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TMI Blog1984 (10) TMI 89X X X X Extracts X X X X X X X X Extracts X X X X ..... ot applicable to the facts of the case and the addition made on that account by the ITO was deleted. 3. In order to appreciate the issues, we better state the facts in the background because these are the appeals which pertain to the assessment year 1964-65 and have been not only up to Tribunal but even up to the High Court. Both the present appeals are under sections 154, 267 read with section 254 of the Act and how the same are filed, shall be clear from the following facts. 4. The assessee is a limited company, which was incorporated in 1943, for generation and supply of electricity in the town of Bhatinda (Punjab). It, in furtherance of generation and supply of electricity, took a licence for the same and set-up an undertaking. 5. The Punjab State Electricity Board ('the Board'), took over the undertaking of the assessee-company vide its letter by way of notice No. 5015/LB-3(32) 61, dated 16-1-1982, under sub-section (1) of section 6 of the Indian Electricity Act, 1910, as amended by the Indian Electricity (Amendment) Act, 1959, read with sub-clause (1) of clause (9) of the Bhatinda Electric Licence, 2003 (Bikrami), on the expiry of the period of licence, on 7-6-1963 and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ued to the assessee. 10. Since the revenue felt aggrieved by the said decision of the AAC, it came in appeal before the Tribunal, Chandigarh Bench, which vide its order dated 29-2-1972 in IT Appeal No. 331 of 1969-70 held that the taking over of the undertaking of the assessee by the Board in the year under consideration was a sale for the purpose of computing profit under section 41(2) and, as such, reversed the decision of the AAC. The Tribunal set aside the order of the AAC and directed him to compute the correct profit under section 41(2). 11. The assessee went in reference before the High Court which vide its judgment dated 7-11-1978 upheld the decision of the Tribunal that there was a sale within the meaning of section 41(2) even though no sale deed was executed or registered on the date when the undertaking was taken over and stood vested in the Board. 12. The AAC vide his order dated 27-9-1973 held that neither any profit under section 41(2) nor any capital gains under section 45 arose or accrued to the assessee as a result of taking over of its running undertaking as a whole by the Board in the year under consideration. He held so as the compensation payable to the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R 299, CIT v. West Coast Chemicals Industries Ltd. [1962] 46 ITR 135, Daughty's case [1927] AC 327 (PC), as per which, it was held that no assessable profit under section 41(2) arose in a case where whole business of the undertaking together with its assets and liabilities was transferred and sold for a slump price. The assessee's contention before the Commissioner (Appeals) was that no assets as such had been transferred by the assessee to the Board. The running undertaking of the assessee as a whole together with goodwill, all assets and liabilities had been transferred for a slump price of Rs. 7,88,000. The price of each and every item taken over by the Board had neither been fixed nor earmarked. In other words, the submission of the assessee was that the said total price of Rs. 7,88,000 for the running undertaking, was for the entire undertaking together with all its assets, liabilities, rights and obligations. Besides, the assessee made other submissions that the undertaking of a business is a capital assets of the owner of the undertaking and on its transfer, as per extended meaning of the said term in section 2(47) of the Act, if there is any surplus, that is that the net ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Rs. 7,88,000 was determined as per arbitration award and, therefore, he urged that section 41 did not apply and the Commissioner (Appeals) was correct in holding that section 41 did not apply. Regarding the substitution of value as on 1-1-1954 of the undertaking as a whole, he first took us through section 6 of the Indian Electricity Act and made out that the acquisition was as per section 6, vesting was as per section 6A of the Indian Electricity Act and determination of the price was as per section 7 of the said Act. He submitted that reliance of the Commissioner (Appeals) in the case of India Jute Co. Ltd. v. CIT [1982] 136 ITR 597 (Cal.), in which number of decisions have been considered, is misplaced. He submitted that undertaking is separate from assets constituting the sale because undertaking was something not only more than assets but much more than assets because it included all assets, liabilities, goodwill and other entitlement, etc. He relied on Artex Mfg. Co.'s case and Mugneeram Bangur Co.'s case which were followed in the said case. He also drew our attention to a circular in respect of nationalisation of commercial banks, income-tax assessments and payment of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Commissioner (Appeals) regarding assessability of section 41(2) profit but we are unable to confirm his action refusing the assessee to substitute the value of the undertaking as on 1-1-1954 for the purpose of capital gains. In other words, we accept the contentions of the assessee raised in its appeal regarding substitution of value as on 1-1-1954 and reject the contentions of the revenue raised in its appeal, i.e., section 41(2) profits assessability. 21. There is no controversy about the following facts: (i) The assessee-company was started in 1943. (ii) It was the assessee-undertaking which was taken over by the Board on the midnight of 7-6-1963/8-6-1963. (iii) From perusal of award, which is at pages 51 and 52 of the assessee's compilation, there is no controversy about the fact that the total amount of Rs. 7,88,000 was determined as the price of the total undertaking and while doing so, he took into consideration various claims and counterclaims of the parties including the claim of the assessee up to the date of award. It even comprised the adjustments and deductions made on account of E.D. securities, audit objections, SOP bills and consumer's rebate, etc. (iv) F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g together with its assets and liabilities was sold for a slump price, under these circumstances, the surplus was not assessable under section 41(2). It is this case which has been relied upon by the learned Commissioner (Appeals) also. Their Lordships of the Supreme Court in Mugneeram Bangur Co.'s case had occasion to deal with an issue in a case of land development business which was transferred as a going concern with its goodwill and all stock-in-trade, etc., to a company promoted by the partners of the firm, the consideration was paid by the allotment of shares, where bifurcation was possible and where part of consideration could be attributed to sale of land. Their Lordships in that case held: "... that the sale was the sale of a whole concern and no part of the price was attributable to the cost of the land and no part of the price was taxable. The fact that in the schedule to the agreement the price of the land was stated did not lead to the conclusion that part of the slump price was necessarily attributable to the land sold. What was given in the schedule was the cost price of the land as it stood in the books of the vendor and even if the sum of Rs. 2,50,000 attribut ..... X X X X Extracts X X X X X X X X Extracts X X X X
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