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TMI Blog2009 (9) TMI 235X X X X Extracts X X X X X X X X Extracts X X X X ..... been made under section 115JA of the Act? Whether the Tribunal was correct in taking into consideration irrelevant circumstances like 'bona fides of the assessee', 'whether the default was committed deliberately', in failing to pay advance tax under section 208 of the Act, when section 234B interest is levied automatically as there is no discretion?" 3. The assessee is a company, the assessment year is 1997-98 and the only dispute between the assessee and the Revenue is the levy of interest under sections 234B and 234C of the Act on the premise that the levy of interest under these two provisions was not justified in the case of the assessee for the assessment year in question as the tax liability of the assessee for the assessment year in question had been artificially boosted in view of the special deeming provisions of section 115JA of the Act ; that even as per the assessee's return filed for the assessment year in question the actual tax liability on normal computation was only Rs. 39,955, but in the wake of the provisions of sub-section (1) of section 115JA of the Act, this tax liability got itself converted to Rs. 87,44,357.45 and this liability in terms of the provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee contrary to its own understanding had filed an appeal before the appellate authority and had made the question of justification for levy of interest under sections 234B and 234C of the Act as ground and issue before the appellate authority. 5. The first appellate authority allowed the appeal on this aspect of the matter purporting to follow the decision of this court in the case of Kwality Biscuits Ltd. v. CIT [2000] 243 ITR 519 and with the Income-tax Appellate Tribunal having dismissed the appeal of the Revenue being of the view that the decision of this court in Kwality Biscuits Ltd. [2000] 243 ITR 519 covered the issue, the Revenue is in appeal as against the order of the Appellate Tribunal only on this question. 6. In this appeal, Sri G. Sarangan, learned senior counsel has appeared for the assessee while Sri Seshachala, learned standing counsel has appeared for the appellant-Revenue. 7. The very question arises even in another appeal I.T.A. No. 320 of 2004 filed by the Revenue though the assessee is different and the order of the Tribunal is also different, nevertheless, the arguments addressed by Sri Shankar, learned counsel appearing for the assessee in I. T. A. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5JA of the Act in the wake of the earlier judgments of the Supreme Court and this court in Kwality Biscuits Ltd. [2000] 243 ITR 519 and therefore the judgments rendered by this court and not taken up for examination by the Supreme Court in the case of CIT v. Kwality Biscuits Ltd. reported in [2000] 284 ITR 434 cannot govern or conclude the present appeal for answering the questions raised by the Revenue and submits that on the correct understanding and application of the provisions of section 115JA(1) of the Act, levy of interest under sections 234B and 234C of the Act is fully justified; that the Tribunal is in error in deciding the appeal taking the other view and merely by purporting to follow the law declared in Kwality Biscuits' case, allowing and applying the ratio of the judgment in Kwality Biscuits' case is an error in law and therefore the appeal is required to be allowed and the questions answered in favour the appellant-Revenue and in the negative. 10. In support of the submission that in the wake of changes brought about by the Legislature by the introduction of section 115JA of the Act by the Finance (No. 2) Act, 1996 with effect from April 1, 1997, dismissal of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Supreme Court and with the Supreme Court having dismissed the appeal, the Bombay High Court having later chosen to apply the view taken by the Karnataka High Court in Kwality Biscuits' case [2000] 243 JTR 519 and as affirmed by the Supreme Court in the appeal of the Revenue even in a situation governed by the provisions of section 115JA of the Act, that line of reasoning should be followed here also and the questions answered against the Revenue and the appeal should be dismissed. 14. Sri Shankar, learned counsel appearing for the assessee in I. T. A. No. 320 of 2004 submitting on the very question of levy of interest under sections 234A, 234B and 234C of the Act in a situation where the tax liability is computed in terms of section 115JA of the Act has very vehemently urged that no interest is leviable under any one of these provisions, mainly for the reason that the determination of the total income and section 115JA of the Act being in an artificial manner and only because of the deeming provision of sub-section (1) of section 115JA of the Act and even such determination being possible only on ascertainment of the book profits as per section 115JA of the Act a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... realm of section 115JA(4) of the Act would be not only doing violence to the provisions of section 115JA(1) of the Act, but virtually amounts to enlarging the deeming provision in section 115JA(1) of the Act to other charging sections/provisions of the Act also. 17. Mr. Shankar has elaborated his submission in several hues and shades and has in this regard drawn sustenance from the following judgments. (a) Unreported judgment of this court rendered on January 31, 2006 in I, T. A. No. 2416 of 2005 in the case of CIT v. SKS Refineries Pvt. Ltd. (b) Snowcem India Ltd. v. Deputy CIT reported in [2009] 313 ITR 170 (Bom); (c) CIT v. Sedco Forex International Drilling Co. Ltd. [2003] 264 ITR 320 (Uttaranchal) (holding that the assessee was not liable to pay interest under section 234B of the Act as the assessee was unable to estimate its correct income as required under section 209(1) (a) of the Act in view of the bona fide dispute as to whether certain whether payment was in the nature of salary or otherwise and therefore the estimation was not possible consequently no interest under section 234B can be levied) 18. Mr. Shankar has also submitted that the levy of interest under sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Legislature cannot be and should not be lost sight of for the purpose of under standing the scope of sub-section (4) of section 115JA of the Act. 20. The circumstance that payment of advance tax by estimation and the rate of advance tax having been mentioned for the first time in section 2 of the Finance Act, 2000, read with Part III of Schedule I and the Finance Act providing for the rate of payment of advance tax only after the minimum alternative tax scheme had provided for positive ascertainment of tax liability under section 115JB of the Act by indicating that it is at 7½ per cent, of the book profits if it is found that the tax payable on the total income as assessed in the normal course is less than 7½ per cent. of the book profits and the minimum tax payable having been provided for in section 115JB of the Act itself. It is this logic which is employed to support the submission that there is no requirement of payment of advance tax or on self-estimation in terms of section 115JA of the Act also as was the case in section 115J of the Act and therefore the question of levy of interest under sections 234B and 234C of the Act does not arise at all. 21. In t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are no two opinions that but for the addition of sub-section (4) in section 115JA of the Act and which was conspicuously absent in section 1l5J of the Act, the ruling of this court and the reasoning and ratio mentioned in Kwality Biscuits' case (supra) would conclusively govern the question as the judgment of this court had come to be affirmed by the Supreme Court in an appeal preferred by the Revenue, though by simply dismissing the appeal without any reasons but granting leave and converting the special leave petition into an appeal. The Legislature having consciously brought about a change by introducing sub-section (4) in section 115JA of the Act while replacing the provisions of section 115J of the Act by the provisions of section 115JA of the Act, there is no escape from effectuating the provisions of sub-section (4) of section 115JA of the Act and it is only because learned counsel for the assessee are also aware of this change brought about by this legislation, vehement submissions are urged only in the wake of understanding and interpreting the provisions of sub-section (4) of section 1l5JA of the Act and that it should be so understood and interpreted as not to involve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the matter, falls short of the requisite amount as contemplated in sections 207, 208 and 209 of the Act and in support of the submission, seeks to rely upon the ruling of the Uttaranchal High Court in the case of CIT v. Sedco Forex International Drilling Co. Ltd. [2003] 264 ITR 320. In that said case, the Uttaranchal High Court had opined that the levy of interest in terms of section 234B of the Act was not reasonable and therefore the Tribunal was justified in deleting the interest levied on the assessee under the provisions of section 234B of the Act and the same logic will hold good for relieving the assessee from the liability of payment of interest under the very provisions, i.e., section 234B, even in a situation where the advance payment of tax falls short of the requisite quantum of payment and the tax liability computed under the provisions of section 115JA of the Act. In that case, the Uttaranchal High Court had while agreeing with the conclusion reached by the Tribunal to delete the interest under section 234B, chosen to give its own reason in place of the reasons assigned by the Tribunal indicating that the assessee an employee had been receiving salary from the empl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "notwithstanding anything contained in any other provision of this Act ..." the total income of the assessee, which is a company, being deemed to be an amount equal to 30 per cent. of the book profit. It is well within the knowledge of the assessee that the liability of the assessee may be either it is only tax liability when the total income computed in the normal course is more than 30 per cent., of the book profit, attracting other provisions, and if so, in a situation, where that total income as offered to tax by the assessee is less than 30 per cent. of the book profit, then the minimum total income that has to be subjected to tax should be 30 per cent., is also a possibility which can be arrived in the same manner as computing the normal total income of the assessee and a difficulty or impossibility as pleaded by the learned counsel for the assessee cannot be accepted only because it is only a liability under the provisions of section 115JA of the Act. 29. These aspects apart, we also notice that accepting the argument on behalf of the assessee that in a situation where the section 115JA liability is attracted, the assessee should be relieved of further liability of payment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is to be paid being in turn linked to the liability to rate of tax as provided for in the Finance Act 2000, and also having linked to the rate of tax at which the company had offered its total income to tax, the computation of instalment of advance tax was almost an impossibility earlier, even in the wake of the circular having clarified this position, it should be taken that in the absence of any such earlier period, there is no way of the assessee to know the probable income and in turn probable tax liability and also the possible advance payment of tax. 32. This argument does not help the assessee, for the simple reason that the circular had been issued in the context of introduction of the provisions of section 115JB of the Act by the Finance Act 2000 (Central Act No.10 of 2000) with effect from April 1, 2001, that circular cannot have any bearing on the earlier statutory provision in terms of section 115JA of the Act and at any rate cannot regulate or even use for understanding the scope of the provision. 33. Secondly, the estimation of total income for the purpose of payment of advance tax in any situation being an estimation and even earlier the rate of tax being provided ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... main the same. When once the total income is known, the tax liability also can very well be computed and it cannot be lost sight of that for the payment of instalments of advance tax which is well within the completion of the year during which an assessee earns profits and which in turn becomes income and assessable to tax, there is an element of estimation and projection of income and it is not as though such elements of estimation or projection are brought about only by the provisions of sub section (1) of section 115JA of the Act. If it is a question of ascertaining the possible total income of the year either by projection or on an estimation even in respect of cases not covered by section 115JA of the Act, it is not logical to say that such projection or estimation fails only for the purpose of computation under section 115JA of the Act. In either situation, it is only guess work and projection and not based on actuals. 35. We find one another reason as to why the submissions made by the learned counsel for the assessees do not commend our acceptance and that is the acceptance of the logic and arguments on behalf of the assessees as made by the learned counsel would lead to a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 15JA of the Act, who nevertheless escape from the consequence of non-adherence to the very requirements which they would have to otherwise conform in respect of their liability assessed in the normal course. It is a well settled canon of interpretation that any interpretation of a provision which can lead to rendering the provision unconstitutional by attributing an element of discrimination should be avoided and it is for this reason that, we reject the submissions of the learned counsel for the assessees to interpret the provisions of sub-section (4) of section 115JA of the Act so as to understand that it can operate only in situations where regulatory procedures are provided for under the Act and not in respect of other provisions of the Act which may have an effect of creating a burden or liability or in the sense can be described as a charging section. 37. When once sub-section (4) to section 115JA of the Act cannot be ignored and has to be interpreted as discussed above, there is no escape from understanding that sub-section (4) of section 115JA of the Act does make a difference in comparison to the provisions of section 115J of the Act and definitely ensures that except to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 115JA of the Act, we have to look into and interpret the background of section 115J of the Act and if at all the legislative history behind the provisions of section 115JA of the Act. The object of introducing section 115JA or section 115J of the Act was to ensure that minimum tax liability is created on the company assessed for the year in question even when the company was not liable to pay any tax or tax up to the amount as computed on the deemed total income of the assessee and the entire exercise is to augment the revenue to the State. As long as the tax amount as envisaged under the provisions of section 115JA of the Act does not reach the coffers of the State, there is loss to the Revenue. 41. While interpreting or understanding the provisions which solely seeks to increase and enhance the revenue to the State even by employing the fiction and by deeming the minimum amount of 30 per cent. of book profit of the company as the total income of the company on which the company is liable to pay tax, no part of the very provision including sub-section (4) of section 115JA of the Act can be interpreted and understood in such manner as to detract from the object of the provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 2004. In these two appeals by the assessee, the following further substantial questions of law are raised for examination: In I. T.A. No. 597 of 2004: (a) Whether the Tribunal was justified in law in holding that there are no mistakes apparent from the face of records on the facts and circumstances of the case and the application made by the appellant would amount to a review? (b) Whether the Tribunal was justified in taking that non-applying of the decision of the hon'ble Supreme Court in Apollo Tyres' case [2002] 255 ITR 273 would not constitute apparent mistake liable for rectification under section 254(2) of the Income-tax Act? (c) Whether the Tribunal is justified in holding that the surplus on the sale of the undertaking as a whole requires to be credited to the profit and loss account in accordance with Parts II and III of Schedule VI to the Companies Act when the case is not part and parcel of the working results and consequently whether such finding constitutes apparent mistake on the facts of the case? (d) Whether the finding of the Tribunal that the transaction of slump sale is taxable for the assessment year 1999-2000 when the provision of section 50B of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t drink undertaking and had not offered any part of the amount for tax, in the return filed by it for the assessment year in question. 47. The Income-tax Department took up the case of the assessee as a scrutiny case and therefore notice under section 143(2) of the Act was issued on December 22, 2000. The assessee came forward with material information and the Income-tax Department as a follow-up measure, collected information from the buyer M/s. Hindustan Coca-cola Bottling (Southwest) Private Limited to ascertain as to whether the sale price represented one slump amount or as to whether it represented the value of individual items and noticed that the transfer had been effected in favour of M/s. Hindustan Coca-cola Bottling (Southwest) Private Limited only after a valuer by name John Foord (Asia) Pvt. Ltd. of Singapore had at the instance of the buyer, examined different assets of the assessee-company and had valued it after elaborate discussion by a valuer with the officials of the assessee-company and based upon information so gathered from the management of the seller, i.e., M/s. Brindavan Beverages Ltd., the assessee had for warded the report of valuation to the officials of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee's book profits in terms of the provisions of section115JA(2) of the Act and finalized the assessment on the premise that the total income of the assessee was 30 per cent. of the book profit and quantified the tax liability at the relevant rates on such amount. The computation included interest levied under section 234B of the Act for the period April and May, 1999 at 2 per cent. (Rs.13,05,436), interest for the period from June, 1999 to May, 2001 at 1.5 per cent.. (Rs.1,17,89,236) and a further interest of Rs. 40,79,487 for the period from June, 2001 to March, 2002 at 125 per cent. The total tax liability thus arrived at was Rs.4,98,10,058 in terms of the assessment order dated March 28, 2002. 49. The assessee being aggrieved by this computation and the demand for payment of tax liability of Rs 4,98,10,058 appealed to the Commissioner of Income-tax (Appeals). The assessee had contended that not only the computation of total income of the assessee at Rs.55,44,90,899 was incorrect, but also the computation of total income of the assessee under the pro visions of section I15JA of the Act computed at a sum of Rs.14,35,83,002 is wrong by not treating the sale as a slump sale and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the premise that the Tribunal had committed a mistake in not following and applying the ratio in the decision of the Supreme Court in the case of Apollo Tyres Ltd. v. CIT [2002] 255 ITR 273, the Tribunal has examined this question and noticing that though the assessee had cited this decision of the Supreme Court even earlier and the Tribunal had in fact examined the applicability of the same, and on noticing that the judgment of the Bombay High Court in the case of CIT v. Veekaylal Investment Co. (P) Ltd. [2001] 249 ITR 597; [2001] 166 CTR 96 was more apt to the facts of the case, having expressly rejected the claim of the assessee, it is not as though the judgment suffers from any mistake apparent on the face of record amenable for correction under section 254(2) of the Act, but may be an error of opinion and that cannot be corrected in rectification jurisdiction and therefore dismissed the miscellaneous petition. It is against this order also, the assessee has come up with an appeal raising the questions referred to above. 53. In the appeal of the assessee against the order of the Tribunal in only part allowing the appeal and partly accepting the contentions of the assessee, it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ls also at the instance of the Revenue, has already been discussed by us in the appeal of the Revenue (in I.T.A. No. 2971 of 2005) and it has been answered in the negative in favour of the Revenue and against the assessee, holding that the interest under section 234B of the Act and for that matter any other analogous provision is attracted to a situation of computation of tax under section 115JA of the Act also and that the circumstances which can be explained justifying the delay in payment of instalment of advance tax or payment of self-assessment tax are of no consideration and the interest is levied statutorily and is automatic on the non compliance with the requirement of the relevant provision of the Act and therefore answered so in the present appeals also, holding that the Tribunal could not have directed deletion of interest levied under section 234B of the Act on the premise that the assessee had a legitimate explanation and justification for not having paid the instalments of advance tax in time or short payment. It is held in this regard that the question is not one of offering explanation or justification for either short payment of the amount or delayed payment of amo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he book profits of the assessee, as had been determined in terms of the provisions of Parts II and III of Schedule- VI to the Companies Act, 1956, but is only an exercise for determining the book profits in terms of the Explanation occurring after the second proviso to sub-section (2) of section 115JA of the Act; that it is only adding back the amount carried to the reserve amount that had been disclosed by the assessee itself even in terms of its own profit and loss account and balance- sheet and as was required to be added under sub-clause (b) of the Explanation; that it was not an exercise for computing the book profits, as had been done by the assessee to conform to the requirement of sub-section (2) of section 115JA of the Act ; that the mere fact that the Assessing Officer and the appellate authorities had characterized the computation of book profits by the assessee in terms of the provision of sub-section (2) of section 115JA of the Act as not strictly in conformity with the requirement mentioned therein, does not in any way detract from the applicability of the provisions of various sub-clauses of the Explanation and it is therefore submitted that the Tribunal has rightly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lause, 'undertaking' shall have the meaning assigned to it in Explanation 1 in clause (I9AA) Explanation 2.For the removal of doubts, it is hereby declared that the determination of the value of an asset or liability for the sole purpose of payment of stamp duty, registration fees or other similar taxes or fees shall not be regarded as assignment of values to individual assets or liabilities." 63. For the assessment in question, we do not find any statutory definition of slump sale and even after going through a good number of judgments rendered by the High Courts and the Supreme Court on the question of what constitutes "slump sale", referred to above and relied upon by the learned counsel for the Revenue as well as the assessee, no clear, emphatic, precise meaning or definition of "slump sale" emerges. 64. The picture is rather hazy and nebulous. The only inference that can be arrived at is that the question as to whether the transaction is in the nature of a slump sale or otherwise has to be inferred in each case by looking in to the fact and circumstance of the case, circumstances that have preceded before the transaction in question and even the transfer of a unit as a goin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is impossible to compute the capital gains in terms of section 48 of the Act, but any other charging section also meets the same fate if the subject-matter of the charge is either not precise or is unascertainable, may be due to a variety of reasons. In the instant case, both the Assessing Officer and the first appellate authority, on examination of the facts and circumstances, have opined that the transaction is not in the nature of a slump sale. The Tribunal has reversed this finding not based on an examination of the facts and circumstances and on appreciation of the evidence available from the records, but more based on the discussion of various judgments holding as to what constitutes a slump sale and even the finding of the Tribunal that in its view the ratio of the decision of the Supreme Court in the case of Electric Control Gear Mfg. Co. [1997] 227 ITR 278 will be more appropriate rather than the ratio laid down by the Supreme Court in the case of Artex Manufacturing Co. [1997] 227 ITR 260 and on such premise, holding that it was a slump sale, is virtually begging the question. The Tribunal has also expressed the view that in view of the ratio emerged from the decision o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uestion is as to whether the Tribunal has committed any error in affirming the manner of determination of book profits of the asses- see-company in terms of section 115JA of the Act. The answers to these issues would comprehensively cover all the questions raised for our answer in these appeals on the aspect of the assessee's liability under section 115JA of the Act. 73. The Revenue's appeal - I. T. A. No. 320 of 2004- though initially the Revenue had raised two substantial questions of law, relating to the question of justifiability of the levy of interest in terms of section 234B of the Act in a situation where the liability arises in terms of the provisions of section 115JA of the Act and we have already answered that question, as indicated above, two further questions were raised by the Revenue, viz., "(a) Whether the Tribunal was correct in holding that the transfer of the soft drink unit of the assessee was a slum (sic) sale, when the individual valuation of the assets has been made by the expert valuer before arriving at the total sale consideration for transfer of the unit ? (b) Whether the Tribunal was correct in holding that there was no default under section 208 of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessing Officer has not accepted the computation of taxable amount for the purpose of section 115JA of the Act, as offered by the assessee and as determined by the Assessing Officer, 77. The assessee being conscious of the requirement of the provisions of section 115JA of the Act did compute its taxable income in terms of the said provisions and had indicated that to be at a sum of Rs.4,69,69,196, the Assessing Officer, on the other hand had computed the taxable income for the very purpose, i.e., for the purpose of section115JA at a sum of Rs.47,86,10,008 and had worked out the income-tax liability at 30 per cent.. of this amount. 78. The considerable difference between the two amounts as offered by the assessee and as arrived at by the Assesing Officer was due to the addition of a Sum of Rs.43,16,50,812, which, though figured as the amount attributable to the surplus on account of the sale of unit, even in terms of the return and the books of account of the assessee, this amount had directly reached the reserve and surplus account of the company, even as indicated in schedule II to the balance-sheet for the year ended on March 31,1999 and in the computation of the profit and lo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k production unit by its managerial skills and the value attributable to such value addition to the overall unit being unascertainable and it being not- possible to apportion as a definite per cent.age or fraction of the sale price to value of individual ascertained assets, land and building plant and machinery etc; the machinery section 48 fails, for the reason of unascertainability of the precise value/price attributable to the value addition to the unit by expansion and having a good networking system for the unit, which in turn results in inability to ascertain the sale price of individual definite capital assets and though the cost of acquisition of such individual capital assets is assumed, the precise cost of sale of the very capital assets being not available. The computation section fails, resulting in failure of the charging section also. The efforts on the part of the learned counsel for the assessee is to sustain this argument and for such purpose, has called in aid the various authorities referred to above, not only of our High Court and other High Courts but also of the Supreme Court. On the other hand, the learned standing counsel for the Revenue has made a valiant e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n on the part of the Legislature cannot be lost sight of by treating section 115JA on par with the provisions of section 115J. 81 In this background, when we examine the authorities relied upon by learned counsel for the Revenue as well as the assessee, we find as under. 82. "Slump sale" is not a phrase which at all has figured under the provisions of the Act in the definition section, but found a place for the first time in the year 2000, i.e. with effect from April 1, 2000 in terms of the Central Act No. 27 of 1999. The definition of "slump sale" as such reads as under: "2.(42C) 'slump sale' means the transfer of one or more under takings as a result of the sale for a lump sum consideration without values being assigned to the individual assets and liabilities in such sales," 83. Simultaneously was introduced sub-section (I9AA) of section 2 of the Act and Explanation 1 to the definition of "demerger" made mention undertaking or business activity taken as a whole but does not include individual assets or liabilities or any combination thereof not constituting business activity. 84. It does not mean that there was no concept of "slump sale" earlier and the concept of "slump sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessees to call in aid the failure mode in terms of section 48 of the Act to get out of the net of tax on capital gains as cast under section 45 of the Act. 87 The possibility of the computation section failing in the case of "slump sale" or transfer of a capital asset as a whole or as a going concern would therefore become an attractive proposition while effecting transfer of capital assets. While a compendious sale, also known as "slump sale" can result in a possibility of the computation provisions failing leading to the charging section also becoming ineffective, it is not necessarily the case always when even there is a slump sale. If an undertaking is sold as a whole and comprises several assets along with some imponderables and even then if the transfer comprises many ascertained capital assets with reference to which the classification and sale price can be ascertained with any degree of certainty, to that extent, the provisions of section 48 of the Act can definitely work and the charge also can take effect too. It is only the possibility of ascertaining the cost of acquisition and sale price which is the determinative factor with reference to any smaller capital as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the valuers whose services had been availed of by the purchaser and who were internationally renowned valuers and such particulars per se did not enter the sale deed evidencing the sale transaction of the entire undertaking as one unit and the price was a lump price. The Assessing Officer also recorded the finding that if the unit or undertaking should have been transferred as one unit and all the assets and liabilities of the entire unit as such were taken over by the purchaser, perhaps it could have constituted a slump sale, but in the present case, the purchaser having not acquired or taken over all assets and liabilities of the running concern and as noticed by the Assessing Officer the purchaser not getting any cash balance of the seller which was avail able in the bank accounts nor the seller getting the assets such as the out standing dues to the transferor company from its sister concern and the buyer company not taking over all the liabilities but restricting it to mere two types of liabilities such as crates deposits of Rs.2,07,00,000 and provision for gratuity of Rs. 15,00,000 and having conveniently left behind such other liabilities running into crores of rupees with t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hin the meaning of subsection (14) of section 2 of the Act and for such determination remanded the matter to the Assessing Officer. 94. The Tribunal in the process also rejected the claim of the assessee that the transaction is in the nature of a "slump sale. 95. In the light of the discussion above, what emerges is that while deciding as to whether a transaction is in the nature of "slump sale" or not though dependent on facts can also become a question of law as to whether the computation of capital gains for the purpose of section 45 of the Act and in the manner provided under section 48 of the Act does not get automatically defeated even if the sale is characterized as a "slump sale". If on the other hand it is not even a "slump sale" the question of failure of the provisions of sections 45 and 48 of the Act on the premise that the transaction is a "slump sale" does not even arise. Such question being essentially a question of law and all the three authorities having recorded a finding that there is no "slump sale" and with the possibility of ascertaining individual value of different assets while the question as to whether the transaction was a "slump sale" or otherwise if p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the context of such examination Sri Shankar, learned counsel for the assessee has put in best efforts to educate us on the procedures of accountancy, book keeping etc., and has placed before us a wealth of material touching on these aspects. 100. We have been taken even to foreign judgments for understanding as to what exactly can constitute book profit of a company, particularly, in the context of the assessee having indicated in its books of account and also as part of its return this precise amount had been transferred to its capital reserve account. 101. While the transaction resulting to this extent of surplus and the entire amount having been transferred to the capital reserve account of the assessee-company is not disputed, the argument is that, nevertheless, the amount cannot be added back in terms of clause (b) of the Explanation to section 115JA of the Act for the reason that the said amount is not debited to the profit and loss account of the assessee. It is for making under stand as to what is meant by the profit and loss account, we have been educated on the practices of book keeping, preparation of profit and loss account, the practices prevailing in ascertaining th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Companies Act 1956, and on the facts the present situation being not one covered under any one of the clauses (a) to (f) of the Explanation to sub-section (2) of section 115JA of the Act, there was no way of the Assessing Officer redetermining the book profits for the purpose of section 115JA of the Act by adding the so called surplus as a result of the slump sale representing a sum of Rs.43,16,50,811.69 which had been directly taken to the capital reserve account without having been debited to the profit and loss account of the assessee in terms of clauses (a) and (b) of the Explanation. The Assessing Officer should have simply accepted the return filed by the assessee indicating the book profit as computed and recognized by the authorities under the Companies Act and such book profit to the tune of Rs.4,69,69,196 and the liability of the assessee for the assessment year in question having been computed only on such basis and not by the modifications as had been carried out by the authorities. 104. It is only in the wake of such contentions and authorities cited against the view taken by the assessing authority and the appellate authority, Sri Seshachala, learned senior standing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the authority placed before us, on behalf of the assessee, there cannot be two opinions that the book profits as ascertained by the assessee and as certified by its auditors statutory or otherwise as had been accepted by the authorities under the Companies Act, 1956, cannot be in any way found fault with by the Assessing Officer or the authorities under the Income-tax Act, 1961, and the authorities under the Income-tax Act have to necessarily proceed on such premise, it is equally correct on the part of Sri Seshachala, learned counsel for the Revenue to submit that the very authorities do not in any way control or are responsible in the manner of computation of book profits for the purpose of section 115J of the Act if the book profits as computed under section 115JA(2) of the Act is required to be further modified or altered by working the Explanation. 107. It is in this background, Sri Seshachala, learned senior standing counsel appearing for the Revenue has placed reliance on the judgment of the Supreme Court in Artex Manufacturing Co.'s case [1997]227 ITR 260, to contend that even in a case where the surplus as a result of transfer of plant and machinery and deadstock is t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ), which is different from the previous year under the Act, the method and rates for calculation of depreciation shall correspond to the method, and rates which have been adopted for calculating the depreciation for such financial year or part of such financial year falling within the relevant previous year. Explanation - For the purposes of this section, 'book profit' means the net profit as shown in the profit and loss account for the relevant previous year prepared under sub-section (2), as increased by.- (a) the amount of income-tax paid or payable, and the provision therefore; or (b) the amounts carried to any reserves by whatever name called; or (c) the amount or amounts set aside to provisions made for meeting liabilities, other than ascertained liabilities; or (d) the amount by way of provision for losses of subsidiary companies; or (e) the amount or amounts of dividends paid or proposed; or (f) the amount or amounts of expenditure relatable to any income to which any of the provisions of Chapter III applies; if any amount referred to in clauses (a) to (f) is debited to the profit and loss account, and as reduced by- (i) the amount withdrawn from any re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the purposes of this clause, 'net worth' shall have the meaning assigned to it in clause (ga) of sub-section (1) of section 3 of the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986). (viii) the amount of profits eligible for deduction under section 8OHHC, computed under clause (a), (b) or (c) of sub-section (3) or sub-section (3A), as the case may be, of that section, and subject to the conditions specified in sub-sections (4) and (4A) of that section; (ix) the amount of profits eligible for deduction under section 8OHHE, computed under sub-section (3) of that section." various authorities referred to and relied upon by Sri Shankar, learned counsel for the assessee would be of no significance. 109. Even in the matter of ascertaining the capital gains as a result of transfer of a capital asset and through the mechanism of section 48 of the Act-the computation provision, the whole exercise is to ascertain what possible surplus has resulted in favour of the assessee as a result of the transfer and after allowing such other deductions such as cost of improvement etc., as factually found to have been incurred etc. 110. A transaction of slump sale, which is patr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was sold, had not figured at the time of the computation of the surplus and if such amount is in fact forming part of the actual cost of acquisition in respect of any component of the bottling unit, we reserve liberty to the assessee to put forth such a claim before the Assessing Officer, even now, after the remand and to make good this claim with supporting material and proof before the Assessing Officer. If the Assessing Officer should find that any such claim now put forth by the assessee for claiming further deduction from out of the total surplus amount of Rs.43,16,59,811.69 is justified in law and on the facts, such claim can be entertained and a further deduction allowed from out of the amount of Rs.43,16,59,811.69 to arrive at the actual gains. If on the other hand, the Assessing Officer is not convinced of the genuineness of the claim for the further deduction or the tenability of such claim to be allowed and as a deduction forming part of the cost of acquisition of the asset for computation under section 48 of the Act or even if it is found that the claim is not substantiated by the assessee by adequate supporting material, being not placed by the assessee before the Ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act by app clause (b) of the Explanation, in so arriving at the book profits for the purpose of section 115JA of the Act, Sri Shankar, learned counsel for the assessee has made elaborate submissions and also referred to the principles of accountancy etc. 115. We find in the present set of facts and circumstances, the entire exercise would have become relevant only if the Assessing Officer should have found that on a proper computation of the total income of the assessee, i.e., by accepting the surplus as indicated in the note to the return filed by the assessee to be the capital gain and on such premise the total income should have been ascertained and if it was in fact found that it was less than 30 per cent. of the amount as computed by applying the provisions of section 115JA of the Act then alone further questions would have arisen. But, unfortunately, the Assessing Officer having proceeded on the premise that the transaction was a slump sale, the surplus attributable to the entire transaction was not ascertainable and surplus attributable to a few individual assets on the premise of the report of the valuer appointed by the buyer should be taken as the basis for compu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the tribunal was correct in holding that interest under section 234B of the Act cannot be levied against the assessee as the computation of income has been made under section 115JA of the Act? Not correct. Wrong. Under section 234B, interest can be and has to be levied. Question answered in the negative, in favour of the Revenue and against the assessee. (b) Whether the Tribunal was correct in taking into consideration irrelevant circumstances like "bona fides of the assessee" "whether the default was committed deliberately" in falling to pay advance tax under section 208 of the Act when section 234B interest is levied automatically as there is no discretion? Not correct. Bona tides cannot absolve an assessee of a statutory provision like section 234B of the Act, with no discretion being left to the statutory authority to apply or not to apply the provisions of section 234B of the Act. Therefore, the question is answered in the negative, in favor of the Revenue and against the assessee. (c) Whether the Tribunal was correct in holding that the transfer of soft drink unit of the assessee was a slum (sic) sale, when the individual valuation of the assets has been made by the e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s we are remanding the matter to the Assessing Officer for such purpose. The question is answered in the affirmative, in favour of the Revenue and against the assessee. (c) Whether the slump sale amount received, on the facts and circum stance of the appellant's case constitute capital receipt? Answered in the affirmative in favour of the Revenue and against the asses see. (d) Whether, on facts and circumstances of the case, is the Tribunal, justified in law, in holding that recomputation by the Assessing Officer for the purpose of determining book profit under section 115JB of the Act, is in accordance with law? The question is answered in the affirmative, in favour of the Revenue and against the assessee, holding that it is for the Assessing Officer to compute the book profit for the purpose of section 1I5JA of the Act, even after the preparation of the profit and loss account of the assessee for the relevant previous year, in accordance with the provisions of Parts II and III of Schedule VI to the Companies Act, 1956 and by examining the applicability of each clause in the Explanation to sub-section (2) of section 115JA of the Act. (e) Whether the surplus on the sale of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is justified in holding that the surplus on the sale of the undertaking as a whole requires to be credited to the profit and loss account in accordance with Parts II and II of Schedule-VI to the Companies Act, when the case is not part and parcel of the working results and consequently whether such finding constitutes apparent mistake on the facts of the case? (d) Whether the finding of the Tribunal that the transaction of slump sale is taxable for the assessment year 1999-2000 when the provisions of section 50B of the Act was introduced from Apr 1, 2000 and consequently constitute an apparent mistake rectifiable under section 254(2) of the Income-tax Act? In L T. A. No. 2971 of 2005 Q. No. Question Answer (a) Whether the Tribunal was correct in holding that interest under section 234B of the Act cannot be levied against the assessee as the computation of income has been made section 115JA of the Act The Tribunal is not correct in holding that interest under section 234B of the Act cannot be levied against the assessee as the computation of income has been made under section 115JA of the Act. The question is answered in the negative, in favour of the Revenu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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