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TMI Blog2020 (3) TMI 972X X X X Extracts X X X X X X X X Extracts X X X X ..... ting the disallowance of Rs. 18,43,30,378/- incurred by the assessee in relation to slump sale without appreciating that Section 50B of the Act is a complete code in itself and expenses related to slump sale cannot be allowed? b) Whether on the facts and in the circumstances of the case, the Tribunal was correct in law in confirming CIT(A)'s order deleting the enhancement of slump sale consideration from Rs. 143,21,082 to Rs. 186,58,21,669/-? c) Whether on the facts and in the circumstances of the case, the Tribunal was correct in law in confirming CIT(A)'s order deleting the addition of Rs. 2,79,53,000 from lump sum consideration without appreciating the fact that the said consideration routed through escrow account being part of the agreement between Wockhardt Hospitals Limited and Fortis Hospitals Limited and claim would be tantamount to double deduction which is incurred during the transaction ? d) Whether on the facts and in the circumstances of the case, the Tribunal was correct in law in treating an amount of Rs. 317,21,09,994 on slump sale as long term capital gain instead of short-term capital gain as the property was held less than a year overlooking the firs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... planation 1 to clause (19AA) of Section 2. As per this clause, "undertaking" shall include 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 or liabilities or any combination thereof not constituting a business activity. 4.6. Section 48 is included in Chapter IV - E which deals with computation of income from capital gains. Section 48 deals with mode of computation. It says that the income chargeable under the head "capital gains" shall be computed, by deducting from the full value of the consideration received or accruing as a result of the transfer of the capital asset the amounts mentioned therein i.e. expenditure incurred wholly and exclusively in connection with such transfer; and the cost of acquisition of the asset and the cost of any improvement thereto. 4.7. Section 49 deals with cost with reference to certain modes of acquisition. As per Section 49(1), where the capital asset became the property of the assessee in any of the manner provided therein, such as, on distribution of assets following partition of a Hindu undivided family or under a gift or will; or by succession, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... luation of assets shall be ignored for the purposes of computing the net worth. Explanation 2.-For computing the net worth, the aggregate value of total assets shall be,- (a) in the case of depreciable assets, the written down value of the block of assets determined in accordance with the provisions contained in sub-item (C) of item (i) of sub-clause (c) of clause (6) of section 43; (b) in the case of capital assets in respect of which the whole of the expenditure has been allowed or is allowable as a deduction under section 35AD, nil; and (c) in the case of other assets, the book value of such assets. 4.9. Referring to Section 50B of the Act, CIT(A) observed that Section 50B only provides for computation of net worth which is deemed to be cost of improvement and cost of acquisition. As cost of improvement and cost of acquisition which is provided under Section 50B as net worth cannot be equated with capital gains. For computation of capital gains, recourse has to be made to Section 48 as per which capital gains would be computed by taking into account the full value of consideration reduced by the cost of improvement and cost of acquisition and also expenditure incurred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h comprises of "all assets minus all liabilities" of the undertaking, the amount of capital gain means reducing the net worth, being cost of acquisition and cost of improvement of "all assets minus all liabilities" of the undertaking from the full value of consideration of "all assets minus all liabilities" of the undertaking. (f) In computing the net worth of the undertaking or the division, as the case may be, the benefit of indexation as provided in the second proviso to section 48 has been withheld. The possible reason may be quid pro quo. By extending the benefit of lower rate of taxation on long term capital gain as provided under section 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 though it to curtain the benefit of indexation to the cost of acquisition and cost of improvement." 4.11. On thorough consideration of the matter, we do not find any error or infirmity in the view taken by the Tribunal. Tribunal was fully justified in confirming the view taken by the First Appellate Authority. In the circumstances, we see no good reason to entertain this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e fifty eight lakhs twenty one thousand six hundred and ninety nine only) minus (b) the difference between the amounts payable by the Purchaser to the lenders pursuant to Clause 6.2(o) below and Rs. 599,61,78,301 (Rupees Five Hundred Ninety Nine Crore Sixty One Lakhs Seventy Eight thousand Three hundred and one only); OR (B) In case Rs. 599,61,78,301 (Rupees Five Hundred Ninety Nine Crore Sixty One Lakhs Seventy Eight thousand Three hundred and one only) exceeds the amounts payable by the Purchaser to the lenders pursuant to clause 6.2(o) below: (a) a lump-sum consideration of Rs. 186,58,21,699 (Rupees One Hundred Eighty six crore fifty eight lakhs twenty one thousand six hundred and ninety nine only) plus (b) the difference between Rs. 599,61,78,301 (Rupees Five Hundred Ninety Nine Crore Sixty One Lakhs Seventy Eight thousand Three hundred and one only) and the amounts payable by the Purchaser to the lenders pursuant to Clause 6.2 (o) below; clause 6.2(0) below; (the amount arrived in (A) or (B), as the case may be, is hereinafter referred to as the "Consideration") to the seller. The consideration shall be paid on the closing date in the following manner: (a) Rs. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eals with deletion by the First Appellate Authority of the addition of Rs. 2.79 crores from lump-sum consideration made by the Assessing Officer, which decision of the First Appellate Authority was affirmed by the Tribunal. 6.1. As noticed above, in clause (3) of the agreement entered into between the assessee and Fortis Hospitals Ltd, assessee and Fortis Hospitals Limited were required to open an escrow account of Rs. 15 crores from lump-sum consideration of Rs. 186.58 crores for a period of 2 years, and in the event of any further claim, such amount had to be deducted from the above lump-sum consideration. 6.2. During the assessment proceedings, Assessing Officer observed that assessee had claimed Rs. 2.79 crores as deduction in the computation of income. According to the Assessing Officer, the said amount was lying in the escrow account and by making the said claim, assessee was resorting to claim of double deduction. Accordingly, such claim of the assessee was declined by the Assessing Officer. 6.3. First Appellate Authority, on consideration of clause (3) of the agreement, took the view that there was no double deduction by the assessee for the said amount and accordingly, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were below three years. 7.2. Assessing Officer took the view that percentage of hospitals on long term basis was less than the number of hospitals under short term. Therefore, Assessing Officer assessed the income of the assessee from the slump sale of hospitals as short term capital gain. 7.3. In appeal before the First Appellate Authority, CIT(A) referred to sub-section (1) of Section 50B and the proviso thereto and took the view that for the assets to be assessed under short term capital gain, all the assets should be existing below 36 months; if even one asset exists for more than 36 months, then it had to be treated as long term in nature. Referring to the decision of the Tribunal in Summit Securities Ltd., CIT(A) held that if at least one asset was more than three years, then it was long term in nature. It was found that four of the assets were more than three years old. Therefore, capital gain accruing out of slum sale had to be assessed as long term capital gain. Since reliance was placed on Summit Securities Ltd., relevant portion thereof is extracted herein under:- "(b) Where an, industrial undertaking is transferred under slump sale which was owned and held by the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rules, the Assessing Officer disallowed Rs. 48.71 lakhs under Section 14A read with 8D of the Rules. 8.2. In the appellate proceedings before the First Appellate Authority, CIT(A) held that Kanishka Housing Development Co Pvt Ltd was holding land on which assessee had erected hospital. For the purpose of business expediency, assessee had invested in the shares of Kanishka Housing Development Co Pvt Ltd so that the land could be utilized for the purpose of hospital. As the investment was for the purpose of business expediency, no addition was required to be made under Section 14A of the Act. Accordingly, the First Appellate Authority deleted the addition made by the Assessing Officer. 8.3. When the matter came up before the Tribunal, Tribunal confirmed the view taken by the First Appellate Authority. 8.4. Section 14A deals with expenditure incurred in relation to income not includible in total income. As per sub- section (1), for the purpose of computing the total income, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under the Act. 8.5. Rule 8D lays down the method for determin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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