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TMI Blog2004 (3) TMI 327X X X X Extracts X X X X X X X X Extracts X X X X ..... s of section 50 of IT Act and not from the block of assets of Ahmednagar Unit alone. 3. The facts in brief were that the assessee was engaged in the manufacturing of Sintered Bearings. The assessee also had units for manufacturing of Copper & Iron Powder at Ahmednagar. This Ahmednagar unit was sold for a consideration of Rs. 2,60,43,039 to M/s. Hoganas India Ltd. It was claimed that the sale was made as a going concern of the assessee with all tangibles, intangibles, contingent rights and liabilities. The claim of the assessee was that there was a transfer of capital asset and the transfer of the said undertaking did not make the assessee liable for capital gain tax. It was further claimed before Assessing Officer that it was difficult to arrive at the cost at the time of its inception nor possible to arrive at the figure of cost of improvement. It was claimed that there was no method to arrive at the exact cost of the undertaking, hence, applying the ratio of CIT v. B.C. Srinivasa Setty [1981] 128 ITR 294 (SC) the assessee has claimed that there should not be any capital gain on such transfer. According to assessee as no precise cost could be attributed to the said undertaking th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st of land at Rs. 1,01,300. After arriving at the sale price of plant and machinery along electrical installations the short term capital gain was computed as under:- Sale price for plant & machinery As ascertained above Rs. 1,64,75,000 Less: Opening W.D.V. Rs. 5,00,285 Leaving in balance of Rs. 1,59,74,715 (which represents short-term capital gain on sale of plant and machinery and electrical installation). Being aggrieved, the assessee went in appeal against the order of Assessing Officer. 4. Ld. CIT(A) has summarized the ground that the action of the Assessing Officer was challenged according to which short-term capital gain on sale of building at Rs. 35,57,295 and short-term gain on sale of plant and machinery at Rs. 1,59,74,715 was challenged on account of transfer of Ahmednagar Unit by the assessee to M/s. Hoganas India Ltd. In this regard ld. CIT(A) has reproduced some of the clauses of the agreement dated 6-8-1992 entered into with M/s. Hoganas India Ltd. Further he has given a finding that the appellant company had written to M/s. ICICI on 23-5-1992 informing about the purpose of sale of Ahmednagar unit due to which the fair market value of building ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lant company. It was subsequently argued that the set off should not be restricted against the blocks of assets of Ahmednagar unit. It was submitted that the Ahmednagar Plant was a part and parcel of the entire business, therefore, should not be segregated from the other units. 4.2 Before ld. CIT(A) an another decision of Hon'ble Supreme Court in the case of CIT v. Electric Control Gear Mfg. Co. [1977] 227 ITR 278 was also cited. However, he has concluded that it was not a case of transfer of undertaking as a whole as a going concern but it was a case of transfer of the assets of such undertaking. He has held that considering the situation under which the transfer took place it was not a case of slump sale but sale of various assets. In the end he has concluded that the term 'block of assets' referred to in section 50 should be construed as 'block of assets' of Ahmednagar unit. He has also opined that the two units of the company one at Pimpri and another at Ahmednagar have constituted two different business and not forming the part of the same business. The action of the Assessing Officer to tax under the head 'short-term capital gain' was upheld and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ckground he has compared the facts of the case with the fact of Premier Automobiles Ltd.'s case. He has mentioned that the basic test to be applied is whether there was continuity of business by the buyer and in the present case in fact the buyer continued the business. One has to see whether there was a transfer of a business as a whole and the circumstances of the case were such that the whole business of undertaking was transferred. The intention can also be adjudged by considering the entire agreement and not certain clauses. The lump sum price was fixed for the business as a whole and the employees connected with the activity have also been transferred as a part and parcel of the deal. The valuation was not carried out by the seller but by the buyer, so the revenue has wrongly computed the short-term capital gain. 5.1 Shri Khare has also made an alternate submission that the revenue authorities have totally went wrong to restrict the claim to the Ahmednagar unit in respect of considering the entire block of assets of the company. Referring section 50 of IT Act he has vehemently argued that the Legislature has nowhere specified that the sale consideration of depreciable as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee had two units one at Ahmednagar and another at Pimpri, Pune. It has sold Ahmednagar unit vide an agreement dated 6-8-1992 to M/s. Hoganas India Ltd. (in short HIL). The appointed date was 1-11-1992 which was considered as the date of transfer. The entire controversy, in our opinion, revolve around an issue that whether under the present facts and circumstances it was a slump sale or itemized sale. So we have to examine the facts of the case to ascertain whether the sale consideration was for the entire unit or it was attributable to individual identifiable assets. On careful and deep examination of the agreement, valuation reports, treatment of transfer by vendor and vendee in their books of account, correspondence with financial institution, i.e., ICICI and other related circumstances as well as the factum of the case we are of the view that it was not a case of slump sale. We have arrived to this conclusion inter alia because, firstly, the intention was not to transfer the unit at slump price. The clauses of the agreement have specified the sale consideration firstly at Rs. 2,39,00,000 which was subject to increase and decrease and latter on agreed upon at Rs. 2,60, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The reason is that the buyer has to claim certain deduction in its income-tax matter and for the purpose the seller has its own independence. But the situation in the instant appeal is that the appellant was very much aware about the sale price of each and every assets and therefore, on that basis a figure was arrived at Rs. 150.63 lakhs as surplus on sale of industrial undertaking in its books of account. In view of the above observation based upon the factual matrix we can arrive at a conclusion that it was not a case of transfer of undertaking as a whole but it was a transfer of the assets of the undertaking excluding the liability. It is an admitted fact that the liability was not transferred to the buyer, hence cannot be termed as an instance of slump sale. 7.1 Now coming to the two decisions of the Hon'ble Supreme Court cited supra, namely, Artex Mfg. Co. and Electric Control Gear Mfg. Co., we have noted that Their Lordship has distinguished the features with this observation, Quote "The High Court has placed reliance on its judgment in Artex Mfg. Co. v. CIT [1981] 131 ITR 559 (Guj.). The said judgment of the High Court has been considered by us in our judgment pronounc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt has given a finding that the intention of the parties were to transfer the business as a whole for a lump sum consideration. Interestingly the Hon'ble Court has specified that the parties in that appeal did not intend to make a sale of itemized assets and this observation was very much relevant because before the Hon'ble High Court the two aforecited decisions of the Hon'ble Supreme Court were referred to. Before us ld. A.R. Shri Khare has tried to match the facts of the instant appeal with the facts of Premier Automobiles Ltd.'s case, but in view of our above observation we hereby arrive at a conclusion that the facts are distinguishable hence this precedent is not directly applicable. 7.2 Now coming to the alternate plea of the applicability of section 50 of IT Act we are of the view that the revenue authorities have gone wrong in not setting of the sale consideration from the entire block of assets of the company. On careful reading of section 50 of IT Act we have found that nowhere it is mentioned that the sale consideration is to be deducted from the WDV of that particular asset. Rather with the concept of block of assets, now introduced in the IT Act the e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, the provision of sections 48 and 49 shall have to be subjected to the modifications indicated in section 50. Both the depreciation as well as the block of assets belongs to an assessee and for all purposes has to be taken into account as a whole. There is no indication in the language of section 50 that while computing the short-term capital gain of a particular asset is to be segregated from the block of assets. The view taken by the revenue authorities was thus ipso jure wrong. 7.3 Resultantly, in solido, first limb of Ground No. 1 is hereby decided against the assessee and second limb is decided in favour of the assessee. Before we part with we may mention a word of appreciation to Shri Khare and Shri Sunil Agarwal ld. representatives of both the sides for their valuable assistance in deciding this ground. 8. Ground No. 2 is in respect of upholding the action of the Assessing Officer of deducting the productivity amount received from ICICI in the process of computing depreciation admissible under section 32 of IT Act. Parties appearing before us have informed that this issue has already been decided in assessee's own case for the assessment year 1989-90 by 'E' B ..... X X X X Extracts X X X X X X X X Extracts X X X X
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