. Co.'s case applies to the facts of the case. From a correct appraisal of the recitals of the sale deed dated 2-11-1981 we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agree with a company that the assets belonging to him shall be transferred to the company for a certain money consideration and that in satisfaction of the liability to pay that money consideration, shares of a certain face value shall be allotted to him. In that case there are in truth two transactions--one a transaction of sale and the other a contract under which the shares are allotted in satisfaction of the liability to pay the price. The Court further observed that section 10(2)(vii), proviso (ii), on the plain terms used therein is attracted if there be a sale of the building, machinery or plant and the amount for which the sale takes place exceeds the written down value of the assets transferred. If there is no sale, the proviso has no application.' The Supreme Court also held that if the parties have chosen to conceal by a device the legal relation, it is open to the taxing authorities to unravel the device and to determine the true character of the relationship. But the legal effect of a transaction cannot be displaced by probing into the 'substance of the transactions. If we adopt the tests laid down by the Hon'ble Supreme Court in the above case and apply them to the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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