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TMI Blog2019 (7) TMI 84X X X X Extracts X X X X X X X X Extracts X X X X ..... Revenue has raised the following grounds of appeal: 1) The CIT(A) has wrongly held that the effective date of transfer of the Taloja property took place when the assessee took possession of the assets and made entries in the books of account on 31/03/1997 and hence, the holding period was more than 36 months when the assets finally sold on 10/05/2001 and therefore, the assessee is liable only to long term capital gains. 2) The CIT(A) ought to have seen that the deed of assignment by which the assessee took over the Taloja property was registered only on 05/08/1999 and the assessee sold the property on 10/05/2001 and therefore, the holding period was less than 36 months for which the assessee is liable to short term capital gains. 3) The CIT(A) ought to have seen that as per the decision of the Supreme Court in Alappattu Venkitaraman vs. CIT (57 ITR 185), entries in the books are not relevant for the purpose of determining the date of transfer. The effective date of transfer is the date on which the transfer deed is registered. 4. Having held that the capital gains on the transfer of he said property should be assessed u/s. 50B, the CIT(A) ought to have see that according to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the tune of Rs. 23.65 cores. The Department had granted depreciation from the subsequent year. Therefore, it was submitted that all these assets had been included as early as 31/03/1997 so much so it cannot be held to be a short term capital gain. Therefore, the assessee had rightly deducted the sale proceeds from the block of assets.. 4. On appeal, the CIT(A) decided the issue in favour of the assessee. 5. Against this, the Revenue is in appeal before us. 6. We have heard the rival submissions and perused the record. Admittedly, a similar issue was considered by the Jurisdictional High Court in assessee's own case in ITA Nos. 640 & 1470 of 2009 dated 06/10/2010 wherein it was held as under: "3. The admitted facts that lead to the controversy are the following. The assessee which was engaged in seafood processing and export with their own factories transferred one of their industrial units as a going concern during the previous year relevant for the assessment year 2003-04 to Hindustan Lever Limited for a total consideration of 22.20 crores. The consideration agreed is the aggregate value for land, building, machinery and all equipments with liabilities specifically mentio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... peal. In this case, the first appellate authority allowed the appeal on both the grounds that is by cancelling the income escaping assessment as passed without jurisdiction and on merits by holding that the sale of the industrial undertaking is not slump sale but is to be assessed as sale of depreciable asset under Section 50 of the Act. In the connected case, the CIT(Appeals) took an entirely different view by upholding the assessment of sale of Industry as a "slump sale". In the second appeal filed by the revenue before the Tribunal in this case, the Tribunal upheld the CIT (Appeals) order on merits but did not consider the validity of reopening raised by the revenue as the said ground had become academic by virtue of the Tribunal's decision on merit in favour of the assesses. It is against this order of the Tribunal revenue has filed the appeal. 4. Based on the facts stated above, the only question to be considered is under what provision of the Income Tax Act capital gain is to be assessed on the profit received by the assessee on the sale of the industrial undertaking. 5. Slump sale is defined under Section 2(42C) as follows:- "Slump sale" means the transfer of one o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ets under Section 50 of the Act, The question now to be considered is whether the claim of the assessee is tenable or not. In this regard we have to consider the scope of Section 50 and Section 50B of the Act. In our view assessee's claim for assessment of capital gainn under Section 50 of the Act is not tenable because the said Section provides for assessment of capital gains in the case of sale of depreciable assets. This Section provides for assessment for capital gain of assets forming part of block of assets in respect of which depreciation is allowed under the Act. What the assessee has sold is not any asset in a block, if at all the assets sold form part of a block of asset on which depreciation was being allowed. On the other hand sale is of an industrial undertaking as a whole which includes land, building, machinery, equipments etc. as a going concern with all the assets and liabilities. We have already found that the sale is of business undertaking as a going concern and thesame squarely falls within the definition of "slump sale" as defined under Section 2(42C) of the Act. Section 50B which provides for computation of capital gain in the case of slump sale is as f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld as a whole. In fact, when Section 50B provides for computation of capital gain on the sale of the undertaking it covers capital gain payable on depreciable assets forming part of the industrial undertaking also. In other words the distinction between Section 50 and 50B is that while Section 50 provides for computation of capital gain on the sale of only depreciable assets Section 50B provides for computation of capital gain on the sale of an undertaking as a whole which includes depreciable assets as well. In fact there is also difference in the mode of computation of capital gains under Section 50 for depreciable assets and for "slump sale" under Section 50B. Section 50 is a full code for computation of capital gains on depreciable assets. On the other hand under Section 50B the asset has to be first classified between long term or short term capital asset and then for the purpose of Sections 48 and 49 net worth has to be computed in terms of explanation 1 of the said Section. The capital gain under Section 50B is the sale proceeds as reduced by the net worth. 6. From the above findings, we hold that the sale of the undertaking is a stump sale within the meaning of Sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he reason that this has not been paid before the due date of filing the return. 2) The Officers failed to appreciate the fact that such interest has been waived by the Bank/Financial Institutions shown as income in the assessment year 2004-05 so much so this would amount to double taxation. 3) The Officers below are not justified in confirming the disallowance of interest claimed for the reason that funds have been diverted to sister concern. 4) The Officers failed to appreciate the fact that interest claimed as paid to banks and financial institutions have been for specific advances like term loans, export packing credit which are not otherwise available for diversion. 5) The Officers below were not justified in disallowing the loss which has occurred on the re-instatement of foreign exchange loans procured for working capital requirements more so when the appellant has been consistently following the system of accounting year after year and booking into account the loss or gain arising on re-instatement of foreign exchange loans. 6) The Commissioner of Income-tax[Appeals] did not consider the opinion given by the Institute of Chartered Accountants of India in regard to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns of section 43B of the Act. Hence, we are in full agreement with the finding of the CIT(A) and the same is confirmed. Thus, this ground of appeal of the assessee is dismissed. 9. The next ground is relating to disallowance of part of interest claimed. The AO in para 4 of the assessment order has stated that the assessee had given interest free loans to sister concerns amounting to Rs. 804.71 lakhs. The assessee had paid interest of Rs. 826,26 lakhs on secured loans 6f Rs. 6,424.10 lakhs. The AO held that proportionate interest on money advanced without charging interest should be disallowed. He worked out the proportionate disallowance at Rs. 1,03,50,000/-. He also relied on the decision of the Kerala High Court in the case of VI Baby & Co. (254 ITR 248). The contention of the assessee is that the interest was paid for specific advance like term loan, export packing credit and export bill discounting charges. It is the contention of the assessee that interest bearing funds were not diverted to the sister concerns as the assessee had sufficient resources. 9.1 On appeal, the CIT(A) observed that the AO had made similar disallowance for the A.Y.1997-98 and he had sustained the dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee how that decision will apply to the facts of this case. We are of the view that the Tribunal went wrong in relying on the said decision and allowing the appeals." 9.2 The High Court had held that an assessee with liquidity cannot claim that it can give interest free advances and then borrow funds on interest for business purposes. In the light of the decision of the Kerala High Court cited supra, the CIT(A) confirmed the disallowance of interest. 9.3 Against this, the assessee is in appeal before us. 9.4 We have heard the rival submissions and perused the record. In view of the judgment of the Jurisdictional High Court in the case of V.I. Baby & Co., cited supra, the CIT(A) had confirmed the disallowance of the interest made by the Assessing Officer. However, we make it clear that Assessing Officer has to compute interest on diversion of funds to sister concerns on outstanding balances on day to day basis. With this observation, we remit this issue to the file of the Assessing Officer for re-computation of interest. This ground of appeal of the assessee is partly allowed for statistical purposes. 10. The last ground is with regard to disallowance of loss which had occurred o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. The fluctuation loss was mostly on account of periodical reinstatement of the External Commercial Borrowings. The Assessing Officer relied on the decisions of the Delhi High Court reported in 272 ITR 355 and 254 1TR 570. 10.2 Before the CIT(A), the assessee had given a break-up of the total amount of Rs. 84,06,770/-as follows:- "Rs. 26,04,139/-: This amount represents the loss on restatement of the loan utilized to purchase the assets situated at the Taloja factory. We have been consistently following the accounting policy of charging the loss or gain on account of the restatement of the foreign currency loans, to the fixed .assets that have been purchased with the loan. However, during the relevant financial year ie 2001-02, the Taloja factory was disposed off and the proceeds therefrom was used to repay the loans which was used to finance the acquisition of the Taloja factory. A portion of these loans continued to remain outstanding as on 31st March 2002 since the sales proceeds were inadequate to repay the loans in full. Hence the loss/gain arising on restatement of these loans were debited/credited to the Profit & Loss account. The above explanation would hold good fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... end of accounting year is liable to tax or not. The Supreme Court in the case of Sutlej Cotton Mills Ltd. Vs. CIT reported in [1979] 116 ITR 1 has held as under:- "The law may, therefore, now be taken to be well settled that where profit or loss arises to an assessee on account of appreciation or depreciation in the value of foreign currency held by it, on conversion into another currency, such profit or loss would ordinarily be a trading profit or loss if the foreign currency is held by the assessee on revenue account or as a trading asset or as a part of circulating capital embarked in the business. But, if on the other hand, the foreign currency is held as a capital asset or as fixed capital, such profit or loss would be of capital nature." 10.7 The ratio of the above decision is whether the gain or loss should be brought to tax or allowed as deduction depends upon whether the foreign currency transactions were carried on account of capital or revenue items. If the foreign currency transactions are undertaken on capital account, the gain made out of such transaction is outside ambit of taxation, of course subject to the application of provisions of Section 43A of the Act. If ..... X X X X Extracts X X X X X X X X Extracts X X X X
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