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TMI Blog1988 (4) TMI 92X X X X Extracts X X X X X X X X Extracts X X X X ..... tle and interest of Gokul Gas Pvt. Ltd. (assessee-company) in relation to the undertaking (Kosangas Company) shall stand transferred to and vest in the Central Government free from all encumbrances. Sub-section (1) of section 4 lays down that all liabilities other than the liabilities specified in sub-section (2) of the assessee-company in relation to the period prior to the appointed day shall be enforceable against the assessee. 7. The liabilities which are enumerated in sub-section (2) of section 4 have been taken over by the Central Government and were liable to be discharged by the Central Government. These liabilities are (i) deposits collected from the customers for the use of gas cylinders and pressure regulators and from agents, (ii) provision for gratuity to officers and employees employed in or in connection with the said undertaking, and (iii) current liabilities relating to sundry creditors and accrued expenses of the undertaking. 8. Section 8 of the Act lays down that for the transfer to and vesting in, the Central Government under section 3 of the said undertaking, the Central Government shall pay the assessee an amount of rupee ten thousand. 9. The Income-tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing an addition of Rs. 4,01,00,975. 2. On the facts and in the circumstances of the case and in law, the learned CIT (A) erred in holding that computation under section 41(2) cannot also be made in respect of the amount of Rs. 4,01,00,975." 13. We have heard the parties. We shall first consider the question of applicability of sub-section (1) of section 41 of the Act. The first condition for applicability of said sub-section is that deduction or allowance should have been made in the assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee. 14. Regarding the amount of Rs. 5,79,14,487 mentioned in the computation of the Income-tax Officer it was not disputed before us that the said liability represents deposits obtained by the assessee from customers, agents and distributors (Rs. 5,28,47,771) and current liabilities (Rs. 50,68,951). There was no question of grant of any deduction or allowance in any previous year in the computation of profits and gains as far as this amount representing deposits from customers, agents and distributors was concerned. As far as current liabilities are concerned, we find the same thing. The Income-tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as no material to indicate that any particular asset had fetched any particular price. However, the Commissioner of Income-tax (Appeals) has considered those provisions and has held that even under those provisions no addition could have been made. Shri Jetley the learned counsel for the department has relied on the said provisions. We, therefore, proceed to consider them in order to determine whether any addition could have been made thereunder. 18. Sub-section (2) of section 41, so far relevant, lays down that where any building, machinery, plant or furniture which is owned by the assessee and which was or has been used for the purposes of business is sold (which expression includes compulsory acquisition by the Government) and the moneys payable in respect thereof together with the amount of the scrap value, if any, exceed the written down value, so much of the excess as does not exceed the difference between the actual cost and the written down value shall be chargeable to income-tax as income of the business or profession of the concerned previous year. 19. In this connection. We have examined the provisions of Act No. 28 of 1979 and materials on record. We find that this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n, then, capital gains may be attracted in the case of the sale of an undertaking and that is precisely what has been indicated in Doughty v. Commissioner of Taxes [1927] AC 327 (PC), CIT v. Mugneeram Bangur Co. [1965] 57 ITR 299 (SC) and Killick Nixon Co. v. CIT [1963] 49 ITR 244 (Bom.). 21. For the reasons given above, there cannot be balancing charge under section 41(2) of the Act when the entire business stands transferred for slump price. This is because no individual item of building, plant, machinery, or furniture is transferred for a particular price. No part of slump price could be attributed to any individual item of building, plant, machinery, or furniture. In fact the Income-tax Officer has not even attempted to attribute any amount towards price of any individual item of building, plant, machinery or furniture and indeed any such attempt would not have been worth while. This is because before the undertaking was taken over, the assets were not valued individually and no attempt had been made to fix even notional price for individual item of assets. The assets and liabilities were taken over at book value by legislative enactment. Consequently, no balancing charge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e decision is not an authority for the proposition that even if the computation provision is unworkable, provisions referred to there would apply. If this could be said to follow, which does not appear to us to follow, then the same would be contrary to the view expressed by the Supreme Court in decisions referred to above. Consequently, this decision is of no assistance to the assessee. 24. Before parting with this matter we may mention that the learned counsel for the assessee had relied on the Board's circular published in 82 ITR 1 (Statute) in which guidelines are given for the assessments of the Banks for the year in which they were nationalised by the Act of Parliament and in these guidelines, it is mentioned that the provisions of section 41(2) would not be attracted and that provisions regarding capital gains would be attracted. Since that circular is in respect of Banks which were nationalised, we are not basing our decision in this case on that circular. However, legal position which the Board enunciated in said circular is the same on which we have based our decision. 25. In the cross-objections field by the assessee following two grounds have been raised : "1. The ..... X X X X Extracts X X X X X X X X Extracts X X X X
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