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TMI Blog2011 (1) TMI 905X X X X Extracts X X X X X X X X Extracts X X X X ..... 1. The above appeal has been admitted against the judgment and order dated 15th October, 2001 passed by the learned Income Tax Appellate Tribunal in relation to assessment year of 1996-97. It was admitted by this Court by an order dated 31st July 2002 on the following substantial question of law:- (i) Whether the amount received by the appellant for transfer of its entire marketing undertaking by way of slump sale in terms of the agreement was a capital receipt to which the provisions of Section 50(1) of the Income Tax Act, 1961 had no application and no capital gains could be assessed and the purported findings of the Tribunal rejecting the said contention of the appellant have been arrived at by ignoring the relevant materials and/or by taking into consideration irrelevant and/or extraneous materials and/or is otherwise arbitrary, unreasonable and perverse? (ii) In the event of it being held that there was any liability to tax in respect of transfer of the marketing undertaking, whether the consideration of Rs. 3 crores received for transfer of the said undertaking had to be apportioned between the physical depreciable assets and other assets and only the amount referab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... going concern comprising physical depreciable assets like cabinets, vans, pushcarts, etc. as also the entire dealership network, management and nonmanagement employees, complete marketing data and know-how vending licences, sales contracts, relationship with franchisees, etc. for a sum amount of Rs. 3 crores. (iii) Non-competition agreement wherefrom the appellant gave up its ice cream business and agreed not to compete with Brooke Bond for a consideration of Rs.4 crores. (iv) Acquisition of franchisees marketing assets by Brooke Bond for a consideration of Rs. 15 crores. The strategic alliance agreement further provided for termination of franchisees operations for which a fund of Rs.1 crore was to be created with equal contributions from the petitioner and Brooke Bond. The fund was to be held by Brooke Bond for settlement of all claims of the franchisees. (v) Sourcing agreement under which Brooke Bond undertook to source its ice cream requirements from the appellant. The said agreement provided for interest free deposit of Rs. 3.5 crores by Brooke Bond. 4. Pursuant to the agreements as above Brooke Bond paid to the appellant an aggregate sum of Rs.13.75 crores. The am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t to tax the amount received for the trade marks and in terms of the non-competition agreement. 9. The appellant being aggrieved by the said order of Assessing Officer carried this matter in appeal to the First Appellate Authority, the Commissioner of Income Tax (Appeals) and by an order dated 25th October, 1999 granted part relief to the assessee. It appears from the said judgment and order that the Appellate Authority rejected the appellant s contention as to assessability of the amounts in question and held that the same had to be considered in the assessment year 1996-97. He however held that the amounts relating to trade marks and non-competition are capital receipts and are not liable for taxation. He refused to accept the appellant s contention that the amount received for marketing undertaking was also a capital receipt to which the provisions of Section 50(1) had no application. He upheld the action of the Assessing Officer in subjecting the entire sum of Rs. 3 crores less the written down value of the depreciable assets to tax as short term capital gains and did not give any direction for apportionment of the lump sum consideration of Rs. 3 crores between the physical ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance on the Supreme Court decisions in case of PNB Finance Ltd. vs. CIT reported in (2008) 307 ITR 75 (SC), CIT vs. B.C.Srinivasa Setty reported in (1981) 128 ITR 294 (SC). 15. He reminds us that though aforesaid decisions were not rendered in the context of provisions of Section 50 of the said Act, the principle laid down therein is equally applicable for assessing amount of tax in respect of depreciable assets which were earlier assessable under Section 41(2) of the Act and now assessable under Section 50 of the Act after introduction of the concept of block assets. He has relied for the above proposition of law on the decision of the Supreme Court in case of CIT vs. Electric Control Gear Manufacturing Co. reported in (1997) 227 ITR 278 (SC). He has also relied on the Division Bench judgment of this Court in relation to the aforesaid legal principles, in the case of CIT vs. Carew Phipson Ltd. reported in (2003) 260 ITR 668 and that of the Hon ble Gujarat High Court in the case of CIT vs. Garden Silk Weaving Factory reported in (2005) 279 ITR 136. 16. He submits further drawing our attention to the balance sheet for the purpose of Section 50 of the Act, that the cost of de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsferred. The learned Tribunal therefore has correctly held that it was a composite consideration and it is absolutely the income of the nature of the capital gain and the same was received while transferring the entire marketing undertaking of the appellant to Brooke Bond. 23. We have heard the respective contention of the learned counsel and gone through the records. It appears that in order to decide this appeal on the admitted question of law we find only point involved is whether the consideration amount of Rs. 3 crores received under the deed of assignment dated 2nd June, 1995 from the BBL is exigible to tax or not and further whether it is partly exigible to income tax or not under Section 50(1) of the aforesaid Act. Therefore, we need to set out the Section 50 then prevailing. Special provision for computation of capital gains in case of depreciable assets:- Section 50 Notwithstanding anything contained in clause (42A) of section 2, where the capital asset is an asset forming part of a block of assets in respect of which depreciation has been allowed under this Act or under the Indian Income-tax Act, 1922 (11 of 1922), the provisions of sections 48 and 49 shall b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... putation provisions are inextricably linked. The charging section and the computation provisions together constituted an integrated code. Therefore, where the computation provisions cannot be applied (supplied by us), it is evident that such a case was not intended to fall within the charging section. The second test which needs to be is the test of allocation/attribution. This test applies to a slump transaction. The object behind this test is to find out whether the slump price is capable of being attributable to individual assets, which is also known as item-wise earmarking. The third test is that there is a conceptual difference between an undertaking and its components. Plant, machinery and dead stock are individual items of an undertaking. A business undertaking can consist of not only tangible items but also intangible items like, goodwill, manpower, tenancy rights and value of banking licence. However the cost of such items is not determinable. 26. In the case of Commissioner of Income Tax, Bangalore vs. B.C. Srinivasa Setty reported in (1981) 128 ITR 294 the Supreme Court held that the charging section and the computation provisions together constitute an integrated co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ets be it a building or plant or machinery, has to be owned by the assessee, (b) Assets are used for the purpose of business of the assessee, (c) The assets should have written down value and actual cost, and (d) there should be excess which does not exceed the difference between he actual cost and the written down value which shall be chargeable to tax as income of the previous year in which monies payable for such building, machinery, plant or furniture became due. 29. In this matter basic point for consideration is whether section 50 of the said Act has any application in relation to transfer of its entire marketing undertaking or not. We think this section really also provides for computation method of capital gain which is chargeable basically under Section 45 of the Act. All the authorities below including learned Tribunal has considered the receipt of Rs. 3 crores for consideration of assignment of marketing undertaking together with strategic alliance agreement. We have also examined the two documents and we feel that all the authorities below have rightly taken into consideration of both the documents to understand the nature of the receipt. Learned Tribunal as w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch the entire compensation of Rs. 10.20 crores was not allocable item-wise. Indeed in case of Artex Manufacturing Company reported in (1997) 227 ITR 260 the Supreme Court has specifically held if item-wise allocation is possible then charging section can be brought into operation. 31. Accordingly, we are unable to accept the contention of Mr. Bajoria that in this case, Section 50 cannot be applied. 32. In view of the aforesaid discussion we hold that the assets and properties which are tangible in nature and for which depreciation was allowed should be apportioned from the other intangible assets and to that effect Section 45 read with Section 50 shall be made applicable. 33. We, therefore direct the Assessing Officer concerned to apportion and/or segregate the amount of consideration received by way of transfer of assets, out of total consideration of Rs. 3 crores to pick up the amount of consideration of tangible assets for assessment of tax under the heading capital gain under Section 45 read with 50 of the said Act. Thus we allow the appeal partly. 34. The Assessing Officer shall complete this exercise within three months from the date of receipt of the copy of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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