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TMI Blog2014 (12) TMI 93X X X X Extracts X X X X X X X X Extracts X X X X ..... usiness, had mortgaged his immovable property to the State Government (in the Excise Department), which in the recovery proceedings under the Excise Act auctioned the same, and deducting there-from its dues, paid over the balance to the assessee - the assessee transferring its’ business carried on through three undertakings - The provisions of section 50B shall apply, there being no finding of any asset or liability of the said business as having not been transferred, with we having already clarified the aspect of ‘non-transfer’ of cash and bank balance/s - The sale consideration is a single sum of 78.45 lacs, i.e., the combined net worth of all the three firms as at the completion date, received by the assessee in cash - as this net worth is also deemed as the cost of acquisition and/or improvement u/s. 50B(2), no capital gain would stand to arise. The assessee rather itself pleading it as so in the appellate proceedings, it would be incumbent on her to satisfy the said requirement, albeit procedural, of the section - The matter is restored back to the file of the FAA, which had found s. 50B to be applicable in the first instance - in case of any difference between the sale consid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsideration shall be increased to an amount equal to the Final Net Assets; (b) If the Final Net Assets is less than the Consideration, the Consideration shall be reduced to an amount equal to the Final Net Assets. 3.4 For the purposes of this Agreement, 'Final Net Assets' means assets less liabilities as on the Completion Date.' The net worth of the three firms as on the transfer date (01.04.2005), as furnished by the assessee during the assessment proceedings, i.e., at an aggregate of ₹ 73 lacs, was as under: (Amount in Rs. lacs) a) Bombay Fashions 205.29 b) Design Creations (-) 99.78 c) Apparel Industries (-) 32.51 In the view of the Assessing Officer (A.O.), the assessee had nowhere proved that the net worth of the latter two firms afore-referred was in the negative, so that their entire capital had been wiped off, and that the assessee had incurred loss to that extent. That being the case, the consideration for their transfer was to be considered at ₹ 10,000/-, rather than being adjusted by the negative sum of their net worth, as contended by the assessee. For the third firm, M/s. Bombay Fashions, the consideration (Rs.10,000/-) was to be further increase ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deration could be in the negative? The ld. Authorized Representative (AR), the assessee's counsel, on being so queried during the course of hearing, would object thereto, stating it as not so, but only that the assessee had not been able to show that the net worth of the said two firms had been lost. We are surprised. In our view, the A.O.'s confusion stems principally on account of the negative net worth of two of the three undertakings transferred. How could the consideration, which is pegged at the net worth, whether positive or negative, be in the negative? How for instance, one may ask, would it be conveyed? As such, even assuming the ld. AR to be correct in stating that to be not the (or a) source of the AO's confusion, how we wonder it would not be an issue arising in the matter and, thus, not relevant for being questioned and examined in deciding the same. We would rather consider this to be the issue arising in the instant case. The ld. AR, in our view, ought to have addressed the query, being germane to the issue. In fact, we find copies of the order by the tribunal in the case of Zuari Industries Ltd. vs. Asst. CIT [2007] 105 ITD 569 (Mum) (marked as 'AR') in the appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decision in the case of Zuari Industries Ltd. (supra), as also dissents from another in the case of Paper Base Co. Ltd. vs. Asst. CIT [2008] 19 SOT 163 (Del). It stands clarified therein that section 2(14)) of the Act, which defines a capital asset to mean property of any kind held by the assessee, no doubt refers to some positive possession. However, the contention that its' cost therefore cannot be negative, fails in the context of section 50B, as the capital asset referred to therein is an Undertaking, which would encompass not only assets, but its' liabilities as well, as where their value exceeds that of the assets. Section 50B(2) makes it abundantly clear that the undertaking or a division as a whole is considered as a one asset and the net worth of this capital asset is to be considered as the cost of acquisition and improvement for the purposes of sections 48 & 49, and which is to be reduced from the full value of the consideration received or accruing as a result of transfer. The object of section 50B is thus simply to determine and supply the figure of cost of acquisition and cost of improvement of the undertaking/s to section 48, so as to eventually compute the capital ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... valid basis. The moment this is done, the mathematical identity that capital gain cannot exceed the sale consideration, which prevailed with the tribunal in Zuari Industries Ltd. (supra), shall no longer obtain, dissolving all the confusion and ambiguity in the matter. 4.3 Coming to the facts of the present case, what the assessee has transferred is its' business of manufacture/stitching of garments (on job work basis), undertaken through its three proprietary firms. Though per separate agreements, the same is in effect one single transaction of transfer of the assessee's said business to another entity, DCPL, and what the assessee has received, in consideration, is a single positive sum from the said transferee-company. Consideration, as afore-stated, cannot be negative, and is not so in the instant case, and which would also stand to answer the query made during hearing. To this extent we are in disagreement with the ld. CIT(A), who though has finally combined the net worth of all the three firms, at ₹ 78.45 lacs, i.e., by adjusting the negative net worth of the two firms with that of the third, having a positive figure. The transactions being considered as disparate or, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the matter. In the facts of the said case, the assessee, in abkari business, had mortgaged his immovable property to the State Government (in the Excise Department), which in the recovery proceedings under the Excise Act auctioned the same, and deducting there-from its dues, paid over the balance to the assessee. The assessee sought deduction of the amount retained by the Government in the computation of capital gains, in-as-much as the property sold was under charge or mortgage for that amount, which therefore never reached him, so that there was thus a diversion by overriding title. While the tribunal and the high court held in assessee's favour, the apex court, reversing the same, held that what has been discharged by the assessee was only a debt out of the sale proceeds of his property and, therefore, the assessee had received the full price. Given our finding that what has been transferred by the assessee are her undertakings, as going concerns, forming part of her business, for a lumpsum consideration, and not their individual assets, the said case has no application in the facts of the present case. Decision 5. The present case is of a slump sale; the assessee transfer ..... X X X X Extracts X X X X X X X X Extracts X X X X
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