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TMI Blog2015 (11) TMI 925X X X X Extracts X X X X X X X X Extracts X X X X ..... agreement and which were purchased/acquired for specific consideration. We find that this estate had been sold on the basis of detailed agreement executed between the vendor and the vendee. The total consideration stipulated for the transfer of the estate had been split over different assets, both movable and immovable enumerated in different schedules and annexures. The assessee had assigned specific consideration/value for the tea estate as such along with the standing trees. The consideration for the extent of land had been specifically mentioned. Thereafter, the assessee had listed out every item of movable property transferred to the buyer and value had been assigned to those movable assets. The assessee had not transferred the estate with all the assets and liabilities. All the financial assets available to the assessee up to the date of the transaction were not transferred as per the agreement but had been retained by the assessee. The assessee had assumed all the liabilities including the statutory liabilities till the date of transfer. Therefore, it could not be said that the transfer was a slump sale only for the reason that the rubber estate was transferred to the buyer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1999. Original assessment framed by AO u/s. 143(3) read with section 147 of the Act, assessed the excess profit on sale of fixed assets u/s. 50B of the Act at ₹ 10,54,73,587/-. Aggrieved, assessee preferred appeal before CIT(A) and during the pendency of appeal before CIT(A), CIT-2, Kolkata passed order u/s. 263 of the Act, revising the original assessment order vide dated 18.07.2006, setting aside the assessment directing the AO to assess the income on sale of Nagrijuli Tea Estate under the head capital gain after deducting net wealth of Nagrijuli Tea Estate as prescribed under explanation (1) to section 50B of the Act. The assessee challenged the revision order of CIT passed u/s. 263 of the Act before ITAT, wherein the Tribunal set aside the order of AO dated 27.12.2005 passed u/s. 143(3) read with section 147 of the Act vide order dated 11.12.2006 in ITA No. 1493/Kol/2006. The Tribunal directed the AO to examine the question of assessment of income arising out sale of Nagrijuli Tea Estate in accordance with law and not only with reference to the provisions of section 50B of the Act as directed by CIT u/s. 263 of the Act. Consequent to the order passed by CIT and ITAT, Kolk ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at this figure by taking the WDV of the entire plant machinery, building etc. of the entire business consisting of two tea estates and head office of ₹ 3,53,92,394/- from the sale value of ₹ 5,79,92,000/-. The total sale value as per the details filed by the assessee comes to ₹ 18,28,00,000/- (For land land development 12,20,08,000 + 5,97,92,000). Although as per the agreement the sale price was shown at ₹ 18 crore but the value of the sale is taken at ₹ 18,28,00,000/- on the basis of the assessees details considering that the assessee might have received 28,00,000/-over and above of the said agreement. Since the assessee has sold the entire Nagrijuli Tea Estates alongwith its land plantation, plant machinery and other accessories as a going concern as per the agreement page 3 at item E, the assessee was requested to explain why the entire profit arising out of the sale will not be considered u/s. 50B as slump sale. 5. Accordingly, the AO added a sum of ₹ 10,54,73,887/- u/s. 50B of the Act by observing as under: Similarly, the excess amount in respect of plant machinery and the assessee's claim for deduction of the WDV of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the present case current assets except stock of stores and spares and liabilities of Nagrijuli Tea Estate were not subjected to transfer though they were integral of the business undertaking. Hence there was no sale of undertaking within the meaning of Sec. 50B. For this reason net worth of the undertaking could not have been computed in the manner statutorily provided in Explanation 1 to Sec 50B. Sec. 50B is a code by itself and contains complete computation mechanism for assessment of capital gain on transfer of an undertaking in a slump sale . In working out the net worth which is actual cost of the capital asset for the purposes of Sec 48 of the Act; one needs to include values of all assets and liabilities appearing in the books of the transferred undertaking. In the present case all assets and liabilities of the business undertaking were not transferred therefore net worth could not have been computed in the manner specifically required by Explanation 1 to S.50B. The Hon'ble Supreme Court in the case of B.C. Srinivasa Shetty v. CIT (128 ITR 294) has held that if computation provisions of I.T. Act fail and capital gain cannot be computed in the manner st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ural Assets. ₹ 18,00,00,000 He further referred to clause (i) page 3 of the agreement which defines the scope of the sale as follows: The Vendor shall sell and the Purchaser shall purchase All That the Tea Estate known by the name of NAGRIJULI TEA ESTATE, P.O. Nagrijuli, District Nalbir in the State of Assam having Tea Board Registration No. 2323 consisting of pieces or parcels of land measuring about 2457 Acres more or less described in the First Schedule hereunder according to the nature and tenure thereof together with all tea plantations, bushes, nurseries and other trees and vegetation thereupon, the factory buildings, godowns, bungalows and/other structures built and standing thereon and the Plants and machinery mentioned in the Second Schedule hereunder written, furniture, fixtures and fittings lying thereat and vehicles and tractors and other fixed assets appertaining to the said tea estate and lying thereat and all rights, titles, entitlements and easements in respect thereof hereinafter collectively referred to as the said ea Estate . 9. He also referred to clause (b) on page 5 of the agreement, which provided that vend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ehicles III 46,26,000 5. Furnitre Fixture IV 15,71,000 Total 18,00,00,000 In view of the above, stated that the valuation report, according to Ld. Counsel Shri Agarwal, the vendee and vendor passed entries in the respective books regarding transfer and purchase of assets with reference to the valuation described to the different categories of fixed assets and also filed its return of income disclosing profit on sale of these assets. From the cumulative reading of various clauses of agreement dated 14.09.1999 and valuation report dated January 2000 of Shri A. K. Ghosh, Chartered Surveyor and Valuer it appears that under the agreement dated 14.09.1999, the assessee agreed to transfer specific assets comprised in or situated or lying at Nagrijuli Tea Estate for consideration specified in the agreement. In view of these facts, Ld. Counsel for the assessee argued that business undertaking always consist of immovable and movable tangible and intangible, fixed and current assets, which comprises of various rights/obli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s on 14.09.1999. According to him, it is not a piecemeal sale of assets or part of assets of tea estate but it was only mutually agreed upon to break up the consideration between various categories of assets of the tea estate. On this, Ld. Counsel for the assessee stated that once this is sold as a going concern on, as is where is basis, it means, that it is a slump sale in view of the provision of section 50B of the Act. Ld. CIT, DR drew our attention to the agreement dated 14.09.1999 clauses D E at pages 2 3 of the agreement, which reads as under: D. the Vendor is desirous of selling the said tea estate with tea manufacturing factory, godowns, plant, machinery, fixtures fittings, furniture, quarters and structures etc. lying and situate thereat, more fully described, hereafter as a going concern. E. The Purchase being desirous of purchasing the said tea estate with tea manufacturing factory, plant, machinery, fixtures, fittings, furniture, building and structures etc. has made an offer to the Vendor to purchase the said tea estate as a going concern with effect from 11th October, 1999. From the above, Ld. CIT, DR stated that the vendee sold to the vendor the said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le to transactions involving transfer of the undertaking. In the case of demerger, an undertaking is transferred in a scheme of arrangement wherein consideration of transfer is satisfied by issue of shares to the shareholders of the demerger company by the resultant company and all assets and liabilities of the transferred undertaking are taken over by the resultant company at their respective book values. Hence, in case of de-merger profit or loss is not assessed. In the case of slump sale, in view of section 2(42C) of the Act, the undertaking as a whole is transferred but for a slump sale consideration and, therefore, there can be profit or loss of transfer of undertaking, which can be assessee. However, both in slump sale and de-merger an undertaking is the subject matter of transfer and transfer of all assets and liabilities associated with and which form part of undertaking, which is a necessary condition for application of provisions of section 2(42C) of the Act. 14. Now we have to go through the case laws cited by Ld. Counsel for the assessee whereby he has referred to first leading case of slump sale in the case of CIT v. Magniram Bangur Co. (Land Department) [1965] 57 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fact that in the schedule the price of land is stated does not lead to the conclusion that part of the slump price is necessarily attributable to the land sold. There is no evidence that any attempt was made to evaluate the land on the date of sale. As the vendors were transferring the concern to a company, constituted by the vendors themselves, no effort would ordinarily have been made to evaluate the land as on the date of sale. What was put in the schedule was the cost price, as it stood in the books of the vendors. Even if the sum of ₹ 2,50,000 attributed to goodwill is added to the cost of land, it is nobody's case that this represented the market value of the land. In our view the sale was the sale of the whole concern and no part of the slump price is attributable to the cost of land. If this is so, it is clear from the decision of this court in Commissioner of Income-tax v. West Coast Chemicals Industries Ltd.* and Doughty's case** that no part of the slump price is taxable. We, therefore, answer question No. 3 in the negative. As stated before, in view of this answer, it is not necessary to answer questions Nos. 2 and 4. 15. Ld. Counsel for the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taxable profits. That, figure represented only book profits. These accounts of PAL support the slump sale agreement. Therefore they are relevant. Under section 2(14), capital asset is defined to mean property of any kind held by an assessee whether connected or not connected with his business or profession. In the case of West Coast Electric Supply Corporation Ltd. v. CIT [1977] 107 ITR 483 (Mad), it has been held that the word property in the definition of capital asset in section 2(14) would include an undertaking acquired as a whole. Therefore, the Kalyan business acquired as a whole by PPL, constituted property in the definition of capital asset . In the case of demerger, all assets and liabilities stand transferred at book value. There is no such condition prescribed for a slump sale. In the case of a slump sale, there is a sale for consideration. That consideration is paid to the transferor-company and not to shareholders. A slump sale agreement is contractual in nature. The only condition in the case of slump sale is that the sale should be for a lump sum price. Therefore, in the case of a slump sale, there is a transfer of the entire business activity for a fixed pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the basis of the report of the valuer of September, 1996. However, when it came to assignment of the sale value to the paint shop, the Assessing Officer, arbitrarily, without reasons, has reduced the value of the paint shop from ₹ 70 crores to ₹ 68 crores although the paint shop is valued at ₹ 70 crores in the said report. The reason is obvious. If the paint shop is valued at ₹ 70 crores then the total of the assigned sale values exceeds ₹ 210 crores and, therefore, without reasons, the Assessing Officer reduces the sale value of the paint shop from ₹ 70 crores to ₹ 68 crores. Further, in this case, the controversy in computation of capital gains by the Assessing Officer is, whether the Assessing Officer was justified in taking into account valuation of assets done by PPL in September, 1996. At this stage, it may be mentioned that PAL sold the entire Kalyan business for a net consideration of ₹ 247 crores (see page 267 of the paper-book). As per the returns filed by PAL, the book profit/surplus was ₹ 81.31 crores. The Assessing Officer has increased the book profits by 17.92 crores on the basis of revaluation of assets. Howeve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ture operation, executing engineering contracts etc. During the relevant year the assessee sold one of its rubber estates with standing trees and all other paraphernalia known as 'Boycee Estate' as a going concern. The CIT(A) held that the surplus arising out of the sale of its 'Boycee Estate' was taxable as capital gain u/s. 50B of the Act read with section 2(42C) of the Act, as the rubber estate owned by the assessee was sold as a going concern, which showed that the sale was a slump sale of undertaking in its entirety. The bench of the Tribunal discussing the issue reversed the order of CIT(A) and held that it is not a slump sale by observing in para 34 to 47 as under: 34. We considered the matter in detail. The assessee-company is engaged in different types of business like running of plantations, executing turnkey projects, clearing and forwarding agency and shipping business, etc. In its agricultural division, the assessee-company is having a number of estates growing tea, rubber, cocoa, cardamom, etc. In the case of rubber itself, the assessee is having about 12 different estates. During the previous year relevant to the assessment year under appeal, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sale or not. 37. The meaning of the expression going concern has to be understood in the light of the peculiar nature of the property transferred in the present case. What is transferred in the present case is a rubber estate. The activities in a rubber plantation/estate is a continuous and uninterrupted one and that tapping operations have to be carried out on a regular basis and all other activities have to be carried out without any interruption. Therefore, by the nature of the activities of the rubber plantation itself, it is a going concern . Even if there is no such an expression in the agreement that the rubber estate is sold as a going concern, the nature of the asset has become a continuous asset . Even, in the absence of such a specific clause, by its nature, a rubber plantation is in the nature of a going concern . Unless and until the yielding rubber trees are usually slaughtered and once tapping is started, it always partakes of the character of a going concern . 38. Therefore, it is to be seen that while adding an expression in the agreement that the rubber estate was transferred as a going concern, the purpose was only to refer to the state of affairs an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... estments and deposits. All the investments, deposits, receivables, stock and such other current assets in the form of financial and other assets remained with the assessee-company along with the liabilities. Only those assets enumerated in the schedules and annexure were sold to the vendee. Therefore, in the light of the above judgment of the Bangalore Tribunal, it is to be seen that the present case is one of split sale and not a case that of slump sale. 43. Similarly, the Income-tax Appellate Tribunal, Mumbai Bench J , in the case of Mahindra Sintered Products Ltd. v. Deputy CIT [2004] 279 ITR (AT) 1; [2005] 95 ITD 380 has held that where the price had been fixed before hand in respect of identifiable assets of undertaking and no liability was transferred to the buyer, the transfer of undertaking would not constitute a slump sale. 44. The Income-tax Appellate Tribunal, Kolkota Bench D , in the case of Deputy CIT v. ICI (India) Ltd. [2008] 23 SOT 58 has held the same view that there cannot be a case of slump sale, if all the assets and liabilities of an undertaking have not been transferred to the vendee. 45. As rightly relied on by the learned chartered accountant appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns under section 50B on the surplus arising to the assessee on sale of its Boyce Estate . The said direction is set aside. This issue is decided in favour of the assessee. 17. In view of the above facts and circumstances of the case, we find that Section 50B of the Act provides that any profit or gain arising from the slump sale effected in the previous year shall be chargeable to income-tax as capital gain 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. Further, Section 2(42C) of the Act defines 'slump sale' as a transfer of one or more undertakings as a result of the sale for a lump sale consideration without values being assigned to the individual assets and liabilities in such sales. The Explanation I to section 2(42C) of the Act further provides that 'undertaking' shall have the meaning assigned to it in the Explanation I of clause (19AA) of section 2 of the Act, whereby an undertaking means, in an inclusive sense, any part of an undertaking, or a unit or division of an undertaking or a business activity taken as a whole, but does not include individual assets ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enough to decide the exact legal character of the transaction, for the purpose of income-tax assessment. Even though, the workers on the rolls of the assessee had also been absorbed by the buyers along with the estate but that did not change the character of the transaction. It was not easy to retrench all the experienced workers only for the reason that the property had changed hands. Retrenchment of the workers would create serious labour problems and it would not be possible either for the assessee or for the buyer to close the contract without having a clear understanding on the engagement of labour deployed. Therefore, the agreement with the buyer that the new owners would absorb the existing labour force was not a salient feature to decide whether the sale was a slump sale or not. The meaning of the expression 'going concern' has to be understood in the light of the peculiar nature of the property tram/erred in the instant case. What was transferred in the instant case was a tea estate. The activities in a tea plantation/estate are continuous and un-interrupted ones and tapping operations have to be carried out on a regular basis and all other activities have to be ca ..... X X X X Extracts X X X X X X X X Extracts X X X X
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