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TMI Blog2012 (2) TMI 327X X X X Extracts X X X X X X X X Extracts X X X X ..... d in the business of manufacture and sale of liquor. An agreement was entered into by the assessee on 24 March 1994 with International Distillers (India) Pvt. Ltd. by which the assessee agreed to sell to the purchaser the undertaking / business together with its assets and liabilities as a running business / going concern on as is where is basis. The Undertaking / business which formed the subject matter of sale was the business of manufacturing, blending, bottling, distribution, storage and sale of Indian Made Foreign Liquor. The Assessing Officer noted that the assessee having transferred its IMFL division as a going concern / running business, it was stated in the Notes forming part of the computation of income that the written down value of the assets transferred was shown as a deduction for the purpose of computing depreciation from the block of assets. The assessee stated that the excess of the cost of IMFL business amounting to Rs.6.90 corers was not taxable and was not deducted from the respective block of assets. The assessee was called upon to justify this claim in response to which the assessee stated that it had transferred its IMFL business as a going concern for a tot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te valuation of the assets sold. The Tribunal held that this was, therefore, not a sale of itemized assets. The Tribunal came to the conclusion that it was not possible to ascertain the cost of the capital asset viz. the IMFL undertaking / business or the cost of the improvements thereto and it was hence not possible to compute any chargeable capital gain on the sale of the undertaking as a going concern. In holding thus, Tribunal relied upon its own decision in the case of Coromandel Fertilizers Ltd. Vs. DCIT 90 ITD 344. 4. Counsel appearing on behalf of the Revenue has submitted that (i) in the decision of the Division Bench in Premier Automobiles (Supra) this Court having come to the conclusion that there was a transfer of an undertaking as a going concern on the basis of a slump sale nonetheless remanded the proceedings back to the Assessing Officer for determination of the capital gains that would be attracted in accordance with the provisions of Sections 45 to 50. Consequently it was submitted that in the present case also an order of remand was warranted to the Assessing Officer to make a determination of the capital gains, if any, that had arisen as a result of a sale of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee it would, at the outset, be necessary to advert to the salient provisions of the agreement dated 24 March 1994 in pursuance of which the IMFL undertaking came to be transferred by the assessee. The agreement makes it clear both in its recitals and in clause 1.1 of the contract that the assessee was transferring to the purchaser the undertaking / business as a running business / going concern together with its assets and liabilities. The undertaking / business which was sought to be transferred was the business of manufacturing, blending, bottling, distribution, storing and sale of Indian Made Foreign Liquor. The undertaking / business consisted besides immovable property and movable property (including plant and machinery); current assets including raw materials, stock in trade and book debts; the benefits of all pending contracts, engagements and orders; all licenses and other permissions and approvals required from the State and Central Government) to carry on liquor business; the distribution network, marketing strategies, plans, advertising information and customer list; and the use of intangible assets referable to the undertaking / business including trade marks. Schedu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for a lump sum price and there is a transfer of the entire business for a fixed price. The sale consideration is, in other words, not attributable to the individual assets of the assessee. Both in the case of a slump sale as well as in the case of itemized assets a transfer of land, building, plant and machinery may and probably would be involved. However, where there is a slump sale, the transfer of land, building, plant and machinery forms part of the transfer of the entire business. On the other hand where there is an itemized sale the transfer of land, building, plant and machinery takes place in specie. This distinction which was noted in the judgment of Premier Automobiles must equally apply to the facts of the present case. There was, as we have noted earlier, neither a transfer of assets in specie nor was a valuation placed in the agreement on the individual assets of the undertaking that formed the subject matter of the transfer. 9. The Assessing Officer proceeded on the basis, and in our view erroneously, that from the copy of the agreement which was filed, the profit on the sale of the business had been worked out by taking the sale price of Rs.10.38 crores and after de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... slump sale effected in the previous year are to be chargeable to income tax as capital gains arising from the transfer of long term capital assets and are to be deemed to be the income of the previous year in which the transfer took place. Under the Proviso capital gains are to be treated as arising from a transfer of short term capital assets in the case of an undertaking owned and held by an assessee for not more than thirty six months. Subsection (2) of Section 50B provides that in such case the net worth of the undertaking or the division shall be deemed to be the cost of acquisition and the cost of improvements for the purposes of Sections 48 and 49. Under subsection (3) every assessee in the case of a slump sale has to furnish along with the return of income, a report of an accountant indicating the computation of the net worth of the undertaking or division. Explanation 1 defines the expression net worth " " as the aggregate value of the total assets of the undertaking or division as reduced by the value of liabilities as appearing in the books of account. For the purpose of this appeal Section 50B has no application. 11. In such a situation it would be necessary to advert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nery and dead stock are individual items of an Undertaking. Business Undertaking can consist of not only tangible items but also intangible items like, goodwill, man power, tenancy rights and value of banking licence. However, the cost of such items (intangibles) is not determinable. In the case of CIT v. B.C. Srinivasa Setty reported in [1981] 128 ITR 294, this Court held that Section 45 charges the profits or gains arising from the transfer of a capital asset to incometax. In other words, it charges surplus which arises on the transfer of a capital asset in terms of appreciation of capital value of that asset. In the said judgment, this Court held that the "asset" must be one which falls within the contemplation of Section 45. It is further held that, the charging section and the computation provisions together constitute an integrated Code and when in a case the computation provisions cannot apply, such a case would not fall within Section 45. In the present case, the Banking Undertaking, inter alia, included intangible assets like, goodwill, tenancy rights, man power and value of banking licence. On facts, we find that itemwise earmarking was not possible. On facts, we find tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unting purposes should be taken by the Assessing Officer for working out the depreciation allowable to the assessee. The Division Bench answered the first two questions in the negative, in favour of the assessee and against the Revenue. The third question was answered by holding that the sale was a slump sale. The Division Bench, however, having held that the transaction was a slump sale, the question of computation did not arise before the Court in that appeal. It was in that view of the matter that the Assessing Officer was directed to determine on remand whether any capital gains tax liability would arise and if so to determine the quantum thereof. The order of remand in Premier Automobiles was consequently as a result of the fact that the principal issue which fell for determination before the Division Bench was whether the Tribunal was justified in coming to the conclusion that there was an itemized sale and not a slump sale of the undertaking. In the present case the facts would clearly show that the Assessing Officer proceeded on the basis that what was involved was a transfer of the whole undertaking and business of the assessee as a going concern. This position was not in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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