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TMI Blog2012 (3) TMI 176X X X X Extracts X X X X X X X X Extracts X X X X ..... consideration of the undertaking should be taken at Rs. 143 crore and not Rs. 300(143+157) crore. In case of a slump sale, Capital gain on transfer of 'Undertaking’ = Full value of consideration received or accruing (All assets minus All liabilities) - 'Net worth’ or in other words the cost of acquisition and cost of improvement (All assets minus All liabilities) of the undertaking. Hence, while sustaining the figure of sale consideration at Rs. 143 crore, the negative net worth is “deducted from” (i.e. “added to“) the full value of consideration. Consequently, the chargeable capital gain is Rs. 300 crores (Rs. 143 crores + Rs. 157 crores) – Decided in favor of Revenue. - ITA No.4977/Mum/2009 - - - Dated:- 7-3-2012 - Shri D Manmohan, Shri R.S.Syal, Shri N.V.Vasudevan, JJ. Appellant by : S/Shri Sanjiv Dutt Subachan Ram Respondent by : S/Shri S.E.Dastur, Niraj Sheth Manish V.Shah O R D E R Per R.S.Syal (AM) : This appeal by the Revenue arises out of the order passed by the Commissioner of Income-tax (Appeals) on 05.06.2009 in relation to the assessment year 2006-2007. The following two effective grounds have been raised in this appeal:- 1. On T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the assessee reflected long term capital loss brought forward at a sum of Rs. 281.41 crore in the current year. In the revised return, the long term capital loss was increased to Rs. 3267873707. Once again a revised computation of long term capital gain was filed showing long term capital loss at Rs. 3129443625. Factual matrix leading to the capital loss is as follows: A composite Scheme of arrangement between the assessee-company, KEC International Limited (formerly KEC Infrastructure Limited), Bespoke Finvest Limited (subsidiary of the company), KEC Holdings Limited and the respective shareholders u/s 391 of the Companies Act, 1956 was approved by the Hon ble High Court of Judicature at Mumbai on 27.09.2005. The composite Scheme was for sale of Investments by the assessee-company to KEC Holdings Limited and sale of the Power Transmission Business (hereinafter called PTB ) to KEC Infrastructure Limited (later on came to be known as KEC International Limited) and the merger of Bespoke Finvest Limited with KEC Holdings Limited. The Scheme was presented to the Hon ble Bombay High Court on 28.06.2005 and it was approved on 27.09.2005 with effect from the closure of the busines ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fixed at Rs.143 crore. He further noted that the report of the Valuer was prepared in the context of scheme u/s 391 to 394 of the Companies Act and as such the contention of the assessee that the price was fixed for the basket of investments was not tenable because the value was not reflected at arm s length price. 5. The learned CIT(A) accepted the contention advanced on behalf of the assessee in para 3.11 of the impugned order that the 'Net worth as defined u/s 50B cannot be a negative figure and in case it is so, that is, where the liabilities are more than the value of assets as computed u/s 50B, then for the purposes of computing capital gain u/s 48, the net worth would be considered as Nil. In taking this view, he relied on Zuari Industries Ltd. Vs. ACIT [(2007) 105 ITD 569 (Mum.)] and Paper Base Co. Ltd. Vs. CIT [2008) 19 SOT 163 (Del)]. He thus overturned the assessment order on this score by holding that it was not permissible to compute sale consideration of Rs. 300 crore as against the actual sale consideration of Rs. 143 crore. As can be noticed from the two effective grounds reproduced above, the Revenue s objection is two-fold. First, that the sale consideration ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 14 of the Act, with the heading 'Heads of income , which resides in Chapter IV of the Act dealing with the 'Computation of total income provides that save as otherwise provided by this Act, all income shall, for the purposes of charge of income-tax and computation of total income, be classified under the five heads. Chapter IV-E containing sections 45 to 55A deals with the income chargeable under the head Capital gains . Section 45 is charging section for capital gains in general cases. Sub-section (1) of section 45 provides that any profits or gains arising from the transfer of a capital asset effected in the previous year shall, save as otherwise provided in certain sections allowing exemptions, be chargeable to income-tax under the head Capital gains , and shall be deemed to be the income of the previous year in which the transfer took place. The mode of computation of the income chargeable under this head has been prescribed in section 48. This section provides that the income chargeable under the head 'Capital gains shall be computed by deducting from full value of consideration received or accruing as a result of a transfer of the capital assets, the following amoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ving double benefit to the assessee, firstly, by allowing depreciation during the years of user of such asset and then again by adding such depreciation allowed to the written down value of asset. That is why the Act provides that to the extent of depreciation actually allowed in the earlier years, the cost of acquisition for the purposes of computing capital gains shall be taken as the written down value. To illustrate, if Plant and machinery was purchased for Rs. 5 and at the time of its transfer, its w.d.v. is Rs. 3 and it is transferred for a sum of Rs. 5, then the amount of capital gain shall be Rs. 2 (Full value of consideration received at Rs. 5 w.d.v. of Rs. 3) (ii) Non-depreciable tangible assets In contrast to the depreciable assets, where an assessee transfers non-depreciable capital assets, the capital gain is computed by deducting its cost of acquisition and cost of improvement from the full value of consideration received or accruing as a result of transfer. It is so for the reason that any increase in the value of asset when so realized vis- -vis the cost at which such asset was acquired should be brought to tax as income chargeable under the head 'Capit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the purposes of sections 48 and 49, the cost of acquisition of intangible assets in the nature of goodwill of a business or a trade mark or brand name associated with a business or a right to manufacture, produce or process any article or thing or right to carry on any business, tenancy rights, stage carrier permits or loom hours shall be taken to be Nil. Resultantly the capital gain on the transfer of such intangible assets is the full value of consideration itself. To illustrate if self created Goodwill or Trade mark of Brand name is transferred for a sum of Rs. 20, then the amount of capital gain shall be Rs. 20 (Full value of consideration received at Rs. 20 Cost of acquisition and cost of improvement of Rs. 0). (iv) Other assets A business enterprise, apart from the above three types of capital assets, may also hold other assets such as cash in hand, stock, bank balance and debtors etc. The realizable or market value of such assets as on a particular date is usually equal to the book value or insignificantly different. Suppose the book value of such assets is Rs. 2, its market value will also be in the close vicinity of Rs.2 and the sale price of such assets a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 11. Thus it can be noticed that there arises no difficulty in computing capital gain when all or any of the capital assets are distinctly transferred. Apart from the assets appearing in balance sheet, other assets such as goodwill and brand value are also transferred when the undertaking is sold because the purchaser not only acquires the tangible assets but also the intangible assets of the undertaking. In the facts of the instant case it is observed that the transferee buyer has assigned value of Rs. 240 crore to Brand and Rs. 4 crore to the Goodwill in its books of account. Not only such value has been assigned to these intangible assets, but the transferee also claimed deprecation on such assets, which has been eventually allowed by the tribunal. Copy of the tribunal order passed in the case of transferee has been placed on record. In case of sale of all the assets of the undertaking- tangible or intangible, movable or immovable, those recorded or unrecorded in the books as one unit, a lump sum amount of consideration is determined without reference to any specific assets. Despite the fact that no reference is made to the value of individual assets in case of full value o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion in respect of such assets, despite the availability of full value of all the assets taken together. 13. In the case of PNB Finance Ltd. Vs. CIT [(2008) 307 ITR 75 (SC)], Punjab National Bank Limited vested in Punjab National Bank on nationalization in 1969. On that account it received compensation of Rs. 10.20 crore during the previous year relevant to the assessment year 1970-71. The assessee claimed capital loss. The Assessing Officer held that since the assessee had submitted its own computation of the fair market value of the undertaking as on 01.01.1954, the only question which was required to be considered was the correctness of the figure of capital loss submitted by the assessee. The AAC held that it was not feasible to allocate the full value of consideration received amounting to Rs. 10.20 crore between various assets of the undertaking and consequently it was not possible to determine the cost of acquisition and cost of improvement under the provisions of section 48 of the Income-tax Act, 1961. In this view of the matter it was laid down that the provisions of section 45 would not be attracted. When the matter finally reached the Hon ble Supreme court, it came to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such lump sum consideration does not separately divulge the values of individual assets and liabilities. 14.2 At this stage it will be apt to note the prescription of section 50B which runs as under:- 50B. Special provision for computation of capital gains in case of slump sale.--(1) Any profits or gains arising from the slump sale effected in the previous year shall be chargeable to income-tax as capital gains arising from the transfer of long-term capital assets and shall be deemed to be the income of the previous year in which the transfer took place : Provided that any profits or gains arising from the transfer under the slump sale of any capital asset being one or more undertakings owned and held by an assessee for not more than thirty-six months immediately preceding the date of its transfer shall be deemed to be the capital gains arising from the transfer of shortterm capital assets. (2) In relation to capital assets being an undertaking or division transferred by way of such sale, the "net worth" of the undertaking or the division, as the case may be, shall be deemed to be the cost of acquisition and the cost of improvement for the purposes of sections 48 and 49 an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re-supposes some benefit or advantage in the positive sense in contrast to some liability, which is always 'incurred and not 'held . But in the context of section 50B, the capital asset is of unique nature, as it not only encompasses all the assets but also all the liabilities of the undertaking. In other words, the undertaking as a capital asset means 'All assets minus All liabilities of the undertaking. (b) Where an industrial undertaking is transferred under slump sale which was owned and held by the assessee for not more than 36 months immediately preceding the date of its transfer, the profit or gains arising from such transfer is deemed to be capital gain arising from the transfer of short term capital assets. The relevant criteria for considering whether the undertaking is a short term or long term is the period of owning and holding the undertaking as a whole and not individual assets of such undertaking. Suppose the undertaking was set up four years ago and some of the assets were purchased and held for a period of not more than 36 months, it is the entire undertaking which will be treated as long term capital asset for the purposes of computing capital gain on its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cess of calculating 'net worth , being the cost of acquisition and cost of improvement of the undertaking, involves basically two steps. First, find the written down value of the depreciable assets and book value of all other assets to find out 'the aggregate value of total assets of the undertaking. Second, find the 'value of liabilities of the undertaking as per books of account. When the figure as determined as per second step is reduced from the figure as per the first step, it gives us the amount of 'net worth or in other words the cost of acquisition and cost of improvement of the undertaking. In other words, net worth of an undertaking under transfer is nothing but the cost of acquisition and cost of improvement of 'All assets minus All liabilities of the undertaking . (d) It has been clarified by Explanation 2 to section 2(42C) that the determination of the value of 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. Value of an asset for the purposes of payment of stamp duty etc. ordinarily indicates its market value. B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te of taxation on long term capital gain as provided u/s 112 to the undertaking as a whole notwithstanding the fact that there may be several assets held by the assessee for a period of not more than 36 months, the legislature thought it to curtail the benefit of indexation to the cost of acquisition and cost of improvement. 14.4 On an overview of the provisions for the computation of capital gain in the case of slump sale of the undertaking on one hand and on the transfer of individual assets, whether depreciable or otherwise, we find that the basic intent is same and that is to charge tax on the transfer of capital assets. Only different modes have been provided to make such computation of capital gain workable. It can be noticed that the amount of profit or gain chargeable under the head 'Capital gains from individual assets represents the excess of amount received or accruing, normally representing their market value, over the book value or depreciated value of such assets, as the case may be. So if all the assets of the undertaking are separately transferred, the amount of capital gain will be equal to the Agreed/Market value of the all assets taken separately minus the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deration liable to be considered for computing capital gain on transfer of such separate assets will the amount received on account of transfer of such assets at gross level, that is, before reducing the amount of liabilities later on discharged by the transferor. If however, along with the transfer of all the assets, the transferor also transfers all the liabilities of the undertaking in the shape of a slump sale, then the consideration to be received will be net, that is agreed/market value of all the assets as reduced by the amount of liabilities to be discharged. And when we compute capital gain on the transfer of undertaking, the book value/w.d.v. of all the assets of the undertaking as reduced by the amount of liabilities appearing the balance sheet shall be reduced from the full value of consideration representing net value of agreed/market price of the assets over its liabilities. The result in both the cases will remain same, that is, it is in fact the computation of capital gain on the transfer of positive capital assets as one unit which are embedded in the undertaking. The illustrations taken above can be summarized in a tabular form as under :- Table A - Position ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s one unit without reference to the values assigned to individual assets shall remain at Rs. 105. It therefore, boils down that whatever consideration is received for the transfer of the undertaking in a slump sale, it will be approximate to the market value of all the assets, whether depreciable or non-depreciable, fixed or movable, tangible or intangible without being itemized in respect of each asset of the undertaking, as reduced by the amount of liabilities appearing in the balance sheet as on the date of transfer. The full value of consideration towards the transfer of all the assets of the undertaking as one unit, whether recorded or unrecorded in the books of account, is inherent in the full value of consideration of the undertaking though not distinctly specified. If we increase the book value of liabilities to the total sale consideration of the undertaking as a whole, what comes is the agreed value of all the assets of the undertaking as one unit. In other words, the full value of the consideration of the undertaking is the aggregate value of 'All assets minus All liabilities of the undertaking. It has to be so because the capital asset itself is nothing but 'All ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d as follows :- Full value of consideration of the undertaking ( Rs. 143 crore) as reduced by the net worth of the undertaking (- Rs. 157 crore) giving capital gain of Rs. 300 crore [ Rs. 143 minus (-) Rs. 157 crore or in other words Rs. 143 crore plus {as minus into minus is equal to plus} Rs. 157 crore]. 15.3. Initially the learned A.R. confined his arguments only to the exclusion of negative net worth from the full value of consideration for computing the capital gains, being the question referred to the special bench. However when it was pointed out to him that the Special Bench has been constituted not only to answer the question posted but also to dispose the entire appeal of the Revenue, which is against the computation of capital gain by the CIT(A) at Rs. 143 crore instead of Rs. 300 crore determined by the A.O., he advanced his arguments supporting the impugned order to the extent of adopting zero as cost of acquisition and cost of improvement of the asset instead of negative figure of net worth. 15.4 The learned A.R. was hesitant in conceding that the question of adopting zero in place of the negative worth for the purposes of computing capital gain may also be l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the same. The same analogy applies with full force to the denial of relief by the AO wrongly under one provision, which ought to be have been done under the other correct provision. There can be no embargo on the power of the tribunal to consider such correct provision, if such relief is, in fact, not available as per law under the correct provision. The Hon ble Jurisdictional High Court in Ahmedabad Electricity Co. Ltd. Vs. CIT [(1993) 199 ITR 351 (Bom.) (FB)] has held that Rules 11 and 29 of the Income-tax Appellate Tribunal Rules indicate that the scope of enquiry before the Tribunal can be wider than the points which are raised before the Tribunal. The Tribunal, therefore, would ordinarily have the power to allow additional points to be raised before it so long as they arise from the subject matter of proceedings and not necessarily only the subject matter raised in the memorandum of appeal. In the present case it is not as if the ld. DR has taken leave to argue any additional ground. Ground no.2 of the Revenue s appeal specifically challenges the finding of the ld. CIT(A) to the extent of directing that the negative figure of net worth be ignored. Further it is worth noting t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... result of such transfer. It is worth noting that for the purposes of section 50C, the ambit of the expression 'full value of consideration has observed departure from its general meaning of the amount actually received or accruing. In case of transfer of capital asset in the nature of land or building or both, this expression shall mean not the consideration received or accruing but the stamp value, where the former is less than the latter. In such a situation, the amount actually received or accruing to the assessee as a result of the transfer of land or building or both shall lose its significance for the purposes of computing capital gain u/s 48. The stamp value shall be substituted with the actual amount received or accruing to the assessee which shall constitute full value of consideration received or accruing for the purposes of section 48. It is pertinent to note that section 50C is not applicable to all the capital assets but only to a capital asset which is land or building or both. Explanation 2 to section 2(42C) defining 'slump sale has made it clear that the determination of the value of asset or liability for the purposes of payment of stamp duty etc. shall not be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he date of such transfer shall be deemed to be the full value of consideration received or accruing as a result of such transfer. There are certain other provisions as well which deem the fair market value of the asset as full value of consideration received or accruing as a result of transfer of such capital asset. 16.3 On the other hand there are some sections in which fair market value of the asset is deemed as cost of acquisition . Section 49(2AA) provides that where capital gain arises from the transfer of specified security or sweat equity shares referred to in section 17(2)(vi), the cost of acquisition of such security or shares shall be the fair market value which has been taken into account for the purpose of the said sub-clause. Section 55(2)(b) provides in relation to any other capital asset which became the property of the assessee before 01.04.1981, the cost of acquisition shall mean the cost of acquisition of the asset or the fair market value of the asset as on 1st April, 1981, at the option of the assessee. Similarly section 55(3) provides that where the cost for which the previous owner acquired the property cannot be ascertained, the cost of acquis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is not appropriate, he has indirectly resorted to the substitution of fair market value of the undertaking in place of the amount received or accruing . 16.6 Notwithstanding the fact that there is no provision to substitute fair market value of the undertaking with the amount received or accruing as the full value of consideration u/s 48, we find that the A.O. has not even embarked upon determining fair market value of the undertaking as per law. Section 55A provides that with a view to ascertaining the fair market value of a capital asset for the purposes of this Chapter, the Assessing Officer may refer the valuation of capital asset to a Valuation Officer if, inter alia, he is of the opinion that the fair market value of the asset exceeds the value of the asset as claimed by the assessee by more than such percentage of the value of the asset as so claimed or by more than such amount as may be prescribed in this behalf. It is well known that the process of determining the fair market value of an asset requires specific knowledge, qualification and skill, which cannot be decided by a person who is not so equipped. That is why the legislature has left the matter of deter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eeds to be determined in the same manner by reducing the value of liabilities of the undertaking from the agreed value of all the assets of the undertaking. It is relevant to note that in the above Table A, the prescription of section 2(42C) is fully satisfied inasmuch as there is no itemized value of the assets and the liabilities as agreed to between the parties and instead there is one lump sum value of the undertaking though determined by reducing the value of all the liabilities taken together as one unit from the value of the bundle of assets of the undertaking as one unit. From the above Table A it can be seen that the total assets of the undertaking having book value of Rs. 10 have the market value of Rs. 108 but due to mutual negotiations, such price has been agreed at Rs. 105 and further the book value as well as the market value of liabilities as on the date of sale of undertaking is consistent at Rs. 5. That is how the agreed value of the undertaking (All assets minus All liabilities) is Rs. 100 ( Rs. 105 for Assets minus Rs. 5 for Liabilities). 16.9. The contention of the ld. DR was that since the liabilities have been taken over by the transferee then it would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e full value of consideration. As the expression full value of consideration is qualified by the word received or accruing , it has to be restricted only to the actual amount received or accruing to the assessee and not what the transferee has undertaken to pay to the creditors of the PTB, which, in fact, is nothing but part of the consideration. We have noticed above that the capital asset Undertaking means All assets minus All liabilities of the undertaking and further the full value of consideration means the consideration that of All assets minus All liabilities of the undertaking. If we add the negative net worth of Rs. 157 crore to the full value of All assets minus All liabilities at Rs. 143 crore, the components of the undertaking as capital asset will become incompatible with those of the full value of consideration of such undertaking. In that case the full value of consideration will show the figure of that of the undertaking plus part of such figure once again. As the figure of Rs. 143 crore has been reached by considering not only the value of all the assets but also all the liabilities of the undertaking, a part of such liabilities representing negative ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld be considered as full value of consideration for the purposes of computing capital gain in the hands of the assessee. The learned Departmental Representative has drawn an analogy from this judgment to drive home the point that the negative net worth representing the liabilities of the assessee taken over by the transferee as a part of PTB should be added to the sale consideration actually received. This analogy ignores the point that in Attili N.Rao (supra), the amount of Rs. 5,62,980 was realized at the auction towards the immovable property. The capital asset in that case was immovable property having full value of consideration at Rs. 5.62 lakh. Out of such sale price realized, the State discharged the liability due by the assessee to it and paid over the remaining amount to the assessee. Since the full value of consideration was the amount of sale consideration at Rs. 5.62 lakh of the immovable property, it was held that the entire amount was to be considered as full value of consideration for the purpose of computing capital gain. In the instant case the capital asset transferred is the undertaking which comprises not only its positive assets but the liabilities as well ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income while the transferee company would be claiming depreciation on the same block of assts, which would result in double deduction. Considering the above facts, the Hon ble High Court held the scheme to be unreasonable, unfair and unjust and refused to sanction it. From the facts of this case, it is obvious that it has no relevance in so far as the present case is concerned. Ours is not a case in which the Hon ble Bombay High Court refused to sanction the Scheme. The arrangement so proposed by the assessee and all other interested parties got the approval of the Hon ble Court, which shows that on the due consideration of all the aspects of the Scheme including the sale consideration for the transfer of PTB, the Hon ble High Court got satisfied with it. Once the sale consideration has been approved by the Hon ble High court, it is wholly unrealistic on the part of the Revenue to contend that the consideration of Rs. 143 crore does not represent the full value of consideration of the undertaking. As such, we are not inclined to find any assistance to the Revenue s case from the judgment of the Hon ble Gujarat High Court in so far as the question of the adequacy of the sale consid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s beyond any doubt as it is nothing but a consolidated figure of cost etc. of All assets minus All liabilities of the undertaking, which is a capital asset of typical kind. Consequently capital gain is computed on All assets minus All liabilities of the undertaking by considering the full value of consideration and also net worth with the same composition of assets and liabilities of the undertaking. Thus in order to find a correct amount of capital gain it is sine qua non that all the three variables in this computation must match with their inherent contents being All assets minus All liabilities of the undertaking. 17.4 It has been noticed above that when we compute capital gain on the transfer of undertaking, what we actually compute is the capital gain on the transfer of all the assets of the undertaking as one unit. The full value of consideration is settled as a lump sum figure of the undertaking as a whole comprising of all the assets minus all the liabilities. To attain the ultimate end of computing capital gain on the transfer of assets which are embedded in the undertaking, the process of calculating net worth of the undertaking is taken up so as to match it with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other. As discussed above that even in slump sale what we in fact calculate is the capital gain on the transfer of all the bundle of assets of the undertaking but as a one unit and not separately. From Table A it can be seen that the composite agreed value of all the assets of the undertaking is Rs. 105 and the w.d.v/book value of all the assets is Rs. 10 leaving the figure of capital gain at Rs. 95. Such figure of capital gain of transfer of all assets as one unit matches with the figure of capital gain on the transfer of undertaking. Thus it is clear that while computing the capital gain from the transfer of the undertaking, we cannot include the book value of the part of the bundle of assets but all the liabilities in the amount of net worth. It has to be of all the assets and all the liabilities. If we consider agreed value for all the assets but reduce book value of only some of the assets or we consider full value of all the bundle of assets but cost of acquisition at more than book value of such assets, the computation will give absurd results. Similarly we cannot ignore part of the liabilities from the net worth because the full value of consideration is determined by co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... B. Total liabilities 15 15 15 A-B Net (-)5 93 90 17.9 From the above table it can be seen that the full value of consideration received or accruing to the assessee from the transfer of undertaking (All assets minus All liabilities) is Rs. 90. Further the net worth in this case is at a negative figure of Rs. 5 (Book value etc. of all the assets Rs. 10 Book value of all the liabilities Rs. 15). It is of utmost importance to note that the case under consideration is also that of the negative net worth of Rs. 157 crore (Book value etc. of all the assets Rs. 1360 crore Book value of all the liabilities Rs. 1517 crore). As the capital asset is again an undertaking (All assets minus All liabilities), the full value of consideration also needs to be determined in the same manner of (All assets minus All liabilities). In the like manner net worth of the undertaking i.e. the cost of acquisition and cost of improvement also needs to be worked out of (All assets minus All liabilities). When we take the figures from Table B, the position which emerges is that the full value of consideration of the undertaking comes t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o Rs. 90 and if we go by the departmental contention, the amount of capital gain comes at Rs. 95. If we view the figure of capital gain from the transfer of bundle of assets of the undertaking at Rs. 95 which is nothing but the figure of capital gain from the transfer of undertaking as well, it becomes manifest that the assessee s calculation goes wrong and that of the Revenue gives the desired result of capital gain of Rs. 95. In that view of the matter we have absolutely no doubt in our mind that the amount of capital gain in the above example should be computed at Rs. 95 by adding the amount of negative net worth of Rs. 5 to the full value of consideration of the undertaking at Rs. 90. The figures from Table B will reflect the calculation of capital gain as under : - Capital gain on transfer of Undertaking (All assets minus All liabilities) is Rs. 95 ( Rs. 95 minus Rs. 0), that is Full value of consideration received or accruing (All assets minus All liabilities) as a result of the transfer of the undertaking Rs. 90 ( Rs. 105 minus Rs. 15) - Rs. Net worth or in other words the cost of acquisition and cost of improvement (All assets minus All liabilities) of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e context of the capital asset referred to in section 50B as Undertaking . 17.11.3 The context of a provision cannot be ignored while finding out the meaning of particular word not defined in the provision or elsewhere in the Act. It has been observed by the Hon ble Supreme Court in several cases that a particular word occurring in one section of the Act, having a particular object cannot carry same meaning when used in different section of the same Act, which is enacted for different object. In JCIT v. Saheli Leasing and Industries Ltd. [(2010) 324 ITR 170 (SC)] Their Lordships have held in para 34(vi) that : one word occurring in different sections of the Act can have different meaning, if the object of the two sections are different and when both operate in different fields . The Hon ble Supreme Court in the case of CGT v. N.S.Getti Chettiar [(1971) 82 ITR 599 (SC)] noted that the dictionary gives various meanings to the words but those meanings do not help. It has been specifically observed : We have to understand the meaning of those words in the context in which they are used. Words in the section of a statue are not to be interpreted by having those words in one hand an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n is a standard of auditing brought out with a purpose to establish standard on the Auditor s responsibilities in the audit of financial statements regarding the appropriateness of the going concern assumption as a basis for the preparation of the financial statement. Various financial indications have been given in it and the first one is Negative net worth or negative working capital . Therefore to contend that the cost or net worth can never be in negative, in our considered opinion, is too wide a proposition to be accepted in case of the capital asset in the nature of Undertaking . We, therefore, reject this contention. (ii) Why only negative net worth and not entire liabilities added ? 17.12. 1 Taking a dig at the Departmental stand on adding the negative net worth, the ld AR argued in that view of the matter this logic should have then been extended to the entire liabilities of the undertaking worth Rs. 1517 crore undertaken by the transferee and not only the negative net worth of Rs. 157 crore which is a fraction of total liabilities. 17.12.2 This contention of the learned AR defies the very rationale behind the computation of capital gain in case of slump sale. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the full value of the consideration received or accruing as a result of transfer of a capital asset inter alia the cost of acquisition of the asset and the cost of any improvement thereto, which in the present case is the amount of net worth as per section 50B. He contended that in such a case if the negative net worth is added to the full value of consideration, it will be against the language of the section. It was argued that if the intention of the legislature had been to add the amount of negative net worth then it should have been expressly provided by using the words deducting from or adding to in place of only deducting from . He stated that in the absence of any words adding to in section 48, the presumption is that the negative figure of the net worth has to be reduced to zero. 17.13.2 This contention is again devoid of merits. The reason is obvious for using the words deducting from in section 48 and not deducting from or adding to to the full value of consideration received or accruing as a result of transfer of the capital asset. When we talk of deducting net worth from the full value of consideration for computing capital gain u/s 48, it automatica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e nature of an undertaking. As the capital gain on transfer of undertaking (All assets minus All liabilities) is determined by reducing from the full value of consideration received or accruing of the undertaking (All assets minus All liabilities), the net worth i.e. cost of acquisition and cost of improvement has also to be of the undertaking (All assets minus All liabilities). In a case where the book value of liabilities is less than the book value / written down value of the assets of the undertaking, the amount of capital gain will be less than the full value of consideration of the undertaking. But if the book value of liabilities is more than the book value / written down value of assets, as is the case under consideration, then the inherent element of full value of assets in the total full value of consideration of the undertaking, though not separately indicated, will be depressed accordingly. In case the book value of all the liabilities is more than the book value/w.d.v. of all the assets, it is quite natural that the capital gain on the transfer of undertaking will be more than the full value of consideration because of the reason that the value of liabilities undertake ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ning of a word which has not been defined in the statute. To contend that the words as reduced by used in Explanation 1 can never have the effect of the value of liabilities more than the aggregate value of the total assets of the undertaking is completely unfounded. It is a fact that the aggregate value of the total assets of the undertaking is Rs. 1360 crore with the value of liabilities at Rs. 1517 crore. The figure of the value of liabilities is in fact more than the figure of aggregate value of total assets of the undertaking. When the net worth in the present case is negative at Rs. 157 crore it automatically implies that the liabilities are more than the total assets. The contention that the liabilities cannot be more than the aggregate value of assets, therefore, fails at the very outset. The further argument that if the value of liabilities is more than the aggregate value of total assets then the net worth should be restricted to zero, runs contrary to the main argument that the words as reduced by can never mean that the value of liabilities will be more than the aggregate value of the assets. 17.15.3 Insofar as the reliance of the learned AR on clause 315 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ains which imply a positive income, there can be no loss under this head. The answer to all these questions is simple and plain that a reference to an income under the provisions of Income-tax Act, 1961 automatically refers to the loss as well. What is true for the income in both positive and negative terms is equally true for other items as well. Most importantly it is relevant to note the positioning of Clause 315 in the Direct Tax Code Bills, 2010. It has been incorporated under Chapter XVI with the heading Interpretations and Constructions . It is not as if it has been made a part of provisions under Chapter III II D dealing with Capital gains covered under Clauses 46 to 55 of the DTC Bill, 2010. It, therefore, transpires that nothing new has been brought in to the Code by way of insertion of Clause 315 providing that the income or aggregation of two or more items shall include both positive and negative amounts. What was earlier implied has now been sought to be expressed. We, therefore, find this contention as bereft of any force. 17.15.5 It is relevant to note that the cost of acquisition and cost of improvement of an undertaking or its net worth has been i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich the legislature has not prescribed. Such a course of action can never have sanction of law. In view of the foregoing reasons we are not inclined to accept this part of the arguments advanced on behalf of the assessee. 17.15.6 To fortify his view that the negative figure of net worth should be ignored, the learned AR has heavily relied on the judgment of the Hon ble Supreme Court in the case of IPCA Laboratory Ltd. Vs. DCIT [(2004) 266 ITR 521 (SC)] in which case it has been held that the deduction u/s 80HHC(3)(c) can be allowed only if there is a positive profit on the exports of both self-manufactured goods as well as trading goods and if there is a loss in either of the two then the loss has to be taken into account for the purpose of computing profits. The facts of that case are that there was a loss of Rs. 6.86 crore from the export of trading goods and profit of Rs. 3.78 crore from export of self-manufactured goods. The assessee claimed deduction u/s 80HHC on a sum of Rs. 3.78 crore by ignoring the loss of Rs. 6.86 crore from the export of trading goods. The Assessing Officer did not allow any deduction u/s 80HHC for the reason that there was a net loss from export ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the assessee and the gross total income has been defined u/s 80B(5) to mean the total income computed in accordance with the provisions of this Act before making any deduction under this Chapter. Basically there are deductions either based on certain payments or in respect of certain incomes. The overall amount of all the deductions can in no case exceed the gross total income. However deductions in respect of incomes have to result from the qualifying income. In case there is positive qualifying income, the amount of deduction shall be computed and allowed. But if there no qualifying income, there will be nil deduction. Further the law does not say that in case there is a loss instead of the eligible income then any addition should be made to the total income. Thus in respect of ncome based deductions , there has to be some positive qualifying income so as to avail the benefit of deduction. And no deduction is available when there is either no eligible income at all or a loss. In both such cases the amount of deduction will be Nil. Section 80HHC falls in Chapter VI-A - C. Deductions in respect of certain incomes . Unless there is an income from exports included in the gross ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te of Maharashtra [(1998) 91 Company Cases 871 (Bom.)]. In that case the petitioner initially contended that no stamp duty was at all payable in case of an amalgamation u/s 394 of the Companies Act. There was transfer of a company as a going concern on the basis of compromise on which the Hon ble Bombay High Court held that stamp duty would be payable by the party. It was further observed that under the amalgamation scheme, what is transferred is a going concern and not assets and liabilities separately. As a going concern what is the value of the properties is to be taken into consideration. The learned Advocate General in that case contended that the stamp duty should be recovered on the market value of shares of the transferee company allotted to the shareholders of the transferor company plus the liabilities of the transferor company transferred to the transferee company. The Hon ble Bombay High Court found this contention to be contrary to the meaning of the word conveyance as provided u/s 2(g)(iv) of the Bombay Stamp Act, 1958. It is on the basis of this finding of the Hon ble jurisdictional High Court rendered in the context of Bombay Stamp Act, 1958 that the learned A.R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... herefore, hold that the reliance of the ld. AR on this judgment in any context other than the question of determination of full value of consideration of the undertaking is of no use. In view of the foregoing reasons we are of the considered opinion that in computing net worth of the undertaking the value of liabilities can be more than the aggregate value of assets of the undertaking within the meaning of section 50B. 18. The learned AR pressed into service the judgment of the Hon ble Bombay High Court in the case of Premier Automobiles Ltd. v. ITO Anr. [(2003)264 ITR 193(Bom.)]. That assessee-company was engaged in the business of manufacture and sale of cars. It entered into a joint venture agreement with a foreign company to establish a joint venture company. The assessee sold one of its business undertakings as a whole to the joint venture company for a lump sum consideration. The Assessing Officer took it as a case of sale of itemized assets and allocated sale value to building, plant and machinery and paint shop. After deducting written down value there from, he calculated short term capital gain. The Hon ble Bombay High Court held that it was an entire business un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of consideration received or accruing (All assets minus All liabilities) as a result of the transfer of undertaking (-) Net worth or the cost of acquisition and cost of improvement (All assets minus All liabilities) of the undertaking. Contents of all the three components viz. Capital gain, Full value of consideration and Net worth are common, that is, All assets minus All liabilities of the undertaking. It has to be so because we are computing capital gain on the transfer of the undertaking which is again nothing but All assets minus All liabilities . If we accept the contention of the assessee and adopt the figure of Full value of consideration at Rs.143 crore which is for All assets minus All liabilities of the undertaking and take the figure of Net worth at Rs. Nil , it would mean that for computing capital gain on the transfer of undertaking All assets minus All liabilities , the cost of acquisition and cost of improvement has been taken for All assets minus Part of all liabilities i.e. ( Rs. 1360 crore towards All assets minus only Rs. 1360 crore towards Part of all liabilities{total liabilities are Rs. 1517 crore}). Obviously it cannot be so because the computatio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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