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TMI Blog2006 (6) TMI 136X X X X Extracts X X X X X X X X Extracts X X X X ..... ital gain? - HELD THAT:- he answer is in negative for the reasons given hereafter. Firstly, capital gain is always a portion of sale consideration and, therefore, portion can never be higher than the whole. Gain would arise only where sale consideration is more than the cost. By no stretch of imagination, it can be said that capital gain would be more than the sale consideration. No man of prudence can ever think of capital gain higher than the sale consideration. Capital gain can either be excess of sale consideration over the cost or nil if sale consideration is equal to cost. Where the cost is more than sale consideration, it would be a case of loss. No other situation can be visualized. Therefore, capital gain can never be more than the sale consideration. Secondly, the Legislature has used the expression net worth which by deeming fiction is to be considered as cost of acquisition and cost of improvement for the purpose of computing capital gain under section 48. Section 48 of the Act provides for deduction of cost of acquisition/improvement from the full value of consideration received or accruing as a result of transfer of capital assets. The cost of a property, as p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to double jeopardy. Such process would amount to re-writing of the provisions of section 50B which is not permissible in law since such process is within the exclusive domain of the Legislature. Therefore, considering the scheme of section 50B, the judgment of the Apex Court cannot be applied to the present case. The order of the Learned CIT (Appeals) is modified and the Assessing Officer is directed to assess the capital gain at Rs. 75.98 crores. Disallowance of interest of Rs. 21,06,849 under section 36(1)(iii) of the Act - HELD THAT:- This issue is no more res integra since covered by the judgment of the Hon'ble Supreme Court in the case of India Cement Ltd. v. CIT [ 1965 (12) TMI 22 - SUPREME COURT] , wherein it has been held that interest on borrowed funds would be allowed irrespective of the fact whether used for day-to-day running of the business or for acquisition of business assets. Both the authorities have not given any specific reason for not following this judgment. The claim of the assessee cannot be disallowed merely on the ground that it has been capitalised in the books of account. Entries in the books of account are not relevant for rejecting the claim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... RUTI UDYOG LTD. VERSUS DEPUTY COMMISSIONER OF INCOME-TAX. [ 2004 (10) TMI 278 - ITAT DELHI-A] that onus is on the Department to prove that any expenditure was incurred for earning tax free income. The entire books of account were before the Assessing Officer who has not brought any material on record to prove that any interest was paid for earning tax free income under section 10(33). Therefore, following the said decision, the disallowance sustained by the Learned CIT(A) is hereby deleted. Deletion of two additions of Rs. 43,500 in respect of refund of income tax and interest in the case of foreign concern - deletion of disallowance of Rs. 5,76,025 being expenditure incurred on acquiring bus as well as education expenses in respect of employees' children - HELD THAT:- The said appeals are still pending. In these circumstances, both the parties are agreed that the matter may be remitted to the file of Assessing Officer for fresh adjudication in accordance with the final verdict of the Tribunal in the appeals relating to the earlier years. In view of the same, we set aside the order of the Learned CIT(A) on these two issues and remit the matters to the file of Assessing Of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e proposition that sale consideration would include the liabilities settled out of sale proceed. 2. The matter was carried in appeal before the learned CIT(A) before whom various submissions were made which inter alia included (i) that there was no cost at all as net worth was in negative and, therefore, computation provisions failed, (ii) that in view of provisions regarding indexed cost of acquisition in sections 48 and 55 of the Act, negative cost is not envisaged by the Legislature, (iii) that as per dictionary meaning, cost can never be a negative figure, (iv) in the alternative, negative figure should be ignored for computing capital gain, (v) it is not open to Assessing Officer to vary the formula by adding a limb of cost i.e., liabilities to sale consideration, and (vi) that an undertaking with a negative net worth cannot be regarded as capital asset. The transfer of net liability would only amount to gift. The Learned CIT(A), for detailed reasons given in his order at Pages 30 to 46, rejected all the contentions of the assessee and accordingly upheld the order of the Assessing Officer. Aggrieved by the same, the assessee is in further appeal before the Tribunal. 3. At ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... B is a unique piece of legislation for computing capital gain in case of slump sale. According to him, it is a charging provision in contradiction to section 45. Proceeding further, it was submitted by him that sub-section (1) provides that capital gain arising from slump sale shall be chargeable to tax while other provisions of this section provides computation of net worth of an undertaking or division which is deemed to be the cost of acquisition and cost of improvement for the purpose of sections 48 and 49. However, this section does not provide for computation of consideration from which such net worth is to be deducted. According to him, if the undertaking of division, being the capital asset, is saddled with any liability, then such liability must be added to the consideration received by the assessee in view of the judgment of the Hon'ble Supreme Court in the case of Attili N. Rao. Regarding the definition of net worth, it is submitted that a formula has been provided by the Legislature and, therefore, it has to be worked out in that manner strictly. Consequently, if such figure is in negative, then it has to be carried to the logical end. Accordingly, it was prayed that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egard shall be given to the provisions contained in the second proviso to section 48. (3) Every assessee, in the case of slump sale, shall furnish in the prescribed form along with the return of income, a report of an accountant as defined in the Explanation below subsection (2) of section 288, indicating the computation of the net worth of the undertaking or division, as the case may be, and certifying that the net worth of the undertaking or division, as the case may be, has been correctly arrived at in accordance with the provisions of this section. Explanation 1.- For the purposes of this section, "net worth" shall be the aggregate value of total assets of the undertaking or division as reduced by the value of liabilities of such undertaking or division as appearing in its books of account: Provided that any change in the value of assets on account of revaluation 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y, the Legislature has used the expression "net worth" which by deeming fiction is to be considered as cost of acquisition and cost of improvement for the purpose of computing capital gain under section 48. Section 48 of the Act provides for deduction of cost of acquisition/improvement from the full value of consideration received or accruing as a result of transfer of capital assets. The cost of a property, as per dictionary meaning, means the price paid by a buyer to the seller. Therefore, it must be a positive figure. That is why the Legislature has provided for deduction of cost from sale consideration. Similarly, the word "worth", as per dictionary meaning, also means value of goods or asset or property, which also suggests positivity. No person would buy-any property which is worthless. Further, the word "worth" is qualified by the word "net" which would mean the net value of the property which is being sold or purchased. At best, value of the property can be "Nil" but in our opinion, there is no concept of negativity with reference to the expression "net worth" or "cost of acquisition". Thirdly, had the Legislature also intended negative cost of acquisition, it would have us ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to support the conclusion of the Assessing Officer, we do not find merit in such plea of Mr. Dave. No doubt, the judgment of Apex Court would have supported Mr. Dave, but for the special provisions of section 50B of the Act. Where an asset is saddled with liability then there are two ways for considering the value of liability while computing the capital gain. Firstly, sale consideration should be increased to the net amount realised by the vendor, as held by the Apex Court in the aforesaid case. Secondly, the value of liability can be deducted from the value of assets while determining the cost of acquisition as provided in section 50B. The Legislature, in its wisdom, having opted for the second option, it is not open now for the revenue to contend that such liability should again be added to the sale consideration realised by the vendor. If liability is to be added to the sale consideration then, the same has also to be excluded from the computation of "net worth" since otherwise it would amount to double jeopardy. Such process would amount to re-writing of the provisions of section 50B which is not permissible in law since such process is within the exclusive domain of the Legi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowing the said judgment, we decide the issue against the assessee. However, the Assessing Officer is directed to delete the addition, if any, on the basis of income offered by the assessee in subsequent years. 15. The next issue relates to the disallowance of Rs. 1,66,329 being payments made to Clubs. This amount represents payment to 10 Clubs, a list of which appeared in Para-6.1 of the assessment order. In the course of assessment proceedings, the assessee could not explain as to how such expenditure could be allowed as deduction under section 37 of the Act. The only plea taken before the Assessing Officer was that payments were made for business purposes. Not satisfied with such explanation, the Assessing Officer disallowed the expenditure and the same has been confirmed by the Learned CIT(A). Aggrieved by the same, the assessee is in appeal before the Tribunal. 16. After hearing both the parties, we do not find merit in the appeal of the assessee on this issue in absence of any details. The Learned Counsel for the assessee has stated before us that these payments were made on account of subscription but there is no evidence to support such submissions. Even this stand was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and Green Tech Seeds International Pvt. Ltd., the total investment in the acquisition of shares of these companies amounted to Rs. 82,46,41,000. The assessee company was asked to explain the sources of these investments and full details of interest. The assessee stated that shares in Zuari Cement Ltd. was on account of sale of consideration on the transfer of its cement division by way of slump sale which was the major amount i.e., Rs.75.98 crores. Regarding the minor investments in other companies, it was stated that these investments were made from internal accruals. However, the Assessing Officer was not satisfied and again asked the assessee to show cause why proportionate interest be not disallowed as dividend income was exempt from taxation. The explanation of the assessee was as under: "1. The investments made during the year as well as in earlier years were not out of borrowed funds. Borrowings are as per the terms with banks, only been used for specific purposes, such as working capital, etc. and not for investments. 2. No borrowings was resorted for investment in shares. 3. No dividend has been received on investments made during the year." Not satisfied with the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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