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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 ..... essing Officer has adopted this figure for the purpose of calculation of short-term capital gain on sale of plant and machinery, the computation already reproduced in above paras. So undisputedly the appellant was aware before hand distinctly about the value of plant and machinery and the value of land and building. Hence it is not a case of lump sum price for the business as a whole but the price was fixed in respect of the identifiable assets. At this juncture we would like to mention that from the side of the revenue it was argued that the broken up figure were accounted for in its books of account by the purchaser M/s. HIL, however, this argument is not in the right perspective. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be segregated from the block of assets. The view taken by the revenue authorities was thus ipso jure wrong. 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. - HON'BLE V.D. WAKHARKAR, ACCOUNTANT MEMBER AND MUKUL SHRAWAT, JUDICIAL MEMBER For the Appellant : B.K. Khare, Adv. For the Respondent : Sunil Agarwal, Adv. ORDER Per Mukul Shrawat, Judicial Member. 1. This is an appeal filed by the assessee arising out of the order of CIT(A), XXXIII, Mumbai dated 22-1-1998 for the assessment year 1993-94. 2. In the first ground the assessee has challenged the upholding of short-term capital gain of Rs. 35,57,295 on the sale of building and Rs. 1,59,74,715 on the sale of plant and machinery. In the ground of appeal it was further challenged that no capital gain could be computed as per section 45 and in the alternative long-term capital gain should be computed after deducting the cost of acquisition as on 1-4- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer was not convinced with all these submissions and according to him provisions of section 50 of IT Act should be applied because the unit transferred had block of assets on which depreciation had been granted. After discussing the case laws cited by the assessee, the Assessing Officer has held that in terms of section 50 assessee was liable to be taxed as short-term capital gain. According to Assessing Officer since the value of the building was taken at Rs. 49,68,750 on which depreciation was claimed, therefore, the sale consideration should be subject to tax as short-term capital gain. For the balance amount of sale consideration he has also calculated the short-term capital gain as a sale of plant and machinery along with electrical installation. The computation of short-term capital gain on sale of building was worked out as under:- Sale consideration Rs. 49,68,750 Add: Cost of land Rs. 1,01,300 Rs. 50,70,050 Less: W.D.V. of the building As worked out above Rs. 15,12,755 Leaving the balance of Rs. 35,57,295 To arrive at the short-term capital gain on sale of plant and machinery the Assessing Officer has worked out the sale price at Rs. 1,64,75,000. This figure was arrive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o considered. The appellant company in its books of account had recorded the surplus arising from the above sale transactions at Rs. 1,50,62,800. From the gross consideration of Rs. 260.43 lakhs book value of the fixed assets, i.e., Rs. 64.82 lakhs and the inventories transferred of Rs. 44.98 lakhs were deducted and the surplus was credited to the P L Account as extraordinary profit from sale of industrial undertaking. It was argued from the side of the appellant that no capital gain had arisen as it was a slump sale of an undertaking. It was pleaded that the transactions should be viewed as a whole by treating the total industrial undertaking as a capital asset. In support the decision of AC. Srinivasa Setty's case and the decision of Artex Mfg. Co. v. CIT [1981] 131 ITR 559 (Guj.) were cited. Ld. CIT(A) has observed that the revenue had gone in appeal against the decision of Artex Mfg. Co.'s case and the Supreme Court in its decision in CIT v. Artex Mfg. Co. [1997] 93 Taxman 357 had overruled the decision of the Hon'ble Gujarat High Court. 4.1 Before ld. CIT(A) an alternate plea was raised that if the provisions of section 50 were to be applied then the amount of cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ched thereto and utilize exclusively for the production of atomized iron powder. As per the clauses of the agreement 'MSP' has sold and HIL has purchased the said undertaking without any liability in good and running condition w.e.f. 1-11-1992. Ld. A.R. has further mentioned that as per sub-clause (iii) of agreement, page No. 5, all the rights, benefits and privileges pertaining to the said undertaking along with assignable interest would be the entitlement of the buyer. He has also clarified that clause (3) of the agreement, though, has mentioned the price of the undertaking at Rs. 2,39,00,000 which included the value of the building at Rs. 52,05,000 but the price of the building was assumed only for the purpose of payment of stamp duty. He has further submitted that some of the clauses has also mentioned that the above consideration was subject to increase or decrease depending upon certain circumstances. As there was a charge of ICICI, therefore, prior approval of the said institution and bank was required and for that purpose it was referred to them. Clause (9) of the agreement has also incorporated that from the appointed date M/s. HIL was entitled to take over all the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of price of each asset so sale consideration of individual assets was very much within the knowledge of both the parties. The assessee himself has arrived at the exact figure of extraordinary profit of Rs. 1,50,63,000 so there was an element of cost which was taken into account by the assessee hence the decision of B.C. Srinivasa Setty's case ought not to apply in the present appeal. He has also distinguished the facts of the instant appeal with the facts of Premier Automobiles Ltd.'s case relied upon by the assessee. He has argued that this is not the case of slump sale as there was no slump price fixed. He has also placed before us that the Hon'ble Supreme Court has distinguished the two decisions, i.e., Artex Mfg. Co.'s case and Electric Control Gear Mfg. Co.'s case while deciding the latter one. As the facts were not identical the earlier decision was distinguished. He has concluded that action of the Assessing Officer deserves to be affirmed. 7. Parties have been heard at length, facts of the case were thoroughly examined and orders of the authorities below were duly considered in the light of the material placed before us as well as the precedents relied ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7,295, computation already reproduced in above paras, which was accordingly taxed. The approach of the assessee indicates that to settle the sale consideration help of professional was sought and thereafter a final figure was arrived at. Our fourth observation in this sequence is that one M/s. Mehta Padamse, registered valuer was also appointed, though claimed to be by the purchaser who has valued the fair market value of plant and machinery including electrical installation. As per the valuation given the fair market value of plant and machinery was determined at Rs. 1,64,75,000. The Assessing Officer has adopted this figure for the purpose of calculation of short-term capital gain on sale of plant and machinery, the computation already reproduced in above paras. So undisputedly the appellant was aware before hand distinctly about the value of plant and machinery and the value of land and building. Hence it is not a case of lump sum price for the business as a whole but the price was fixed in respect of the identifiable assets. At this juncture we would like to mention that from the side of the revenue it was argued that the broken up figure were accounted for in its books of acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on there happen to be nothing to indicate the price attributable to the assets like machinery, plant or building. Because in the case of Electric Control Gear Mfg. Co. there was no evidence to indicate price of machinery, plant etc. therefore, it was held that the assessee was not assessable under section 41(2). Contrary to this in the case of Artex Mfg. Co. there was a finding that portion of the price was attributable to plant, machinery etc. therefore, the Hon'ble Court has held that the assessee was assessable as business income under section 41(2) and it was further held that the surplus over such difference was assessable as capital gain. So it is manifest that the controversy was set at rest by the Hon'ble Court by drawing a distinction between two conditions under which an undertaking is transferred. On the basis of the foregoing discussions and in view of the material facts, the essence of the matter is that the instant appeal is close to the facts of Artex Mfg. Co.'s case, hence to be relied upon. One more decision of Hon'ble Jurisdictional High Court was also cited from the side of the appellant namely Premier Automobiles Ltd.'s case. After considerin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ependent unit but it was a part and parcel of the entire business venture of the appellant company. So the block of assets of particular unit should not be segregated from the entire WDV of an assessee for the limited purpose of computation of short-term capital gain. The newly substituted sub-section (2) provides that in a case where any block of assets ceases to exist for the reason that all the assets in that block are transferred during the previous year then in such a case the cost of acquisition of the block of assets shall be the written down value of the block at the beginning of the previous year. Once the capital asset that has been transferred is found to form part of a block of assets in respect of which depreciation has been allowed the surplus, if any, computed in the section will be treated as short-term capital gain. The emphasis thus is that such block of assets should cease to exist. In terms of this section, in our opinion surplus arising on transfer of capital assets is taxable as short-term capital gain when the written down value of a block of assets is reduced to 'nil' even though all the assets falling within that block are not transferred. Thus wher ..... X X X X Extracts X X X X X X X X Extracts X X X X
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