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Income Tax Appellate Tribunal - Mumbai

Premier Automobiles Ltd. vs Deputy Commissioner Of Income Tax on 18 November, 2002

Equivalent citations: [2003]84ITD169(MUM), (2003)79TTJ(MUM)850

ORDER

D. Manmohan, J.M.

1. This appeal pertains to the asst. yr. 1995-96. Though six grounds were urged by the assessee-company, at the time of hearing, ground No. 2 is not pressed by the learned counsel. Therefore ground No, 2 is dismissed.

2. Vide ground No. 6 assessee-company contends that the tax authorities have erred in taxing an amount of Rs. 53,06,632 twice as income. This issue was considered by the learned CIT(A) in paras 114 to 119 of his order. Learned counsel submitted before us that proper explanation was not given before AO but a reconciliation statement was furnished before learned CIT(A) and he should have considered this issue. Learned Departmental Representative has no objection if this matter is set aside to the file of the AO, Under the circumstances of the case we set aside the issue to the file of the AO to re-examine the matter in the light of the reconciliation statement.

2(a). Ground No. 1 of the assessee's appeal reads as under :

"The IT authorities have erred in law and on the facts of the case in taxing Rs. 46,78,000 under Section 41(1) of the Act".

The learned counsel of the assessee contended that the amount of Rs. 46,78,000 has been offered to tax and has been taxed in the asst. yr. 1996-97. It is contended that the said amount is wrongly taxed in the year under appeal. The learned counsel pointed that for both asst. yrs. 1995-96 and 1996-97 the assessee had filed loss returns but for both the assessment years assessments were completed at positive figures. It is stated that it is a case of double taxation. The assessee had no objection if the amount is taxed in any of the two years. The AO is directed to verify these facts and to delete the impugned amount in the year under appeal if the same has been taxed in asst. yr. 1996-97.

3. Ground Nos. 3 and 4 are connected and they are extracted here for immediate reference:

"3. The IT authorities have erred in law and on the facts of the case in not accepting the sale of Kalyan business as slump sale. Their action is very arbitrary and illegal and without any evidence to support their findings that it was not a case of slump sale.

4. The IT authorities have erred in law and on the facts of the case in bifurcating the slump sale price received by your petitioners into various amounts. The inclusion of the amounts of Rs. 20,49,56,346 Rs. 91,28,51,794 and Rs. 1,84,00,000 as long-term capital gains, short-term capital gains and business income, respectively, in the assessable income is illegal and arbitrary. Without prejudice, the additions made are very excessive."

4. The assessee had manufacturing units at Mumbai & Pune and the business was run from three places i.e., Kurla (Mumbai), Kalyan (Thane Dist.) and Chinchwad (Pune). The case of the assessee is that the factory at Kalyan was sold to Kalyan Motors Co. Ltd. now known as Pal-Peugeot Ltd., and since it was a slump sale, the surplus/profit earned on sale of land, factory sheds, plant and machinery, etc., is not assessable to tax. The AO as well as the CIT(A) were of the opinion that it is not a slump sale and accordingly brought to tax the surplus arising out of the sale of assets. The AO has recorded detailed reasons for coming to the conclusion that the sale was shown as a slump sale in order to evade payment of tax. Facts of the case and the reasons given by the AO in rejecting the assessee's contentions are noted in paras 10 to 11 (pp. 22 to 55) of his order. The CIT(A) confirmed the action of the AO. Paras 25 to 111 (pp. 13 to 66) of CIT(A)'s order deal with this issue in great detail. For the sake of brevity, the facts of the case and the reasons given by the tax authorities are not repeated elaborately in this order. In short the case of the AO/CIT(A) is based on the following facts/inferences:

"(i) Some (main) shareholders of assessee-company and purchaser-company i.e., Pal-Peugeot Ltd. are common. Pal-Peugeot's articles of association shows that Mr. Jyotindra M. Vakil and Mr. Maitreya V. Doshi are shareholders having 24 and 76 equity shares respectively and the above two persons are directors of the assessee-company.

(ii) The assessee-company failed to give asset-wise breakup of consideration, despite various opportunities given to it. Therefore, M/s Pal-Peugeot Ltd. was requested to submit the treatment given by it in its books of account to these particular transactions. The details show that the figure of total consideration is at variance with the figures given by the assessee in the assessment proceedings. The transferee-company has taken into account the entire price paid to the assessee by dividing it between fixed assets and current assets on the basis of valuation report.

(iii) The contention of the authorised representative that no specific price has been charged for any particular asset, is not correct. The sale of part of Kalyan unit has been a long drawn process over a number of years which itself shows that the price has been fixed for every asset during the course of above period. This fact gets further confirmed by the valuation report furnished by the purchaser wherein the price of each and every asset was separately mentioned giving complete and proper description.

(iv) The assessee did not produce fixed asset register. Though the assessee-company says that the agreement is for transfer of land, factory building, plant, machinery etc., at Kalyan and other locations, details of locations were not furnished.

(v) The total consideration for the sale is mentioned at Rs. -24,613.97 lakhs which is again incorrect as could be seen from p. 11 of the agreement dt. 6th Jan., 1995, the relevant portion of which reads as under:

"2 B1. The price to be paid by the company to Pal as a consideration for the sale will be the aggregate of:

(a) an amount of Rs. 210,00,00,000 (Rupees two hundred ten crores) corresponding to the value of the acquired immovable assets and the acquired movable assets.

(b) An amount to be determined after the execution date corresponding to the value as of the sale date of the acquired current assets and acquired current liabilities i.e., of all elements corresponding to the categories elements corresponding to the categories listed in Schedule 2C. Such value shall be determined according to the procedure set out hereinafter."

The above clauses show that the assessee has undertaken the process of itemwise break-up of sale consideration of various assets.

(vi) Contention of the assessee that sale is of one of the two units of the assessee-company, is incorrect. The sale was in fact, of portion of Kalyan business because out of total land area of 18,19,769 sq. mts. coming under the Kalyan municipal corporation, only area comprising 7,43,449 sq. mts. have been transferred. The case law relied upon by the assessee are distinguishable on facts. In the case of CIT v. Mugneeram Bangur & Co. (1965) 57 ITR 299 (SC) and in other cases it was a slump sale of a whole undertaking whereas in the instant case the assessee sold only one unit and that too was not sold in its entirety. In the decision cited supra only one price was charged whereas in the assessee's case movable and immovable properties were separately charged and current assets were charged separately. In the cases relied upon by the assessee the Court found some difficulty in apportionment of sale consideration on the capital assets whereas in the instant case it is possible to apportion the price on each capital asset. It is a case of item-wise sale after proper valuation but relevant documents were not made available to the AO for obvious reasons. The copy of sale agreement alongwith various annexures was called for and it was noticed that there is description of each item, including value column, with make and year of purchase. The assessee has kept value column blank deliberately. Since the assessee failed to produce documents in original, it is difficult to ascertain the real affair in this matter.

(vii) For transfer of immovable property assessee obtained tax clearance certification under Section 230A of the Act. Column 15 of the proforma for 230A application reads as under:

"(I) Full value of consideration for which the property or the right, title or the interest, to or in the property is purported to be transferred; and (II) If the transfer is to be without consideration, the value for the purpose of stamp duty."

The assessee kept column No. 2 vacant and the value was put against column No. 1 which indicates the sale price of immovable property. However, the contention of the assessee that the price was mentioned in that application only for the purpose of obtaining tax clearing certificate, shows that the intention of the assessee is far from honest and the assessee has been indulging in make believe stories at the various stages of the transaction. Though the assessee stated that the land and building has been valued by the transferee-company for the purpose of stamp duty, it is not correct. The certificate under Section 230A was obtained under a letter dt. 14th June, 1996, whereas, as per assessee's own admission the transferee-company has got the valuation done in September, 1996, which proves that there exists a complete valuation report of all the assets even before September, 1996 but the same was not furnished to the Department to avoid correct taxation of income.

(viii) The assessee failed to submit complete and proper details and, therefore, the issue needs to be decided on the basis of details available on record. The recitals in the MOU, supplementary MOU and sale deed clearly indicate that there has been internal or external valuation of assets and liabilities. The supplementary MOU refers to valuation report i.e., 'industrial due diligence' for the verification of the assets. Copy of the 'due diligence report' was not furnished by the assessee on the ground that the same was obtained by the automobiles Peugeot which further shows that the assessee did not want to cooperate in furnishing information, with the sole motive of evasion of taxes.

(ix) The claim of the assessee that the total price is inclusive of the price paid for the intellectual property is incorrect. The object of the sale has been to acquire immovable assets, movable assets, current assets and current liability and acquiring of intellectual property as given in Clause 2A(I). Clause 2A(4) very clearly mentions that there is no consideration in respect of intellectual property.

Thus, the sale price has been only for immovable and movable assets and current assets and current liabilities.

(x) The slump sale agreement runs into various schedules. At p. 5 of the agreement definition of 'statement of acguired net assets, is given which reads as under:

"Statement of acquired net assets' shall mean and contain the price of acquired net assets together with the relevant values".

The above recitals very clearly mention that the value has to be put in respect of the acquired assets. Schedules 2A, B and C in fact, have the column for the value of assets, which is not given in the xerox copy supplied. This shows that the assessee wants to hide true position of the case because the schedules prove that the value of each asset has been determined at the time of agreement but copy furnished to the AO is without such value.

5. It was thus concluded by the AO that it is not a slump sale but the assessee has merely adopted the device to avoid payment of tax. He, therefore, proceeded to tax the profit under the head long-term capital gains, short-term capital gains and business profit, by taking the value of each asset as declared by the transferee in its record as the sale price.

6. Aggrieved, assessee preferred an appeal before the CIT(A). Detailed written submissions dt. 3rd Nov., 1998, along with several compilations containing copies of various agreements in support thereof were filed before the CIT(A). It was contended that the various additions made by the AO were illegal. The assessee-company had two plants for manufacturing cars i.e., one at Kurla and another at Kalyan. Premier-Padmini cars were manufactured at Kurla plant whereas 118 NE cars were manufactured at Kalyan plant. During the previous year relevant to the year under consideration the company sold its running business of manufacturing of 118 NE cars together with all the assets of Kalyan business to a new company Kalyan Motors Co. Ltd. for a slump sale price of Rs. 210 crores in respect of fixed assets and a price of 36.18 crores for the net current assets. Since separate consideration was not charged for different fixed assets, it was a case of slump sale. Reliance was placed on the decision of Hon'bie Supreme Court in the case of CIT v. Electric Control Gear Mfg. Co. (1997) 227 ITR 278 (SC) to submit that the Department has no power to bifurcate slump sale into different components unless there is evidence to show that the different assets were evaluated before the date of sale. It was contended that in the instant case the assessee has not evaluated its assets at any time prior to or after sale. Therefore, the AO was not justified in taking into consideration the valuation got done by the transferee in September, 1996. Without prejudice to the above submissions, it was also contended that the computation of capital gains was not in accordance with law. The AO has taken the value of land at Rs. 20.42 crores, 23.02 crores for building and 167 crores for other fixed assets. He has made a mistake in not excluding Rs. 60,42,69,151 and Rs. 32,01,36,841 out of Rs. 167 crores as these amounts were spent by the company on capital work in progress, and Technical fees/miscellaneous expenses capitalised in the books of account. It was, thus, contended that only balance of Rs. 75 crores has to be taken as the sale consideration for the other fixed assets. It was also contended that market value of land as on 1st April, 1981, should have been taken into consideration by the AO for computing taxable gain on sale of land.

The short capital gain in sale of other fixed assets like plant and machinery, furniture and fixtures has to be valued by substituting the figure of Rs. 75 crores for Rs. 167 crores taken by the AO. It was also contended that no part of Rs. 60.42 crores is taxable as neither any depreciation was claimed on that amount nor any part of that amount has been claimed as revenue expenditure in any year. Out of Rs. 32.01 crores, the amount aggregating to Rs. 4.45 crores have to be taxed as business profit because these amounts have been allowed in full in the earlier assessment years as revenue expenditure. Without prejudice to the main contention that no part of the amount received on slump sale was taxable, a detailed statement was submitted which according to the assessee should be the basis for levying tax.

7. The AO has submitted his comments vide his letters dt. 17th Dec., 1998 and 23rd Dec., 1998, in support of his claim that additions made in the assessment year is in accordance with law and facts. It was contended that there is sufficient evidence on record to prove that the assets were evaluated at the time of sale and further stated that the basis for bifurcation of slump consideration was the balance-sheet of Pal-Peugeot drawn on 31st March, 1995, and the valuation report which gives the values as on 29th Sept., 1994. It was also pointed out that some of the directors in both companies were common at the relevant point of time and hence it would be really difficult to say that the deal was at arms length. In other words, the AO was of the view that it was a premeditated design to create a subterfuge of slump sale with the sole purpose of evading tax. The AO further pointed out that in respect of all the three units the schedule of fixed assets is common. The assets reflected in the schedule are land, building, furniture, plant and machinery. One of the most striking features in this regard is that even after having sold part of the assets during the year relevant to asst. yr. 1995-96 on 29th Sept., 1994, the assessee has not reduced the sale price of the assets from the respective assets forming part of the block of assets and at the year ending on 31st March, 1995, depreciation is claimed on the entire block of assets. Even in the subsequent years, inspite of the sale of part of the assets in September, 1994, the assessee continues to claim depreciation on the unreduced cost of assets in total disregard of the fact that the assets sold do not continue to be owned by the assessee. This strange feature is amply indicative of the manipulative approach of the assessee to somehow or the other claim that the sale of assets was a slump sale. It is unimaginable that even after selling away part of the assets the impact of such sale is not reflected in the block of assets. Against this, the records of the purchaser, M/s Pal Peageot Ltd. for the same period i.e., year ending 31st March, 1995, show that the schedule of assets forming part of the balance-sheet clearly shows that the assets purchased from the assessee are reflected head-wise in the block of assets with the cost of requisition of each asset under the head "assets acquired as on 29th Sept., 1994". The purchaser has accordingly claimed depreciation on such assets. In other words, on the same assets sold, the assessee is claiming depreciation on one hand without owing them and at the same time the purchaser is also claiming depreciation on the other hand.

8. Distinguishing the facts of the assessee's case with the case of Walchandnagar Industries Ltd., the AO brought out the following distinguishing features:

(a) In the case of Walchandnagar, the entire composite distillery unit was sold whereas the assessee sold only a part of one unit. Only 60 per cent of the land at Kalyan was sold. Moreover, the other two units of Kurla and Chinchwad are still with the assessee where motor cars and spares are being manufactured;

(b) The MOU in the case of Walchandnagar provided that the vendor should not carry on any distillery business for a minimum period of 10 years whereas no such prohibitory stipulation is found in the assessee's case;

(c) In the case of Walchandnagar, there was no mention regarding the value of specific assets whereas in the assessee's case there is a clear stipulation regarding verification of individual assets in the MOU.

9. When the same was put to the assessee, the learned counsel submitted that no separate price was attributable to different assets and it was the purchaser who bifurcated the price as per the valuation report obtained by them more than one year after the close of this deal. It was also submitted that the assessee did not reduce the written down value of fixed assets in its account because it did not know as to how much of Rs. 210 crores is attributable to each asset. Regarding the valuation of land it was submitted that registration authority desired a valuation of land and building which was obtained by the purchaser in November 1995. Again the AO was called upon to state this case and the contents of the letters written by the AO were again put to the assessee's counsel and thus the matter was heard at length.

10. On a detailed consideration of the matter the learned CIT(A) came to the conclusion that the impugned sale cannot be treated as a slump sale. In this regard he observed that sale agreement should not be viewed in isolation and the agreement like MOU, joint venture agreement entered into prior to the sale agreement, registered sale deed executed on 27th May, 1996 regarding transfer of land and building etc., should also be examined to analyze whether it was a slump sale or not. In the opinion of the learned CIT(A) a perusal of all the agreements would lead to the conclusion that it was not a slump sale and the assessee had transferred specific assets on which it was liable to tax as per the provisions of income-tax law. It is also possible to allocate the prices for the transfer of different assets.

11. Clause (F) of the joint venture agreement dt. 19th Oct., 1994, shows that the assessee has not merely transferred the assets of Kalyan business but also certain other assets and, thus, it cannot be said that the transfer was of a running business or was a slump sale. The total land area of the assessee at Kalyan was 18,19,769 sq. mts. but the assessee actually sold only 7,43,339 sq. mts. of land which indicates that the entire business assets of the Kalyan unit were not transferred.

In the registered sale deed dt. 27th May, 1996, the consideration for transfer of land and building was shown at Rs. 43,44,59,477.50 ps. Similarly, in the application under Section 230A for obtaining tax clearance the assessee recorded the sale consideration of land at Rs. 20,42,39,117.50 ps. This means that the consideration for the building was Rs. 23,02,20,360. The same amount was reflected in the accounts of the transferring company. He also referred to Clause 3.16 in the slump sale agreement which proves that assessee did not part with all the assets of Kalyan business. Clause 3.16 is extracted here for immediate reference :

"PAL shall have the right to use perpetually and free of charge all elements, parts and components together with the relevant know-how that are presently used in both the product of PAL's residuary business and in the products of the Kalyan business in any manner whatsoever".

Thus, the CIT(A) concluded that the prices had been fixed for specific assets and it was not a slump sale.

12. The contention of the assessee was that slump sales are assessable to tax only by virtue of amendment made in the statute book by Finance Act, 1999 which is prospective in operation. Since the instant sale took place prior to that, it is not taxable. This was rejected by the learned CIT(A) on the ground that such sales are assessable to tax even earlier in the light of the decision of the Hon'ble Supreme Court in the case of CIT v. B.M. Kharwar (1969) 72 ITR 603 (SC). Thus, learned CIT(A) concluded that it was not a case of slump sale.

13. With regard to the sale price attributable to each item the learned CIT(A) observed that the AO was justified in taking the sale price as recorded in the transferee's book. In this regard he observed as under:

"Since the prices of land and building were known and were also evidenced by the registered sale deed, it becomes absolutely clear that the transfer could not be treated as a case of slump sale. In the circumstances the AO was perfectly right in examining the accounts of the transferee as well as other evidences to determine the consideration for other assets transferred by the appellant and thereafter to tax the gains or profits arising out of such a transfer".

14. With regard to the cost of acquisition of land the AO observed that the assessee has not disclosed the date of acquisition of the land though it was stated that the same had been acquired before 1968. The AO, therefore, took the indexed cost at Rs. 12,27,960 and accordingly worked out the long-term capital gains. The learned CIT(A) observed that the value of the land as on 1st April, 1981, has to be ascertained first and then indexed cost has to be applied. He accordingly directed the AO to determine the value of the land as on 1st April, 1981. Short-term capital gains on transfer of building, as worked out by the AO was found to be in accordance with law and, therefore, confirmed the same.

15. The other contention of the assessee was that the net consideration for other fixed assets works out to Rs. 167 crores, after deducting the consideration for land and building. The AO committed a mistake in not excluding Rs. 60,42,69,115 and Rs. 32,01,36,841 out of Rs. 167 crores, as these amounts were spent by the company on capital work-in-progress and technical fees/miscellaneous expenses capitalized in its books of account. According to the assessee only Rs. 75 crores could be taken as consideration for other fixed assets and thus short-term capital gains on other assets works out to Rs. 42 crores. The learned CIT(A) did not accept the contention of the assessee. He observed that the consideration was paid only for specific assets listed in various schedules to the slump sale agreement and the items of Rs. 60,42,69,151 and Rs. 32,01,36,841 were not shown by the assessee as falling in any of the schedules to the slump sale agreement. He also referred to clauses of the slump sale agreement in support of his conclusion that there was no consideration for miscellaneous assets. The learned CIT(A) was thus of the opinion that the short-term capital gains on plant and machinery was correctly worked by the AO as per record of the transferee-company and as per written down value of assets in the case of assessee. However, he directed the AO to take into account the addition shown by the assessee to plant and machinery at Rs. 4,31,24,790.

16. As regards the addition of Rs. 1.84 crores as business profit, on account of transfer of current assets, the learned CIT(A) was of the view that necessary facts were not brought on record by the AO. The learned CIT(A), therefore, restored the matter of the file of the AO for fresh consideration.

17. Aggrieved, by the order of the learned CIT(A), the learned counsel prepared the summary of the AO/CIT(A)'s objections and explained therein the case of the assessee. Since the assessee's case is summarized in the said statement the same is reproduced here for quick reference:

S. No. AO's objections Para of AO.'s order Assesses 's submissions

1.

The assesses failed to give asset-wise break-up of consideration.

10.7 Assesses did not sell any asset separately for a price. It sold the entire Kalyan business which included many assets like land, building, plant and machinery etc.. for a slump price. As such, assessee does not have any break-up and cannot give what it does not have.

2. The above submissions becomes factually incorrect due to the fact that transferee-company in its books has taken into account the entire price paid to you by dividing it between fixed assets and current assets on the basis of valuation report.

10.7.1 Transferee-company got the slump price apportioned more than one year after the sale of its accounting. That does not bind the assessee. If the price of each asset had been known at the time of sale, where was the need to have a valuation of assets by the transferee. Kindly note there was no valuation done but only a fair apportionment of what had been paid.

3. There are differences between the figures shown by you and that by the transferee-company which requires proper explanation and reconsideration at your end.

10.7.1.2 Current assets and liabilities are always changing. The difference is due to passage of time from March, 1993 to September, 1994.

4. Therefore, the transferee could not make any independent valuation without consent and active participation of the transferor.

10.7.2 Assessee had nothing to do with it. The AO has no evidence to support his view.

5. The above two clauses prove that there has been no single .price for the transfer but the process of item-wise break-up of sale consideration of various assets has taken place.

11

All fixed assets have been sold for Rs. 210 crores.

Current assets and liabilities change every day. Therefore, these are as per book of accounts.

6. The sale is in fact of a portion of Kalyan business. Out of the total land areas of 18,19,769 sq. mts. coming under the Kalyan Municipal corporation (Dist.Thane) only area comprising 7,43,449 sq. mts have been transferred.

11.2 Land walled for the factory at Kalyan has been sold.

Other lands at Kalyan are not part of the Kalyan business.

7. The assessee itself has apportioned sale price and it was very much aware of that as per law for the purpose of transfer of the immovable property, it required certificate under s. 230A as well as certificate for registration wherein it has to verify clearly state the sale price. For the purpose of certificate under s. 230A it has mentioned that the price of stamp duty which is ridiculous preposition.

11.4 Factually incorrect statement. Assessee did not apportion Rs. 210 crores to any asset.

8

The certificate under s 230A has been obtained under the letter dt 24th April, 1996 and as per assessee's own admission, the transferee-company has got the valuation in September, 1996 This disproves the contention of the assesses and goes to prove that there exists a complete valuation report of all the assets but the same is not furnished to the Department to avoid correct taxation of income 115 No such deduction is possible 9 The valuation has not been done by the transferee on its own but it has been done as per the understanding with the assessee-company 115 The AO has no evidence for such a statement 10 Since the assessee is not giving the respective separate sale consideration for the obvious reasons even though it knows the separate value of each asset comprised in the total consideration, which is evident from the discussion in the paragraphs to follow, it would be reasonable basis 115 Assessee never knew of separate valuation of each fixed asset

11. The parties shall also simultaneously undertake a verification process (industrial due diligence) for verification of principal items of the assets) (to be transferred later by PAL to KMCL) including plant and machinery situated at Kalyan or any other locations (Kurla, Pune or any other locations) with a view to carry out broad verification of such items. The recitals in the above sub-clauses very clearly refer to the valuation report i.e., industrial due diligence for verification of the assets.

11.7 "Due diligence" means to verify the physical existence of assets and not their values.

12. Clause 2A.4 very clearly mentioned that there is no consideration in respect of intellectual property.

11.11 Factually wrong. The cl. 2A.4 mentioned that there is no additional consideration in respect of intellectual property.

13. The transferor assessee-company and the transferee-company both have the common directors and in fact it was the managing director and the president of the assessee-company who has signed from the side of the assessee various agreements and also singed the balance-sheet of the transferee-company and therefore, the contentions that it not aware of item- wise 'value is factually incorrect.

11.17 There was no valuation at any time. There was a fairapportionment which was done in September, 1995. The assessee coming to know of the apportionment done in September, 1995 has no bearing on the issue of sale having taken place in September, 1994.

S. No. Objections Relevant Paras of CIT(A)'s older Assessee's comments

1. The appellant transferred certain specific assets only it was to be called as transfer of Kalyan business.

96-97 All the assets pertaining to Kalyan business were transferred.

2. The entire land of Kalyan was not sold.

98-99 The land within the factory area which is walled on all sides was sold. The company, owns other lands at Kalyan which did not form part of Kalyan business. Those were not sold.

3. The company did not part with all the assets of Kalyan business.

99

Factually wrong. There is no evidence with the CIT (A) to make such a statement.

4. A close look at the documents clearly show that prices had been fixed for specific assets after proper valuation.

100-103 Factually wrong. There is no evidence with the CIT (A) to make such a statement.

5. The conduct of the appellant shows that the transfer was not a genuine slump sale.

105

No such inference can be drawn by any reasonable person on the facts of the case

18. At the time of hearing, the learned counsel submitted that the assessee-company had three factories during the relevant previous year. The factory at Pune was manufacturing machine tools whereas Kurla and Kalyan units were manufacturing cars. In March, 1993, the Board of Directors entered into MOU with a French company to sell the Kalyan unit. Automobile Peugeot (French company hereinafter referred to as AP) has entered into a joint venture agreement with the Premier Automobiles Ltd. (the assessee hereinafter referred to as PAL) whereby they decided to float a new company. Referring to the MOU dt. 11th March, 1993, the learned counsel submitted that Government of India as well as Government of French had to give their approval before the MOU can be legally enforceable. In March, 1993 itself the price of Kalyan plant was agreed at Rs. 210 crores and the MOU does not contain the bifurcation of cost of the each individual asset which proves that the sale of Kalyan plant was a slump sale. He also referred to the second agreement dt. 17th May, 1994, which is a supplementary MOU between AP and PAL wherein it was agreed that the joint venture company would be known as Kalyan Motors (P) Ltd. Except clarifying certain aspects there was no change in the agreement insofar as the slump sale price is concerned. He then referred to declaration of trusteeship (p. 26 of the paper book) dt. 29th Sept., 1994, to submit that the Kalyan business of the assessee-company was completely taken over by the Kalyan Motors as a going concern w.e.f. 29th Sept., 1994 and it was decided therein that the slump sale agreement would be executed before the end of January, 1995. Before the management was completely taken over by the joint venture company (hereinafter referred to as joint venture) assessee was running the same business, from Kalyan plant. He has also referred to the joint venture agreement between AP, PAL and joint venture executed on 19th Oct., 1994. According to the learned counsel this agreement does not have any significance vis-a-vis the issue as to whether it was a slump sale or not. He then referred to pp. 108 to 153 i.e., slump sale agreement and in particular adverting our attention to pp. 108 to 110, 118, 127, 133, 134, 137, 138, 140 and 142 to highlight that a consolidated price was paid for the sale of Kalyan unit as going concern and, therefore, it was nothing but slump sale. He also submitted that neither the AO nor the CIT(A) has levelled any charge that there is collusion between the two companies. Thus, slump sale agreement cannot be doubted merely on surmises and suspicion. Kalyan unit was capable to producing 60,000 cars in a year and both the parties i.e., AP and PAL sat together to decide at a price, looking at the manufacturing potential of the plant, and thus arrived at a price of Rs. 210 crores for the sale of the entire unit. Such being the case, the Revenue should not import their views about the probable nature of deal, by ignoring what is apparent from the agreements. He again reiterated that the assessee has not got individual assets valued before the sale of Kalyan unit. The assets sold to joint venture included many intangible assets which were also not valued and thus it was a sale of running business out of which the assessee made a profit of Rs. 81 crores only, He also relied upon the decision of the Hon'ble Supreme Court in the case of Electric Control Gear Mfg. Co. (supra) wherein their Lordships have explained and distinguished the case of CIT v. Artex Mfg. Co. (1997) 227 ITR 260 (SC) decided by the same Bench wherein a different view was taken. He thus sought to reconcile both the decisions by contending that the facts of the assessee's case are similar to the case of Electric Control Gear Mfg. Co. (supra). He adverted our attention to the decision of the Hon'ble Supreme Court in the case of Mugneeram Bangur & Co. (supra) wherein the price of each asset was indicated in the annexure. In spite of that the Hon'ble Supreme Court held that the sale price is not taxable. He also relied upon the decision of the Nagpur Bench of Bombay High Court in the case of CIT v. Narkeshan Prakashan Ltd. (1992) 196 ITR 438 (Bom). Thus, he contended that unless there is sufficient evidence to show that assets are valued by the assessee and the sale took place by charging separately for each independent asset, the AO cannot bring to tax an amount received by the assessee on the sale of a going concern. Only when there is some evidence that the assessee has valued assets before sale, the AO will be entitled to disregard the nomenclature given by the assessee i.e., merely because it is treated as slump sale it would not debar the Revenue from finding out the truth. However, in the instant case, the Revenue has no such evidence to prove that the assessee valued assets separately and charged the price for each asset.

19. The learned counsel submitted that the MOU was entered into in the year 1993 and the price for the sale of unit was fixed in 1995. Merely because the transferee-company got the plant and machinery valued in 1995 and apportioned the same in its books of account, the tax authorities were not justified in'presuming that the assessee has got the valuation done prior to the sale. He also submitted that under the stamp duty Act and also for the purpose of obtaining no objection certification under Section 230A of the IT Act, the assessee has to specify the value of the assets for payment of stamp duty but the value shown in this document would not affect the nature of sale. He also submitted that the sale consideration of Rs. 210 crores was for the sale of entire unit including the consideration towards intellectual property. In this regard he referred to p. 116 of the paper book (1) i.e., Clause 2A of the slump sale agreement. He further submitted that even in the case of the slump sale the assessee is not debarred from including certain other machinery located at other places so as to satisfy the other party. Thus, mere inclusion of machinery from Pune factory will not make any difference in the character of slump sale.

20. With regard to the alternative contention, arising out of ground No. 4 the learned counsel submitted that the AO was not justified in arriving at the long-term capital gain on transfer of land at Rs. 20.49 crores. However, since the learned CIT(A) has set aside this issue to the file of the AO for determining the value of land as on 1st April, 1981, and to recompute the capital gains, the learned counsel did not press this issue. As regards the addition of Rs. 91,28,51,794 the learned counsel submitted that the value of the assets such as technical know-how and capital work in progress was not taken into consideration by the tax authorities, With regard to the addition of Rs. 1.84 crores, the learned counsel submitted that this valuation was done at the instance of the transferee-company one and half years after the agreement of sale but no addition can be made merely on such valuation because there is no profit element.

21. Ground No. 5 which is connected to ground Nos. 3 and 4 reads as under :

"Ground No. 5--The IT authorities have erred in law and on the facts of the case in allowing depreciation only at Rs. 7,56,263 in place of the correctly allowable depreciation of Rs. 9,99,66,820. In any case, the amount not allowed is very excessive."

22. The learned counsel submitted that the decision on this issue depends upon the outcome of ground Nos. 3 and 4. If bifurcation is aUowed then depreciation has to be reduced, in which event assessee will have no objection.

23. In reply to the authorised representative's contentions with regard to ground Nos. 3, 4 and 5, the learned Departmental Representative submitted that the material on record clearly indicates that it was not a case of slump sale. In this regard, he adverted our attention to p. 55, para 96 of the order of the CIT(A). He further submitted that the assessee did not answer the questionnaire issued by the AO and, hence, the AO had to examine the transferee-company's record. He emphatically contended that the slump sale is merely a front to avoid tax. Explaining the meaning that has to be ascribed to the term "slump sale", learned Departmental Representative submitted that it can be equated to a distress sale e.g., sale of old news papers in the house etc. In the instant case the assessee has several units. All the units were not sold. Thus, so far as the assessee is concerned it was a sale of a part of its undertaking. It can be said that the assessee sold in bits and pieces particularly when the assessee sold one machinery from Pune, a part of the plant from Kalyan, etc. Thus it cannot be considered as a slump sale. The expression 'slump sale' is not defined in the Act but it was subjected to judicial analysis. One has to carefully analyse the facts to see whether the instant case fits into the expression "slump sale". The sale having been preceded by two years of negotiations, it cannot be without any values fixed for each asset. It is difficult to accept that it is a sale on "as is and where is basis". AP is an experienced company and they are not buying lemons; huge investment is made in the joint venture and, hence, they might have taken into consideration many, aspects before fixing the value of assets to be taken over from PAL. In support of his contention, he adverted our attention to the following clauses of MOU.

"Clause 11.2 Facilities : ............ The JV will operate either at Kalyan or at any other site mutually agreed, as appropriate, an engine machining workshop to be transferred from Pune and a gearbox assembling workshop to be transferred from Kurla".

"11.4 Cost of the project : Subject to further examination and validation by the parties, the project cost for the vehicles is expected to aggregate around 960 million French Francs ("MF") equivalent (at the present exchange rate) to around 5.6 billion Indian Rupees ("BR"), the indicative breakdown of which is as follows :

   

MF BR (1) existing Kalyan facilities 370 2.1 (2) imported investment 150 0.9 (3) local investment 205 1.2 (4) transfer of tooling 125 0.7 (5) know-how and technical assistance 110 0.6 Total 960 5.6 Para 2(a)(ii) of supplementary MOU dt, 17th May, 1994 :

"The parties shall also simultaneously undertake a verification process ("Industrial due diligence") for verification of principal items of the assets (to be transferred by PAL to KMCPL) including plant and machinery situated at Kalyan or any other locations (Kurla, Pune or other locations) with a view to carry out a broad verification of such items."

The learned Departmental Representative submitted that the MOU clearly indicates that it was not a slump sale because the transfer was not only of part of Kalyan unit but also some machines from the other places i.e., from Pune, Kurla and both the parties were to undertake a verification process which, in turn, means valuation of each asset to arrive at the sale consideration and this cannot be done without obtaining detailed report by both the parties on the value of each asset. He also adverted our attention to internal p. 5 of the supplementary MOU to submit that in order to obtain bank loan the assessee has to give detailed report on the value of each asset without which no bank will lend money whereas the assessee has not furnished any material in this regard. Thus, he contends that the AO had no other alternative but to rely upon the value of each asset as recorded in the transferee's books. Regarding the bank finance he has also referred to pp. 9 and 10 of the supplementary MOU to impress upon us that before lending amount the bank has to be satisfied that the sale value is reasonable which in turn requires verification of the value of each independent asset. He also referred to pp. 41 and 42 of the paper book (1) filed by the assessee i.e., joint venture agreement to submit that the assessee has only sold some assets and, therefore, it cannot be treated as slump sale. In particular he referred to Clause (F) of the agreement which reads as under :

"(F) As set forth in the MOU, PAL and AP agreed that subject to the terms and conditions of the slump sale agreement, PAL would sell to KMGL some of its assets including inter aha plant and machinery situated at Kalyan or any other locations; such assets hereinafter referred to as Kalyan Business."

He also referred to Clause (G) which speaks of the consent of ICICI and also other institutions for sale which impliedly requires valuation of the assets for obtaining such consent. He also adverted out attention to the following paras from Article V of the joint venture agreement (internal p. 21 of p. 59 of the paper book (1) filed by the assessee) to submit that "due diligence" means valuation of assets and in Schedule III the assessee did not put the value of each asset in the columns provided therein. Relevant paras of this agreement reads as under :

"The due diligence exercise of KMCL shall have been carried out by AP in a satisfactory manner i.e., AP shall be satisfied that all conditions determined the slump sale agreement in relation to the sale of Kalyan business have been fulfilled and furthermore that the Kalyan business is free from all encumbrances, liens, claims and debts created by PAL pertaining to Kalyan business. The scope of the due diligence exercise to be thus conducted by AP is described in Schedule 'III'."

24. The learned Departmental Representative also referred to Clause (G) at p. 110 of the paper book (1) of the assessee to reiterate that the assessee sold its undertaking in bits and pieces and, hence, it cannot be considered as a sale of going concern. In other words, it does not have the character of a slump sale. He has also referred to pp. 112, 116 Clause 2A(i), Clause 2A(ii), p. 123 (Clause 2C), 125, Clause 3.4(d), 130 (Clause 3.7.5), 131, Clause 3.8(b) 140 (Cls. work in progress 3.22 and 3.23) and p. 144 (Clauses 4.3 to 4.6) in support of his contention that it was not a sale of a going concern and, therefore, it cannot be treated as a slump sale.

25. The learned Departmental Representative further submitted that irrespective of whether the assessee has valued individual assets or not, there is an element of valuation involved while fixing the total sale price because the assessee was aware of the value of each item. He contends that the fact that both the parties have to fix the price based on due diligence report and examination, indicates that the assessee was aware of the expected value. He contends that it is also possible that one party gives its valuation and that may be the basis for fixing the value. He has also submitted that the Indian and French Government are involved in this matter in which event is it possible for Government authorities to accept the price stated in the MOUs without the aid of valuation ? He thus submitted that the assessee has taken valuation of each asset but the information was not furnished to the AO so as to claim tax benefit by treating the sale as slump sale. He adverted out attention to pp. 19, 65, 111, 112, 118 of paper book (I) of the assessee and in particular the definitions given in the slump sale agreement, to submit that the assessee had definitely ascertained the value of each asset. The definition of "statement of acquired net asset" as given in the slump sale agreement is as under :

'"Statement of acquired net assets' : shall mean and contain the particulars of acquired net assets together with the relevant values".

In particular, he adverted out attention to pp. 111 and 118 of the paper book (I) of the assessee to submit that the assessee has certainly obtained valuation of immovable assets because the term "acquired net assets" means the "acquired immovable assets" as described in Schedule 2.A and acquired movable assets as listed and described in Schedule 2.B and the acquired current assets and acquired current liabilities as categorized in Schedule 2.C and acquired intellectual property, and as per definition of 'statement of acquired net assets' the relevant values of each asset would have been ascertained by the assessee. The learned counsel referred to p. 41 of the assessment order to submit that the AO has given questionnaire and called for several details but the assessee did not provide the required details. The learned Departmental Representative filed two sets of paper book which are the paper book-I and paper book-II (hereinafter called and referred to as DEPB(I) and DEPB(II). He referred to pp. 1, 2, 10, 12, 13 and 14 of DEPB-n and submitted that the entire unit was not sold as a going concern. Para 10 of the letter addressed by the authorised representative dt. 9th Dec., 1997, (p. 2 of DEPB-n) is extracted for immediate reference :

"After the transfer, some portions of land, plant and machinery, dies and jigs are remaining with our clients. The details and the book value of the assets are enclosed herewith."

The learned Departmental Representative highlights that some portion of the plant and machinery, etc., still remains with the assessee and thus it was not a slump sale of a going concern. The term 'slump sale' implies sale of going concern 'lock, stock and barrel' and the sale should be on "as is and where is basis", whereas the assessee sold in bits and pieces.

26. The learned Departmental Representative also referred to pp. 17 to 60 of DEPB(n) to submit that the assessee claims that valuation of each asset has not taken place whereas the transferee has claimed depreciation on each asset. In support of the observations of the tax authorities that the transaction was not at arms length, the learned Departmental Representative adverted our attention to pp. 5 and 11 of PB(I) of assessee which shows that PAL is fully involved in the day-to-day management of KMPCL which is an entity created by the assessee and AP. He also referred to p. 21 of the paper book to highlight that the expenses in relation to incorporation of KMPCL were initially borne by the assessee. Pages 45,46,52,53, 67 and 70 of PB(I) of the assessee also show that KMPCL, which is now known as Pal-Peugeot Ltd. was under an obligation to keep to the assessee informed regularly about the progress and the directors of the assessee-company would also take part in the management of the joint venture which is now known as Pal-Peugeot Ltd. Therefore, the transaction was not at arms length and the assessee was aware of the value of each asset before the sale but for the purpose of saving tax the same was shown as a slump sale. He also submitted that though the assessee sold the assets, depreciation, was claimed in its hands though the transferee-company also claimed depreciation and the intention of the assessee was to avoid payment of tax which is quite apparent from a combined reading of the MOUs and other agreements. He placed reliance upon the following decisions :

(i) Artex Mfg. Co. 's case (supra)

(ii) Electric Control Gear Mfg. Co. 's case (supra)

(iii) Southern Roadways Ltd v. CIT (1999) 235 ITR 21 (Mad).

He also submitted that there is difference in the language used in Section 41(2) and Section 50 of the IT Act.

27. At this stage Mr. Kapila, the learned CIT, Departmental Representative sought our permission to elaborate the contentions urged by the learned Departmental Representative Mr. Tralshawala, He submitted that Section 41(2) of the Act created a legal fiction and such fiction cannot be extended beyond the intended purpose and thus judgment of various Courts interpreting Section 41(2) cannot be extended and applied while interpreting the scope and extent of Section 45 of the IT Act. In this regard he relied upon the decision of Hon'ble Bombay High Court in the case of Akola Electric Supply Co. (P) Ltd. v. CIT (1978) 113 ITR 265 (Bom). Section 41(2) deals with individual assets only and not with the block assets. It refers to only sale/demolition, etc. but the term 'transfer' is not included therein. The word 'transfer' is a wider generic term and has to be interpreted accordingly. Even if specific price of each asset is not mentioned, reasonable attribution has to be made to assess the capital gains under Section 45 of the Act. Section 50 of the IT Act, refers to the computation of capital gains in the case of depreciable assets which form part of block of assets and this section does not speak of transfer/sale whereas Section 45 r/w Section 48 uses the expression 'transfer'. Since, it was not a slump sale Section 50(2) was not invoked. He relied upon the following decisions in support of his contention that in the given circumstances reasonable bifurcation of the cost of each asset is permissible :

(i) Killick Nixon & Co. v. CIT (1963) 49 ITR 244 (Bom)

(ii) Killick Nixon & Co. v. CIT (1967) 66 ITR 714 (SC)

(iii) Narkeshan Prakashan Ltd.'s case (supra)

(iv) CIT v. Vimal Chand Golecha (1993) 201 ITR 442 (Raj)

(v) CIT v. Dr. D.L. Ramchandra (1999) 236 ITR 51 (Mad)

(vi) CIT v. V. Prakashan (1995) 211 ITR 119 (Ker)

(vii) Dasaprakash Bottling Co. v. CIT (1986) 159 ITR . 690 (Mad)

(viii) CIT v. Kar Valves Ltd. (1992) 197 ITR 95 (Ker) He further submitted that Section 50B inserted by Finance Act, 1999 deals with slump sale but it is not applicable retrospectively because a highly artificial definition of slump sale was given therein for a set purpose. He also referred to the Maxwell's Interpretation of Statutes, 1976 Edn., p. 69.

28. Mr. Tralshawala, learned Senior Departmental Representative submitted that the case law cited by the learned counsel before the tax authorities were distinguishable. For example, in the case of Mugneeram Bangur & Co. (supra), the Hon'ble Court was concerned with the transfer that took place on 7th July, 1948, whereas the relevant section in 1922 Act has undergone a change after 1949. Capital gains provisions were introduced in 1956 and thus the observations in the said judgment have no application for the purpose of interpreting applicability of Section 45 of the IT Act, 1961. He has also referred to the following decisions to explain that the facts of the assessee's case clearly show that each asset was separately valued and sold as such and, hence, the sale proceeds attract tax :

(i) Anand Electric Co. Ltd. v. CIT (1999) 237 ITR 587 (Bom)

(ii) Syndicate Bank Ltd. v. Addl. CIT (1985) 155 ITR 681 (Kar)

(iii) Nagpur Electric Light & Power Co. Ltd. v. CIT (1988) 171 ITR 33 (Bom.)

(iv) CIT v. F.X. Periera & Sons (Travencore) (P) Ltd. (1990) 184 ITR 461 (Ker)

(v) T.S. Hegde & Sons v. ITO (1996) 54 TTJ (Bang) 349 : (1995) 54 ITD 409 (Bang)

(vi) ITO v. Smt R. Shyamala (1996) 59 ITD 383 (Mad) Another Senior Departmental Representative Mr. Srinivasulu referred to paras 109 and 110 at pp. 64 and 65 of the CIT(A)'s order to submit that the items of Rs. 60.46 crores and Rs. 32.01 crores were not shown by the assessee as falling in any of the schedules. He thus contended that the assets valued at Rs. 32 crores were not transferred at all because it was with reference to the technical fees and miscellaneous expenses. In this regard he also referred to p. 72 of DEPB(n). He submitted that the assessee merely made a provision for contingent liability. Similarly, certain expenditures such as indiginisation expenses, new car expenses, etc., were nothing to do with the acquisition of Kalyan assets and a sum of Rs. 8.03 crores, referable to advance for capital expenditure, was already included in the work in progress. Fiat license and technical know-how Rs. 1.40 crores was not at all taken over by the joint venture and thus the assets valued at Rs. 32.01 crores were not at all assets in the real sense. It was thus, contended that the tax authorities were justified in rejecting the claim of the assessee that it is slump sale and were also justified in taking cost of each asset as per the books of transferee. The Departmental Representatives thus, strongly supported the orders of the tax authorities.

29. Joining the issue, the learned counsel submitted that the Departmental Representatives have introduced an altogether new case. He submitted that the contention of the learned Departmental Representatives that the assessee did not give required information, is factually incorrect because the officer did not point out specifically as to which information was not furnished. He also submitted that the AO has proceeded with a prejudiced mind and observed that the assessee gave a wrong copy to him (p. 46 para 11.13 of AO). He then adverted our attention to p. 34 para 66 of the order of CIT(A) to show that the various schedules in original were furnished before the CIT(A) and in the presence of the AO the documents were verified and it was found that the column for value was left blank even in the original schedules. He further submitted that till date the tax authorities could not lay their hands on any valuation report which was supposed to be the basis for entering into the sale agreement and thus, the disallowance of the assessee's claim was merely based on surmises and suspicion. He also referred to p. 1 of DEPB(I) to highlight that the assets were valued by the transferee in September, 1996 whereas the MOU was entered into in the year 1993. He sought to explain the reasons for the transferee-company (JV), for obtaining the valuation report. He submitted that the valuation was done only for the purpose of claiming depreciation. The case of the learned Departmental Representatives was that the negotiations took place over a period of two years whereas the fact remains that the negotiations for fixing the price did not take any time. Only to take permission from Government of India for selling the assessee's unit to a nonresident, it took some time. He also submitted that the learned Departmental Representatives equated the sale to a scrap sale or a sale of old newspapers but the fact of the matter is that it was a genuine slump sale, but in order to satisfy the purchaser, one or two items, which the other party felt necessary, were added or deleted but such an act does not change the character of slump sale. He also submitted that the joint venture company agreement is a different exercise but the assessee does not have complete control over the joint venture company and the transactions are at arms length because the foreign enterprise is also involved in the joint venture company. With regard to the contention of the learned Departmental Representatives that the sale of Kalyan unit involves crores of rupees and also the approval and satisfaction of the foreign company and the assessee-company apart for the respective Governments and, therefore, valuation of each property is a must, the learned counsel submitted that the argument of the learned Departmental Representative was based on mere hypothesis ignoring the fact that the AP took into consideration the capacity of Kalyan plant to manufacture 60,000 cars per year and other attendant benefits such as 5,000 trained workers, regular suppliers, intellectual property, etc. and thus such deals are based on several commercial consideration and not on some valuation of individual assets. The contention of the learned Departmental Representative is that the banks such as ICICI, etc. would have certainly asked for the valuation reports before clearance, but the fact remains that nobody ever asked to furnish the value of each machine. The learned counsel further submitted that the joint venture was interested in obtaining loans and it is the botheration of joint venture to value the properties for obtaining such loans. Thus, there was no compulsion on the part of assessee to value the properties before sale. Regarding the interpretation of the term "due diligence exercise", the contention of the Departmental Representative was that it includes valuation of each asset, whereas the learned counsel submits that this is an academic, fictional and theoretical question, The tax authorities have not made out a case that the assessee connived with AP. The learned counsel adverted our attention to p. 74 of DEPB(n) to submit that no value was mentioned in any of the documents and thus it has proved enough to show that no value was attached to individual assets by either party and in the absence of any proof to the contrary the tax authorities were not justified in assuming that the assessee was aware of the values of each asset though it was not mentioned in any of the documents. He further submitted that the assessee carried on different activities in Kalyan out of which only the Kalyan plant was sold. There was a 12 ft. high boundary wall around the Kalyan plant and all that which are placed inside the boundary wall was sold by the assessee and thus it was not a sale in bits and pieces. Regarding the rest of the land in Kalyan, the learned counsel submitted that there were many conditions imposed by the Government for the use of the excess land and, therefore, the same was not sold. At any rate, that was not part of Kalyan plant. He also submitted that the AO has not shown any assets which were not sold by Kalyan unit. The learned counsel submitted that Section 41(2) did not exist when the assets were sold and the assessee's case has to be appreciated on the strength of peculiar facts in which the assessee sold its unit. Regarding the applicability of the decision in Artex Mfg. Co.'s case (supra), the learned counsel submitted that it was a case where the assessee knew market value of each asset before the sale whereas in the instant case the assessee was not aware of the market value of each asset at least till 1994. He relied upon the decision of Supreme Court in Electric Control Gear Mfg. Co. Similarly, the decision of Hon'ble Madras High Court in Sourthern Roadways Ltd.'s case (supra) supports the case of the assessee. The AO would be justified in going behind the documents provided there is some evidence, whereas in the case of the assessee there was no such evidence to show that the assessee was aware of the value of each asset. In the case Killick Nixon & Co. (supra) slump sale also was not the issue. In the case of Killick Nixon & Co. (supra) the assessee therein has not raised the plea that it sold running business and hence it has no relevance to the assessee's case. The case in Narkeshan Prakashan Ltd, (supra) is in favour of the assessee and not Revenue. In the case in Dasaprakash Bottling Co. (supra) the issue of slump sale was not argued and the decision in the case of Mugneeram Bangui & Co. (supra) was not brought to the notice of Court. He also submitted that all other cases cited by the learned Departmental Representatives are either distinguishable on facts or in favour of the assessee. He finally referred to the joint venture agreement to submit that the agreement was for sale of the entire Kalyan business. He also submitted that in September, 1995, the land and building was valued for the limited purpose of payment of stamp duty but for the purpose of appreciation as to whether it was a slump sale or not, one has to see whether value of each item was taken into consideration at the time of fixing the sale price or not. When Pal-Peugeot filed its return it was clarified that the value of each asset was not fixed at the time of sale, but only for the purpose of apportionment and for claiming depreciation valuation was got done. He referred to p. 39 of DEPB(II). He thus reiterated that the tax authorities have proceeded on surmises and suspicion without bringing any material on record to justify their conclusion.

30. We have carefully considered the rival submissions and perused the record. Several case law were cited before us. Before we appreciate the contentions of the parties, it may be necessary to briefly set out the facts and the principles laid down in the decided cases relied upon by both the parties.

31. In the case of Mugneeram Bangui & Co. (supra), the assessee which was carrying on the business of land development had transferred the assets of the firm to a company in which the partners of the assessee-firm would be allotted shares. This agreement is dt. 7th July, 1948. In the schedule the cost of each item was mentioned. The issue raised by the AO was that a sum of Rs. 2,50,000 charged by the vendors towards the goodwill is in fact the profit on sale of land and hence profit of trade. The Hon'ble Supreme Court held at p. 305 of the report as under :

"There is no evidence that any attempt was made to evaluate the land on the date of sale. As the vendors were transferring the concern to a company, constituted by the vendors themselves, no efforts would ordinarily have been made to evaluate the land as on the date of sale. What was put in the schedule was the cost price, as it stood in the books of the vendors. Even if the sum of Rs. 2,50,000 attributed to goodwill is added to the cost of land, it is nobody's case that this represented the market value of the land."

It may be noted that the issue as to whether the sale of capital asset is assessable to tax under the head 'capital gain' was not the subject-matter of consideration before the Hon'ble Supreme Court. It may also be noted that the vendors are not different from the purchasers because the partners of the vendor firm were the shareholders of the company, which purchased the business. Under these circumstances, the Hon'ble Supreme Court observed that the vendors might not have valued the land at the time of sale.

32. In the case of Narkeshari Prakashan Ltd. (supra), Nagpur Bench of Hon'ble Bombay High Court was concerned with the case of sale of one branch. The assessee, a publishing house had two branches at different places out of which one branch was sold 'lock, stock and barrel'. The Court observed that even if an inventory was made and value was indicated against each item, the overwhelming character of the transaction was not changed and what was sold was the entire branch business as a whole and thus, the provisions of Section 41(2) are not attracted. The learned Departmental Representative drew our attention to p. 440 of the report to submit that the aforesaid decision supports their stand inasmuch as in a case where the business is sold as a going concern, the excess may not be a business profit but will be a capital gain chargeable to tax. He also submitted that in the said case there is sufficient evidence to show that the branch was sold as a whole, whereas in the case of assessee before us it cannot be said to be a sale of a going concern.

33. In the case of Syndicate Bank Ltd. (supra) the facts are that the assessee was carrying on banking business which was nationalized in the year 1970 and the entire banking business of the assessee was taken over by the Government. It was contended before the AO that the compensation amount received was not assessable to tax because it was a lump sum compensation for the transfer of the business undertaking as a whole and it is not possible to split it up and apportion the same to a particular asset taken over by the Government. Considering the facts and circumstances of the case, the Hon'ble High Court observed that it is not possible to apportion the lump sum compensation on item-wise basis and the Banking Companies (Acquisition and Transfer of Undertaking) Act, 1970 also does not give any indication to that effect. Therefore, it was held that the undertaking was transferred as a going concern in which event no part of the slump price is attributable to the cost of the land and hence, not assessable to capital gains tax. The learned Departmental Representative contends that in the case of Syndicate Bank Ltd. (supra) the banking business was taken over by the Government 'lock, stock and barrel' and has not indicated the price paid for each item but merely paid compensation for acquisition of business undertaking, whereas in the case before us it was not a sale of the whole undertaking and circumstances indicate that the cost of each asset was taken into consideration before fixing price.

34. In the case of Kar Valves Ltd. (supra) the facts in brief are that the assessee who was engaged in supplying electricity had sold its undertaking to Kerala State Electricity Board and received certain amount of compensation. It also received solatium. The Court observed that the business undertaking is a capital asset and gains on transfer of such capital asset is assessable to tax under the head 'capital gains'.

35. In the case of Artex Mfg. Co. (supra), the question before the Hon'ble Supreme Court was whether the surplus as a result of difference between the written down value and the sale consideration for the plant and machinery and dead stock transferred by the assessee is taxable under Section 41(2) of the IT Act, 1961. The facts in brief are that the assessee-firm was carrying on a business of manufacturing art silk cloth. The private limited company by name Artex Manufacturing Co. (P) Ltd. was formed with a view to take over the business of the assessee as a running concern. The partners of the firm were allotted shares towards consideration for the said sale. The case of the assessee was that the firm was converted into a private limited company and business of firm was taken over by company as a going concern and hence, there was no income chargeable to tax under Section 41(2) or under Section 45 of the Act. The AO took written down value of the plant and machinery, etc. as per the income-tax records and after deducting the same from the total consideration received by the firm, tax payable under Section 41(2) was computed. The first appellate authority however, held that the surplus was assessable under the head 'capital gains' and not under the head 'business'. The Hon'ble Supreme Court observed that in a case where it can be found that a particular price is attributable to a particular item then the excess amount would be chargeable to tax under Section 41(2) of the Act. Since, the assessee admitted before the AO that the plant and machinery and dead stock have been revalued at the time of agreement for sale, the same has to be taken into consideration for the purpose of Section 41(2) of the Act, even though in the sale agreement the assessee has not mentioned the value of the plant and machinery and dead stock separately. Since the income was held to be chargeable to tax under Section 41(2), the same is not assessable to tax under Section 45. The Hon'ble Court observed that under Section 41(2) the amount of surplus to the extent of difference between the written down value and the actual cost has to be considered and if surplus exceeds difference between the written down value and the actual cost, the same has to be treated as a capital gain for the purpose of taxation.

36. In the case of Electric Control Gear Mfg. Co. (supra), the assessee-firm transferred the entire assets of business together with liability as going concern to a Limited Company, for a consideration of Rs. .....lakhs. The partners of the assessee-firm were allotted the shares of the same value in the profit-sharing proportion. The AO sought to invoke Section 41(2) of the Act in addition to Section 45 of the Act. The assessee challenged the liability to tax under Section 41(2) as well as Section 45. The following questions were referred for the consideration of the Hon'ble Supreme Court :

Question No. 2 : Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the provisions of Section 41(2) were applicable;

Question No. 4 ; Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the status of the assessee was a registered firm and not that of an AOP;

Question No 8 : Whether, the Tribunal was right in holding that the assessee was not entitled to any relief on the basis of the two circulars relied on by it;

The Hon'ble Court observed that there is nothing to indicate the price attributable to the assets like the machinery, plant and building out of the consideration amount of Rs. 8 lakhs. It was further observed that merely because a sum of Rs. 3,32,863 has been allowed as depreciation to the assessee-firm, it cannot be said, that was the excess amount between the price and the written down value. It may be noted that the issue as to whether the amount is assessable to tax under Section 45 of the Act or not, was not the subject-matter of consideration by the Hon'ble Supreme Court and thus it has no application to the facts of the case.

37. In the case of Anand Electric Co. Ltd. (supra), the Hon'ble Bombay High Court held that the taking over of the undertaking did not constitute a slump sale, but only a sale of the individual assets of the undertaking, for the purpose of Section 41(2) of the Act. In this regard, the Court applied the decision of the case of Artex Mfg. Co. (supra).

38. In the case of Southern Roadways Ltd. (supra) the facts are that the transport division of the assessee-company was taken over by the State Government by way of compulsory acquisition and compensation was determined for each and every (item). The case of the assessee was that it was a sale of whole undertaking and hence no profit arises on slump sale. The Hon'ble High Court rejected the contention of the assessee on the ground that the Government of Tamil Nadu might have taken into consideration the compensation payable for each and every item of the asset taken over and hence they are assessable to tax under Section 41(2) or under Section 45 of the Act. The Hon'ble Court has discussed the entire gamut of case law on this issue and at p. 29 of the report their Lordships observed as under :

"The test laid down by the Supreme Court is that even when there is a slump sale and the sale is of the business as a going concern, what has to be seen is whether any portion of the slump price is attributable to the assets transferred and if, on the basis of the facts, it can be found that a particular price is attributable to a particular item, the excess amount is chargeable to tax under Section 41(2) of the Act. It is in the light of the test laid down by the Supreme Court that the factual situation of this case has to be considered and, therefore, it is not necessary to consider in detail all case laws cited by both the parties, as the test is a common test and only on the application of the said test, there is a divergent view on the topic."

By applying the said test the Hon'ble Court observed that on the facts of the case, the compensation received by the assessee can be attributable to the various assets taken over by the Government of Tamil Nadu and it is also possible to attribute the compensation to the particular items of assets taken over by the Government. Thus it was held that ss, 41(2) and 45 of the Act are applicable.

39. Various other decisions cited by both the parties conform to the same test i.e., even in the case of a slump sale, if the price of each asset is ascertainable, the assessee would be liable to pay tax on the profit earned on the said sale. As rightly observed by the Hon'ble Madras High Court, there is no difference of opinion on the principle laid down by the Hon'ble Supreme Court but while applying the said principle divergent views were expressed while analyzing the facts of each case. Based on the said legal position, we have to analyze the facts of the instant case in order to see as to whether the assessee has transferred the whole undertaking and whether it amounts to a slump sale. It also needs to be examined as to whether the price of each asset can be ascertained or not.

40. In our considered view the price of each asset can be ascertained and it cannot be said that it is a sale of whole undertaking for a slump price. In the cases cited by both the parties it is seen that the sale was of the whole undertaking of an assessee which practically puts an end to the business carried on by that assessee or it was sale of a branch which was maintained independently all through. In the case before us, however, the facts are different. The assessee had three units. While entering into joint venture agreement with AP, the assessee sold not only the business within the walled area of Kalyan but also one or two machines which were used by the other units. The excess land available at Kalyan was retained with the assessee. Clause. 3.16 in the slump sale agreement, Clause n. 2 of the MOU, para 2(a)(ii) of supplementary MOU, para 10 of the letter dt. 9th Dec., 1997, addressed to the AO and other material clearly show that it was not a sale of a unit as a whole.

41. There is sufficient indication to the effect that price of each asset was taken into account at the time of sale. In an application made by the assessee under Section 230A of the Act, the assessee mentioned specific value for the land and the building in April, 1996, whereas the transferee has valued the properties only in September, 1996. Thus, it can be seen that even prior to the valuation of properties by the transferee the assessee was aware of the sale price of the land and building. While dealing with the Government Department the assessee is expected to give true and correct statement and the statement given in a public proceeding has to be taken as true and correct unless proved otherwise. In application under Section 230A col. No. 15 of the proforma contains two columns. The first column speaks of the value of the consideration for which the property is purported to be transferred and col. No. 2 speaks of the valuation for the purpose of stamp duty if the transfer is made without consideration. The assessee chooses to write consideration against col. No. 1 which indicates that the assessee knew the sale value of land and building. Above all, there is evidence in the form of registered sale deed dt. 27th May, 1996, which recorded that transfer of land and building was for a consideration of Rs. 43.44 crores. If it was a real slump sale for which no specific consideration was received by the assessee with regard to land and building, it would have been stated clearly before registering authority and IT authority.

42. It may also be noticed that in most of the cases cited by both the parties, it was either compulsory acquisition by the Government or a case "where all the properties were transferred by converting the partnership firm into a company and so on. Under such situations the Courts have held that the firm or any other such entity had no necessity to value the properties before transferring them to another entity. However, in the instant case, the assessee entered into a joint venture agreement with a foreign company and it was agreed that the assets and liabilities of Kalyan business and also certain machinery from other units would be transferred to the newly formed joint venture company i.e., Pal Peugeot. Thus, the assessee-company does not have complete enjoyment of the assets transferred by it to the new company and thus it cannot be assumed that the assessee-company would have no interest to ascertain the cost of each asset at the time of sale. On the contrary, it has to be assumed that the assessee-company would have independently made efforts to value the assets and liabilities of Kalyan business and the other assets available at other units before settling for the price mentioned in the joint venture agreement.

43. It should also be born in mind that in the case of a mega deal involving crores of rupees, no party would be willing to make an ad hoc estimate of the price which may deprive either party in terms of few crores. It should also be born in mind that in the case of a sale of this nature, meticulous paper work would have been undertaken with the help of experts and it cannot be said that such specialist would include a value column in the final agreement without there being any need for it. In the instant case, it was specifically mentioned in the agreement that 'due diligence report' would be carried out. According to the learned counsel the term 'due diligence' means the verification of the existence of the assets and not the value. We are unable to appreciate the same. If there was no need to value the cost of each asset, the parties would not have retained the column in Schedules 2A, 2B and 2C with regard to the value of each asset. Should it be assumed that the team of experts from both the sides have ignored the basic fact that it was a slump sale and, therefore, the column with regard to the value of each asset is retained though the assets were not actually valued? Upon careful consideration of the matter, we are unable to subscribe to this view. The fact that the column for the value of assets is retained in the schedule leads us to the conclusion that the assesses has taken into consideration the cost of each asset before the sale.

44. Under these circumstances, the tax authorities were justified in coming to the conclusion that it was not a case of slump sale and the price of each asset could be ascertained from the facts on record. Consequently, the AO has committed no error in taking into consideration the cost of each asset as recorded in the books of transferee.

45. The main plank of the contention of the assessee is that there is no evidence to show that the assessee has valued each asset before settling for the price of Rs. 210 crores. It was also contended that original schedules were verified by the CIT(A) in the presence of the AO which clearly shows that the column for value was left blank even in the original schedules annexed to the slump sale agreement. In our considered view the parties to the agreement would not have allowed a column to be retained if it is of no consequence to the deal. Therefore, the tax authorities were correct in assuming that the value of assets were not mentioned deliberately in the slump sale agreement in order to evade tax, particularly in the light of the fact that the assessee has not given a justifiable reason as to why the sale value of land and building was mentioned in the Section 230A application and sale deed instead of stating therein that it was a slump sale and hence no cost can be attributable to the sale of the land and building.

46. This leads us to the next issue as to whether bifurcation of the sale price is in accordance with law? As regards the amount of Rs. 20,49,56,346 the learned CIT(A) has set aside the issue to the file of the AO and, therefore, the learned counsel has not pressed the issue. Accordingly, the inclusion of Rs. 20.49 crores is not taken up for consideration.

47. Regarding Rs. 91,28,51,794 the case of the learned counsel is that these are assets such as technical know-how and capital work in progress. As can be seen from the p. 59 of the assessment order, the inclusion of aforementioned sum is referable to the short-term capital gains as under:

   

Rs.

(i) On sale of building as per para 11.26 19,31,67,078

(ii) On sale of plant and machinery as per para 11.28 64,39,50,057

(iii) On sale of paint shop as per para 11.29 7,57,34,659     91,28,51,794 The AO observed that the assets transferred include building situated at Kalyan and also plant and machinery. The assessee claimed depreciation which was allowed in the earlier years and they were considered for depreciation as a block of assets. under Section 50 any amount received on account of transfer of an asset goes to reduce the block and in case there has been addition, the block is increased. In this case sale price of the building was taken at Rs. 23.24 cores. Accordingly, the short-term capital gains on the sale of building was worked out. In para 11.28, the AO has given the reasons for arriving at the profit on account of the sale of plant and machinery at Rs. 64.39 crores and at para 11.29, the issue regarding profit on the sale of paint shop was considered. This issue was considered by the learned CIT(A) in para 110 of his order. The learned counsel has not given any specific explanation as to why it should not be included as short-term capital gains. We, therefore, reject the contention of the assessee. Under these circumstances, we affirm the order of the CIT(A).

48. With regard to the inclusion of Rs. 1.84 crores as business income, the AO has discussed the issue in para 11.30. The slump sale agreement dt. 6th Jan., 1995, states the price to be paid by the transferee-company to the assessee-company as a consideration, which includes an amount to be determined after execution date corresponding to the value as of sale date of the acquired current assets and acquired current liabilities. The AO, therefore, concluded that the price for the sale was to be determined as per the report of the auditois. The value of the net current assets was claimed to be Rs. 36 crores as per the assessee whereas net price of the current assets has been shown by the transferee-company at Rs. 37.84 crores. The AO, therefore, included the difference of Rs. 1.84 crores in the absence of proper explanation by the assessee. The learned CIT(A) set aside the issue for proper examination, vide para 111 of his order. Upon careful consideration of the submissions we find no infirmity in the order of CIT(A).

49. Vide ground No. 5, the assessee contends that the tax authorities erred in allowing depreciation of Rs. 7,56,263 only in place of the correctly allowable depreciation of Rs. 9,99,66,820.

50. This issue was discussed in para 11.27 of the order of the AO, which reads as under :

"Furniture--Sale price of the furniture as taken by the transferee is Rs. 40,38,095, on which it has claimed depreciation. The opening written down value of all the furniture as on 1st April, 1994 is Rs. 1,13,40,896 and there has been further addition of Rs. 2,59,831. Thus, the total comes to Rs. 1,16,00,727. The sale price being lesser i.e., Rs. 40,38,095, there remains balance of Rs. 75,62,632 on which depreciation at 10 per cent is allowed, which comes to Rs. 7,56,263, penalty proceedings under Section 271(1)(c) is initiated"

The learned CIT(A) has dealt with this issue in para 112 of his order. In view of our finding that the sale of assets cannot be treated as slump sale, we do not find any infirmity in the order of the CIT(A) with regard to the allowability of depreciation to the extent of Rs. 7,56,263.

51. In the result, the appeal filed by the assessee is partly allowed.

Jaidev, A.M.

1. I have gone through the proposed order of my learned Brother Shri D. Manmohan, JM. But I am unable to persuade myself to agree with the findings recorded by him on the main ground of appeal of the assessee inspite of the discussion held with him. The main ground of appeal, which is covered by assessee's grounds of appeal Nos. 3, 4 and 5, is whether running business of manufacturing 118 NE cars at Kalyan sold by assessee along with other assets of Kalyan business for a sale consideration of Rs. 210 crores to M/s Peugeot of France was a slump sale and hence surplus or profit was not assessable to tax. My learned Brother is of the view that it is not a slump sale and hence surplus is assessable to tax. However, I hold the contrary view.

2. So far as the facts involved in the appeal are concerned, my esteemed Brother has given out the facts in a very apt manner and in detail and also given out the submission of learned counsel for the assessee as well as of learned Departmental Representatives in detail and it will be mere repetition to give out those facts as well as respective submissions of learned representatives of parties. It will be in the fitness of things if I start with recording my findings on issue involved as that will be saving time as well as the space.

3. In my considered view the price of each asset cannot be ascertained and it can be said that it is a sale of a whole undertaking for a slump price. The business of the assessee-company's activity of manufacturing 118 NE cars -came to an end. Out of the three units the assessee-company was running before- this sale, the assessee-company was left with only two units as everything connected with the third unit was transferred for a fixed price and every facility connected with the manufacturing of 118 NE cars was transferred to another entity for a slump price.

4. The price of the undertaking's fixed-assets was fixed at Rs. 210 crores in March, 1993 when the first MOU was entered into between the assessee-

company and M/s Peugeot of France, Any evidence of the valuation of individual asset known to the assessee is relevant only if the valuation is prior to March, 1993. There is no such evidence on record. The subsequent valuation for land and building involved in the sale got done in September, 1995 was only for the purpose of stamp duty. The next valuation got gone by the transferee in September, 1996, was for the purpose of apportioning Rs. 210 crores amongst the various fixed assets purchased by the transferee-company. Even in the application under Section 230A of the IT Act, the assessee-company made it very clear that it had transferred land and building as part of the slump sale but had got the land and building valued only for the purpose of stamp duty. There are hundreds of documents connected with the due diligence report wherein the 'value' column is blank. The AO had tried to make a case that the assessee was deliberately not producing the original due diligence report cards. The assessee had produced the original due diligence report cards before the CIT(A) and before us.

5. The 'value' column in all such due diligence cards is blank. There is no evidence, not even a stand by the Revenue that M/s Peugeot of France connived with the assessee to show the sale as slump sale whereas in fact, it was not, a slump sale. I also feel that such big multinational companies would not connive to hide the correct state of affairs.

6. The learned Departmental Representatives had argued very strongly that the said sale was not a slump sale because of the following factors :

The assessee-company did not sell all pieces of land owned by it in Kalyan. The price of each asset can be ascertained by taking recourse to the valuation done in September, 1996 by the transferee-company. The assessee-company had sold one or two machines not owned by 118 NE division of the assessee-company and also did not sell one or two machines owned by the assessee's 118 NE manufacturing facility. The assessee-company after the sale continued to have right of use of intellectual property. The transferee-company carried on industrial due diligence of every asset purchased by it. That due diligence report had a column for 'value', This column for Value' would not have been there if the deal was a slump sale. The assessee-company filed application under Section 230A in April, 1966 where it mentioned the value of land and building at Rs. 43,44,59,500.

7. All the above points, in my opinion, do not affect the true nature of the transaction. The assesses sold all the pieces of land that were being used for its manufacturing facility at Kalyan. Other pieces were not connected with the business. The price of each asset is not ascertainable on any document. The assessee agreed for a slump sale vide a MOU signed on 11th March, 1993. Subsequently to get a valuation for the land and building in September, 1995, i.e., after a period of two and half years, does not in any way show that the assessee knew of the valuation in March, 1993. Similarly, the valuation got done by the transferee-company in September, 1996 for apportioning the slump price in various fixed assets in its books of account cannot by any stretch of imagination imply that the assessee knew of these figures in March, 1993. The non-selling of one or two machines does not, in my view, affect the true nature of the transaction. The forms used for due diligence reports by the officers of the transferee-company are standard forms. The fact that in hundreds of such forms the value column is blank goes to prove that no value was attached to each asset. Even the application made by the assessee in April, 1996, under Section 230A was accompanied by a covering letter dt. 24th April, 1996, wherein the assessee's authorised representative clearly stated that "Our clients have sold their Kalyan business as a going concern at slump price. The value of land mentioned in the conveyance deed is only for the purpose of stamp duty." I am of the considered view that the true nature of the transaction is that of a slump sale. There are some aberrations. But these petty aberrations do not, in my opinion, affect the true nature of the transaction. My above view is fully supported by the decision of the apex Court in case of Electric Control Gear Mfg. Co. (supra).

8. I have, therefore, no hesitation in holding that the assessee-company sold its 118 NE manufacturing facility at Kalyan for slump price of Rs. 210 crores.

9. As I have held that it was a case of slump sale, the amount of Rs. 210 crores cannot be bifurcated. Therefore, the additions made by the AO and either confirmed or set aside by the CIT(A) on account of this slump sale are deleted.

10. The issue of depreciation does create a difficult situation. Some of the assets owned by the assessee-company have been sold but the price at which these have been sold is not ascertainable. Yet the assessee cannot continue to get the benefit of the depreciation on assets which are no longer owned by it. I am, therefore, of the considered view that for the purposes of calculation of depreciation allowable to the assessee, the amount of Rs. 210 crores is to be split as per transferee-company allocation. The splitting is only for the purposes of calculating the allowable depreciation.

11. In the result, the appeal of the assessee is partly allowed.

REFERENCE UNDER SECTION 255(4) OP THE IT ACT, 1961 We, having differed on the points in the above appeal filed by the assessee, refer the following points of difference to the President under Section 255(4) of the IT Act, 1961 :

Question No. 1 : Whether the sale of assets, termed by the assessee as the sale of Kalyan business, is a slump sale ?

Question No. 2 : Whether the sale proceeds on the sale of assets to Kalyan Motor Co. Ltd. are assessable to tax as long-term capital gains, short-term capital gains and business income ?

J.P. Bengra, Vice President

1. There being a difference of opinion between the Members constituting the Division Bench, the Hon'ble President has referred, under Section 255(4) of the IT Act, 1961, the following points of difference to me as a Third Member to resolve the controversy;

"1. Whether the saLe of assets, termed by the assessee as the sale of Kalyan business, is a slump sale?

2. Whether the sale proceeds on the sale of assets to Kalyan Motor Co. Ltd. are assessable to tax as long-term capital gains, short-term capital gains and business income?"

2. It will be pertinent to note here that there is no difference of opinion between the learned JM and the learned AM so far as the facts narrated in the speaking order of the learned JM. The facts are that the assessee was having two manufacturing units at Mumbai and Pune and it had three business premises, i.e., Kurla (Mumbai); Kalyan (Dist. Thane) and Chinchwad (Pune). The case of the assessee is that the factory at Kalyan was sold to M/s Kalyan Motors Co. Ltd., now known as Pal Peugeot Ltd. (PPL for short), where 118 NE cars were being manufactured, for a slump sale price of Rs. 210 crores in respect of fixed assets and a price of Rs. 36.18 crores for the net current assets. Since separate consideration was not charged for different fixed assets, it was claimed to be a slump sale, Pal Peugeot (P) Ltd. was incorporated as per the certificate of incorporation of the Additional Registrar of Companies, NCT of Delhi & Haryana dt. 25th July, 1994. There is a second certificate of incorporation dt. 25th July, 1994, in which the word 'Private' has been deleted w.e.f. 22nd Aug., 1994. There is yet another certificate of incorporation dt, 26th Sept., 1995. The AO noted that the shareholders of the purchasing company, PPL, were as under:

1.

Jyotindra M. Vakil 24 equity shares

2. Maitreya V. Doshi 76 equity shares

3. The assessee-company claimed that the Kalyan business was sold as a slump sale and the surplus/profit earned on the sale of land, factory shed, plant, machinery, etc. is not assessable to tax. The AO was of the opinion that it was not a slump sale and accordingly he brought to tax the surplus arising out of the sale of assets. The AO has given detailed reasoning for coming to the conclusion that the sale was shown as a slump sale in order to evade payment of tax. The facts of the case and the reasoning given by the AO for rejecting the assessee's contention are noted in paras 10 and 11, pp. 22 to 55, of Ms order. The same is summarised as under:

(i) Some (main) shareholders of the assessee-company and purchaser company, i.e., PPL are common. PPL's articles of association shows that Shri Jyotindra M. Vakil and Shri Maitreya V. Doshi are shareholders as mentioned above and they are also directors of the assessee-company.

(ii) The assessee-company failed to give asset-wise break-up of consideration despite various opportunities given to it. Therefore, PPL was requested to submit the treatment given by it in its books of account to these particular transactions. The details show that the figure of total consideration is at variance with the figures given by the assessee in the assessment proceedings. The transferee-company has taken into account the entire price paid to the assessee by dividing it between" fixed assets and current assets on the basis of valuation report.

(iii) The contention of the authorised representative that no specific price had been charged for any particular asset is not correct, The sale of part of Kalyan unit had been a long drawn process over a number of years, which itself shows that the price had been fixed for every asset during the course of the above period. According to him, this fact gets further confirmed by the valuation report furnished by the purchaser in the month of September, 1996, wherein the ' price of each and every asset was separately mentioned giving complete and proper description.

(iv) The assessee did not produce the fixed asset register, Though the assessee-

company claims that the agreement is for transfer of land, factory building, plant, machinery, etc. at Kalyan and other locations, details of locations were not furnished

(v) The total consideration for the sale is mentioned at Rs. 24,613.97 lakhs, which is again incorrect as could be seen from p. 11 of the agreement dt. 6th Jan., 1995, relevant portion of which reads as under:

"2B1. The price to be paid by the company to PAL as consideration for the sale will be the aggregate of :

(a) an amount of Rs. 210,00,00,000 (Rupees two hundred ten crores) corresponding to the value of the acquired immovable assets and the acquired movable assets.

(b) an amount to be determined after the execution date corresponding to the value as of the sale date of the acquired current assets and acquired current liabilities i.e., of all elements corresponding to the categories listed in Schedule 2C. Such value shall be determined according to the procedure set out hereinafter."

The above clauses indicate that the assessee had undertaken the process of item-wise break-up of sale consideration of various assets.

(vi) The AO was of the view that the contention of the assessee that sale was of one of the two units of the assessee-company is incorrect. The sale was in fact, of portion of Kalyan business because out of the total land area of 18,19,769 sq. mts. coming under the Kalyan municipal corporation, only area comprising 7,43,449. sq. mts. had been transferred. He further mentioned that the case law relied upon by the assessee in the case of Mugneeram Bangur & Co. (supra) is distinguishable on facts, He further mentioned that in other cases it was a slump sale of a whole undertaking whereas in the instant case the assessee sold only one unit and that too was not sold in its entirety. In the decision cited above, only one price was charged whereas in the assessee's case movable and immovable properties were separately charged and current assets were charged separately. In the cases relied upon by the assessee, the Court found some difficulty in apportionment of sale consideration on the capital assets whereas in the instant case it is possible to apportion the price on each capital asset. It is a case of item-wise sale after proper valuation, but relevant documents were not made available to the AO for obvious reasons. The copy of sale agreement along with various annexures were called for and it is noticed that there is description of each item, including value column with make and year of purchase, The assessee had kept the value column blank. Since the assessee failed to produce documents in original, it is difficult to ascertain the real affairs in this matter.

(vii) For transfer of immovable property, assessee obtained tax clearance certificate under Section 230A of the Act. Col. 15 of the proforma for 230A application reads as under:

"(1) Full value of consideration for which the property or the right, title or the interest to or in the property is purported to be transferred; and (2) If the transfer is to be without consideration, the value for the purpose of stamp duty."

It is mentioned that the assessee kept col. No. 2 vacant and the value was put against col. No. 1, which indicates the sale price of immovable property. However, the contention of the assessee that the price was mentioned in that application only for the purpose of obtaining tax clearance certificate, shows that the intention of the assessee was far from honest and the assessee had been indulging in make believe stories at the various stages of the transaction. Though the assessee stated that the land and building had been valued by the transferee-company for the purpose of stamp duty, it was not found to be correct. Certificate under Section 230A of the Act was obtained under a letter dt. 14th June, 1996, whereas as per assessee's own admission, the transferee-company had got the valuation done in September, 1996, which proves that there existed a complete valuation report of all the assets even before September, 1996, but the same was not furnished to the Department to avoid correct taxation.

(viii) Assessee failed to submit complete and proper details and, therefore, the issue needs to be decided on the basis of details available on record. The recitals in the MOU, supplementary MOU and sale deed clearly indicate that there had been internal and external valuation of assets and liabilities. The supplementary MOU refers to valuation report, i.e., 'industrial due diligence' for the verification of the assets. Copy of the 'due diligence report' Was not furnished by the assessee on the ground that the same was obtained by PPL which further shows that the assessee did not want to co-operate in furnishing information with the sole motive of revasion of taxes.

(ix) The claim of the assesses that the total price is inclusive of the price paid for the intellectual property is incorrect. The object of the sale has been to acquire immovable assets, movable assets, current assets and current liabilities and acquiring of intellectual property as given in Clause 2, A(I). Clause 2A.4 very clearly mentions that there is no consideration in respect of intellectual property. Thus, the sale price has been only for immovable and movable assets and current assets and current liabilities.

(x) The slump sale agreement runs into various schedules. At p. 5 of the agreement, definition of 'statement of acquired net assets' is given which reads as under:

"Statement of acquired 'net assets' shall mean and contain the price of acquired net assets together with the relevant values."

The above recitals very clearly mention that the value has to be put in respect of the acquired assets. Schedules 2A, B and C, in fact, have the column for the value of assets, which is not given in the xerox copy supplied. This shows that the assessee wants to hide true position of the case because the schedules prove that the value of each asset has been determined at the time of agreement, but the copy furnished to the AO is without such value.

4. Thus, the AO concluded that it is not a slump sale, but the assessee has merely adopted the device to avoid payment of tax. He, therefore, proceeded to tax the profit under the head 'long-term capital gains', 'short-term capital gains' and 'business profit', by taking the value of each asset as declared by the transferee in its record as the sale price.

5. The assessee preferred an appeal before the CIT(A) and submitted detailed written submissions dt. 3rd Nov., 1998, along with several compilations containing copies of various' agreements in support thereof. The claim of the assessee was that the various additions made by the AO were illegal and unfounded. Since it was a case of slump sale, separate consideration was not charged.for different fixed assets. The AO has gone wrong in bringing it to tax. Reliance was placed on the decision of the Supreme Court in the case of Electric Control Gear Mfg. Co. (supra) for the proposition that the Department has no power to bifurcate slump sale into different components unless there is evidence to show that different assets were evaluated before the date of sale. The AO was also not justified in taking into consideration the valuation got done by the transferee-company in September, 1996. Without prejudice to the above submissions, it was also contended that the computation of the capital gains was not in accordance with law. The AO has taken the value of land at Rs. 20.42 crores building at Rs. 23.02 crores and the other fixed assets at Rs. 167 crores. He made a mistake in not excluding Rs. 60,42,69,151 and Rs. 32,01,36,841 out of Rs. 167 crores as these amounts were spent by the assessee-company on capital work in progress and technical fees/miscellaneous expenses, capitalised in the books of account. Thus it was contended that only the balance of Rs. 75 crores has to be taken as the sale consideration for the other fixed assets. Further, it was contended that the market value of the land as on 1st April, 1981, should have been taken into consideration by the AO for computing the taxable gain on the sale of land. The short-term capital gain on sale of other fixed assets like plant and machinery, furniture and fixtures has to be valued by substituting the figure of Rs. 75 crores for Rs, 167 crores taken by the AO. It was also contended that no part of Rs. 60.42 crores is taxable as neither any depreciation was claimed on that amount nor any part of that amount has been claimed as revenue expenditure in any year. Out of Rs. 32.01 crores, the amount aggregating to Rs. 4,45 crores has to be taxed as business profit because these amounts have been allowed in full in the earlier assessment years as Revenue expenditure. Without prejudice to the main contention that no part of the amount received on slump sale was taxable, a detailed statement was submitted which, according to the assessee, should be the basis for levying tax.

6. The CIT(A) has called for the comments from the AO, who submitted his comments vide letters dt. 17th Dec., 1998 and 23rd Dec., 1998, in support of his view that the additions made in the assessment order are in accordance with law and facts. He stated that there is sufficient evidence on record to prove that the assets were evaluated at the time of sale and further stated that the basis for bifurcation of slump consideration was the balance-sheet of PPL drawn on 31st March, 1995 and the valuation report which gives the value as on 29th Sept., 1994. It was further emphasised that some of the directors in both the companies were common at the relevant point of time and hence it will be difficult to say that the deal was at arms length. In other words, the AO was of the view that it was a pre-meditated design to create a subterfuge of slump sale with the sole purpose of evading tax. The AO further pointed out that in respect of all the three units, the schedule of fixed assets is common. The assets reflected in the schedule are land, building, furniture, plant and machinery. One of the most striking feature in this regard is that even after having sold part of the assets during the year relevant to asst. yr. 1995-96, under consideration, on 29th Sept., 1994, the assessee had not reduced the sale price of the assets from the respective assets forming part of the block of assets and at the year ending on 31st March, 1995, depreciation is claimed on the entire block of assets. In the subsequent years, despite sale of part of the assets in September, 1994, the assessee continues to claim depreciation on the unreduced cost of assets in total disregard of the fact that the assets sold do not continue to be owned by the assessee. The AO further mentioned that this strange feature is amply indicative of the manipulative approach of the assessee to somehow or the other to claim that the sale of assets was a slump sale. It is unimaginable that even after selling away part of the assets, the impact of such sale is not reflected in the block of assets. Against this, the records of the purchaser, PPL, for the same period ending on 31st March, 1995, show that the schedule of assets forming part of the balance-sheet reflected head-wise the assets purchased from the assessee in the block of assets with the cost of acquisition of each asset under the head 'assets acquired as on 29th Sept., 1994'. The purchaser has accordingly claimed depreciation on such assets. In other words, on the same assets sold, the assessee is claiming depreciation on one hand without owning them and at the same time the purchaser is also claiming depreciation on the other hand. The AO distinguished the facts of the assessee's case from that of Walchandnagar Industries Ltd. He has also distinguished the case of Artex Mfg. Co. (supra). The letters of the AO were confronted to the assessee, who stated that the AO had not brought on record any evidence to support his assertions. It was also stated that the judgment of the Hon'ble Supreme Court in Electric Control Gear Mfg. Co. 's case (supra) is squarely applicable because the assessee had received a lump sum price of Rs. 210 crores for all the fixed assets including goodwill and compensation for negative covenants, etc. No separate price was attributable to different assets and it was the purchaser who bifurcated the price as per the valuation report obtained by them, more than one year after the close of the deal. The assessee did not reduce the written down value in its accounts because it did not know as to how much of Rs. 210 crores Is attributable to each asset. Regarding the valuation of land, it was submitted that the registration authority desired a valuation of land and building, which was obtained by the purchaser in November, 1995. During the proceedings before the CIT(A) it was found that before the AO the assessee had not produced the original sale agreement and it was also found that the assessee had not filed copies of certain documents forming part of the assessment order. Therefore, letters were issued to the assessee. On 19th March, 1999, the assessee produced original sale agreement and also filed copies of documents. In its letter, the assessee has also referred to the amendments proposed by the Finance Minister through the Finance Bill, 1999. The AO was further asked to give his comments about the amendments proposed in the Finance Bill, 1999. It was submitted that Section 50B was proposed to be inserted to bring to tax any profit arising out of slump sale. The slump sale has been defined in the proposed Section 42C, but the ingredients of slump sale were not present in the case of the assessee. He made the following points in this regard :

"(i) The transfer is not one or more undertaking, but it is of part of one unit;

(ii) The transfer is not for a lump sum consideration, but there are more than one consideration, one for the movable and immovable assets and the other for the net current assets;

(iii) Regarding the current assets, the net value is to be arrived after putting the value of individual assets and liabilities."

The letter of the AO was confronted to the assessee, who submitted its reply vide letter dt. 21st April, 1999. This related to the proposed amendments in the Finance Bill, 1999 and the applicability of the decision of the Hon'ble Supreme Court in the case of Electric Control Gear Mfg. Co. (supra).

7. On a detailed consideration of the matter, the CIT(A) came to the conclusion that the impugned sale cannot be treated as a slump sale. In this regard he observed that sale agreement should not be viewed in isolation and the agreement like MOU, joint venture agreement entered into prior to the sale agreement, registered sale deed executed on 27th May, 1996, regarding transfer of land and building, etc. should also be examined to analyse whether it was a slump sale or not, In the opinion of the CIT(A) a perusal of all the agreements would lead to the conclusion that it was not a slump sale and the assessee had transferred specific assets on which it was liable to tax as per the provisions of income-tax law. It is also possible to allocate the prices for the transfer of different assets.

8. Clause (F) of the joint venture agreement dt. 19th Oct., 1994 shows that the assessee has not merely transferred the assets of Kalyan business but also certain other assets and thus it cannot be said that the transfer was of a running business or was a slump sale. The total land area of the assessee at Kalyan was 18,19,769 sq. mts., but the assessee actually sold only 7,43,339 sq. mts. of land which indicates that the entire business assets of the Kalyan unit were not transferred. In the registered sale deed dt. 27th May, 1996, the consideration for transfer of land and building was shown at Rs. 43,44,59,477.50 ps. Similarly, in the application under Section 230A for obtaining tax clearance, the assessee recorded the sale consideration of land at Rs. 20,42,39,117.50 ps. This means that the consideration for the building was Rs. 23,02,20,360. The same amount was reflected in the accounts of the transferee-company. He also referred to Clause 3.16 in the slump sale agreement which proves that assessee did not part with all the assets of Kalyan business. Clause 3.16 is extracted hereunder for immediate reference:

"PAL shall have the right to use perpetually and free of charge all elements, parts and components together with the relevant know-how that are presently used in both the products of Pal's residuary business and in the products of the Kalyan business in any manner whatsoever."

Thus, the CIT(A) concluded that the prices had been fixed for specific assets' and it was not a slump sale.

9. The contention of the assessee was that slump sales are assessable to tax only by virtue of amendment made in the statute book by Finance Act, 1999 which is prospective in operation. Since the instant sale took place prior to that, it is not taxable. This was rejected by the CIT(A) on the ground that such sales are assessable to tax even earlier in the light of the decision of the Hon'ble Supreme Court in the case of B.M. Kharwar (supra). Thus, CIT(A) concluded that it was not a case of slump sale.

10. With regard to the sale price attributable to each item, the CIT(A) observed that the AO was justified in taking the sale price as recorded in the transferee's books. In this regard he observed as under:

"Since the prices of land and building were known and were also evidenced by the registered sale deed, it becomes absolutely clear that the transfer could not be treated as a case of slump sale. In the circumstances, the AO was perfectly right in examining the accounts of the transferee as well as other evidences to determine the consideration for other assets transferred by the appellant and thereafter to tax the gains or profits arising out of such a transfer."

11. With regard to the cost of acquisition of land, the AO observed that the assessee had not disclosed the date of acquisition of the land though it was stated that the same had been acquired before 1968. The AO, therefore, took the indexed cost at Rs. 12,27,960 and accordingly worked out the long-term capital gains. The CIT(A) observed that the value of the land as on 1st April, 1981 has to be ascertained first and then the indexed cost has to be applied. He accordingly directed the AO to determine the value of the land as on 1st April, 1981. Short-term capital gains on transfer of building, as worked out by the AO was found to be in accordance with law and, therefore, confirmed the same.

12. The other contention of the assessee was that the net consideration for other fixed assets works out to Rs. 167 crores after deducting the consideration for land and building. The AO committed a mistake in not excluding Rs. 60,42,69,115 and Rs. 32,01,36,841 out of Rs. 167 crores, as these amounts were spent by the company on capital work in progress and technical fees/miscellaneous expenses, capitalised in the books of account. According to the assessee, only Rs. 75 crores could be taken as consideration for other fixed assets and thus the short-term capital gains on other assets works out to Rs. 42 crores. The CIT(A) did not accept the contention of the assessee. He observed that the consideration was paid only for specific assets listed in various schedules to the slump sale agreement and the items of Rs. 60,42,69,151 and Rs. 32,01,36,841 were not shown by the assessee as falling in any of the schedules to the slump sale agreement. He also referred to clauses of the slump sale agreement in support of his conclusion that there was no consideration for miscellaneous assets. The CIT(A) was thus of the opinion that the short-term capital gains on plant and machinery was correctly worked out by the AO as per the records of the transferee-company and as per the written down value of assets in the case of assessee. However, he directed the AO to take into account the additibn shown by the assessee to plant and machinery at Rs. 4,31,24,790.

13. As regards the addition of Rs. 1.84 crores as business profit, on account of transfer of current assets, the CIT(A) was of the view that necessary facts were not bought on record by the AO. He, therefore, restored the matter to the file of the AO for fresh consideration.

14. Aggrieved by the order of the CIT(A), the assessee filed an appeal before the Tribunal. Before the Tribunal, the learned counsel for the assessee filed a summary of the objections of the AO/CIT(A) and explained therein the case of the assessee, which is summarised in para 17 of the order of the learned JM. He has also made submissions which are mentioned in paras 18 to 22 of the order of the learned JM. The learned Departmental Representative also made elaborate submissions which are mentioned in paras 23 to 28 of the order of the learned JM. The reply of the learned counsel for the assessee is summarised in para 29 of the order of the learned JM. After considering the submission of both sides, the learned JM came to the conclusion that it was not a case of slump sale. The price of each asset can be ascertained and it cannot be said that it was a case of sale of whole undertaking or a slump sale. He has also distinguished the case laws relied upon by the learned counsel for the assessee, for the detailed discussions contained in paras 30 of 39 of his order. He discussed the various features for arriving at his opinion in paras 40 to 44 of his order.

15. The learned AM held that the price of each asset cannot be ascertained and it can be said that it was. a sale of whole undertaking for a lump sum consideration. The assessee-company's business of manufacturing 118NE cars came to an end, The price of the fixed assets of the. undertaking was fixed at Rs. 210 crores in March, 1993 when the first MOU was entered into between the assessee-company and M/s Peugeot of France. Any evidence of the valuation of individual asset known to the assessee is relevant only if the valuation is prior to March, 1993. There is no such evidence on record. The subsequent valuation for land and building, involved in the sale, got done in September, 1995, was only for the purpose of stamp duty. The next valuation obtained by the transferee-company in September, 1996, was for the purpose of apportioning Rs. 210 crores amongst the various fixed assets purchased by the transferee-company. Even in the application under Section 230A of the Act, the assessee-company made it very clear that it had transferred land and building as part of the slump sale, but had got the land and building valued only for the purpose of stamp duty. There are hundreds of documents connected with the due diligence report, wherein the value column is blank. For the detailed reasonings given in paras 3 to 8 of his order, the learned AM held that it was a case of slump sale for a price of Rs. 210 crores.

16. The learned JM next considered the issue whether the bifurcation of sale price is in accordance with law, for which he has given his detailed reasonings as follows:

"46. This leads us to the next issue as to whether bifurcation of the sale price is in accordance with law? As regards the amount of Rs. 20,49,56,346 the learned CIT(A) has set aside the issue to the file of the AO and, therefore, the learned counsel has not pressed the issue. Accordingly, the inclusion of Rs. 20.49 crores is not taken up for consideration.

47. Regarding Rs. 91,28,51,794, the case of the learned counsel is that these are assets such as technical know-how and capital work in progress. As can be seen from the p. 59 of the assessment order, the inclusion of aforementioned sum is referable to the short-term capital gains as under:

   

Rs.

(i) On sale of building as per para 11.26 19,31,67,078

(ii) On sale of plant and machinery as per para 11.28 64,39,50,057

(iii) On sale of paint shop as per para 11.29 7,57,34,659     91,28,51,794 The AO observed that the assets transferred include building situated at Kalyan and also plant and machinery. The assessee claimed depreciation which was allowed in the earlier years and they were considered for depreciation as a block of assets. under Section 50 any amount received on account of transfer of an asset goes to reduce the block and in case there has been addition, the block is increased. In this case sale price of the building was taken at Rs. 23.24 crores. Accordingly the short-term capital gains on the sale of building was worked out. In para 11.28, the AO has given the reasons for arriving at the profit on account of the sale of plant and machinery at Rs. 64.39 crores and at para 11.29, the issue regarding profit on the sale of paint shop was considered. This issue was considered by the learned CIT(A) in para 110 of his order, The learned counsel has not given any specific explanation as to why it should not be included as short-term capital gains. We, therefore, reject the contention of the assessee. Under these circumstances, we affirm the order of the CIT(A).

48. With regard to the inclusion of Rs. 1.84 crores as business income, the AO has discussed the issue in para 11.30. The slump sale agreement dt. 6th Jan., 1995, states the price to be paid by the transferee-company to the assessee-company as a consideration, which includes an amount to be determined after execution date corresponding to the value as of sale date of the acquired current assets and acquired current liabilities. The AO, therefore, concluded that the price for the sale was to be determined as per the report of the auditors. The value of the net current assets was claimed to be 36 crores as per the assessee whereas net price of the current assets has been shown by the transferee-company at Rs. 37.84 crores. The AO, therefore, included the difference of Rs. 1.84 crores in the absence of proper explanation by the assessee. The learned CIT(A) set aside the issue for proper examination, vide para 111 of his order. Upon careful consideration of the submissions we find no infirmity in the order of the CIT(A).

49. Vide ground No, 5, the assessee contends that the tax authorities erred in allowing depreciation of Rs. 7,56,263 only in place of the correctly allowable depreciation of Rs. 9,99,66,820.

50. This issue was discussed in para 11.27 of the order of the AO, which reads as under:

'Furniture--Sale price of the furniture is taken by the transferee at Rs. 40,38,095, on which it has claimed depreciation. The opening written down value of all the furniture as on 1st April, 1994 is Rs. 1,13,40,896 and there has been further addition of Rs. 2,59,831. Thus, the total comes to Rs. 1,16,00,727. The sale price being lesser i.e., Rs. 40,38,095, there remains balance of Rs. 75,62,632 on which depreciation at 10 per cent is allowed, which comes to Rs. 7,56,263. Penalty proceedings under Section 271(1)(c) is initiated.' The learned CIT(A) has dealt with this issue in para 112 of his order. In view of our finding that the sale of assets cannot be treated as slump sale, we do not find any infirmity in the order of the CIT(A) with regard to the allowability of depreciation to the extent of Rs. 7,56,263."

17. The learned AM though held that it was a case of slump sale, but on the issue of depreciation, he held as under:

"10. The issue of depreciation does create a difficult situation. Some of the assets owned by the assessee-company have been sold but the price at which these have been sold is not ascertainable. Yet the assessee cannot continue to get the benefit of the depreciation on assets which are no longer owned by it. I am, therefore, of the considered view that for the purposes of calculation of depreciation allowable to the assessee, the amount of Rs. 210 crores is to be split as per transferee-company's allocation. This splitting is only for the purposes of calculating the allowable depreciation."

That is how the difference of opinion has arisen, which has been referred to me by the Hon'ble President under Section 255(4) of the Act.

18. During the course of hearing before me, the learned counsel for the assessee tried to produce an affidavit of Shri Maitreya V. Doshi, Managing director of the assessee-company, to support his case without moving an application under Rule 29 of the ITAT Rules. This was strongly opposed by the learned Departmental Representative. Rule 29 of the ITAT Rules clearly states that the parties to the appeal shall not be entitled to produce additional evidence either oral or documentary before the Tribunal, but if the Tribunal requires any document to be produced or any witness to be examined or any affidavit to be filed to enable it to pass orders or for any other substantial cause, or if the IT authorities have decided the case without giving sufficient opportunity to the assessee to adduce evidence either on points specified by them, for the reasons recorded by the Tribunal, additional evidence can be admitted. First of all, in the present case, the affidavit filed by the learned counsel for the assessee does not carry an application under Rule 29 of the ITAT rules. Secondly, the Bench does not require this affidavit for deciding this appeal, as the facts and evidence available on record are clear. No additional evidence can be allowed to be filed at this stage. Therefore, the affidavit filed by the learned counsel for the assessee cannot be taken on record.

19. The learned counsel for the assessee pointed out the undisputed facts and also referred to Clauses II.1 and II.4 of the joint venture to submit that the assessee's Kalyan factory was manufacturing 118 NE cars and the existing Kalyan facilities including machinery transferred from Pune and Kurla were valued at a slump price of Rs. 210 crores. In this connection, the MOU clearly stated that the consideration for the entire Kalyan facilities including engine machinery work-shop and gear box assembly workshop and intangible assets was fixed at a lump sum price of Rs. 210 crores. Both the assessee-company and M/s Automobiles Peugeot Ltd. (AP) of France then executed a supplementary MOU in May, 1994 which only listed the jobs still to be got done in India and documents still to be prepared to implement the original MOU. Finally all permissions came around September, 1994 and on 29th Sept., 1994, there was a declaration of the trusteeship which required the assessee-company to conduct its Kalyan business for and on behalf of the joint venture company till the slump sale agreement is executed. Even in this trusteeship it is mentioned that the assessee-company shall sell, assign and transfer to Kalyan Motors Company Ltd, (KMCL) its Kalyan business and the joint venture company has agreed to take over as a going concern the Kalyan business with effect from close of business hours on 29th Sept., 1994 (p. 27 of vol. I). He pointed out the definition of "Kalyan business" in the trusteeship agreement and also brought to my notice the definition of "products" in the agreement. It is pointed out that the assessee-company thereafter entered into a joint venture agreement on 19th Oct., 1994. Even in this agreement, there is mention of slump sale agreement in Clause 8.1. The learned counsel for the assessee brought to my notice Clause 15.3 of the agreement (p. 103) more particularly Clause G thereof (p. 110 of vol. I), which reads as under:

"Under the provisions of the JVA, PAL agreed to transfer and sell to the company for the company to take over and run as a going concern its business at Kalyan constituting among other things some of PAL's assets including plants and machinery situated at Kalyan or in other locations to enable the Company to manufacture, assemble, sell and service the Premier 118 NE and 1.38D cars."

He further brought to my notice the meanings of "acquired intellectual property"; "acquired net assets"; "assumed contracts" and "transferred employees" in Clause (A) appearing at pp. 110 to 113 of the paper book. It was stated that what has been sold by the assessee-company was the running business of manufacturing 50-60 thousand cars and facilities sold included land, buildings, furniture, fixtures, plant & machinery, intellectual property, benefits of contracts, trained labour force, current assets, current liabilities, and that this business was capable of manufacturing 50 to 60 thousand cars per annum. It was further pointed out that the agreement (p. 116) clearly stated that the intellectual property was to be transferred without any additional consideration, Therefore, there was no additional consideration for intellectual property which was already included in the sum of Rs. 210 crores. From the above documents, it is clear that what the assessee-company has sold to the joint venture company was a slump sale of its Kalyan business in its entirety for the manufacture of 118 NE cars. To complete the said facility, a machinery line was sold after picking it from Chinchwad and gear box assembly facility was sold after picking it up from Kurla. Regarding the current assets, detailed in the statement of acquired current assets and acquired current liabilities, it was pointed out that the assessee-company was paid lump sum consideration in two parts :

(a) Fixed price of Rs. 210 crores for all the fixed assets, whether movable or immovable, tangible or intangible (intellectual property benefits, assumed contracts benefits, benefits of trained labour of over 2000 persons); and

(b) Actual book value of the current assets given to the joint venture company minus actual book value of current liabilities transferred to joint venture company.

It was submitted that the actual sale was to take place after obtaining many permissions from Central and State Government authorities, which was expected to take some time. Therefore, the joint venture company could never have fixed the consideration of current assets and current liabilities in advance. This was fixed by the Chartered Accountants, who actually certified the book value of acquired current assets and the value of acquired current liabilities. This was done because the current assets change with every transaction and the assessee-company was running a big business and in the period between March, 1993 and September, 1994 thousands of transactions took place resulting into changing current assets' aggregates. In this connection, he relied on the decision of the Hon'ble Supreme Court in Mugneeram Bangui & Co.'s case (supra), Narkeshari Prakashan Ltd's case (supra), Artex Mfg. Co.'s case (supra), and Electric Control Gear Mfg. Co.'s case (supra), and it was submitted that the Hon'ble Judges explained and approved the case and differentiated the case of Artex Mfg. Co. (supra), and the only difference the Hon'ble Judges of the Supreme Court brought out was that in the case of Artex Mfg. Co. (supra) there was evidence before the AO supplied by the assessee itself, which proved that the assessee had valued its assets separately before the sale and had only aggregated the individual values of individual assets and thus termed the sale of assets as slump sale. The assessee was in possession of valuation of each of its assets prior to the slump sale. It was this prior valuation that the Hon'ble Judges held was the cause for not accepting the assessee's case of slump sale. In the case of Electric Control Gear Mfg. Co. (supra) there was no such prior valuation and as such slump sale was accepted. Similarly, in the assessee's case there was no valuation prior to the sale. In fact, there is no valuation till -date. Therefore, the assessee's case is on all fours with the case of Electric Control Gear Mfg. Co. (supra).

20. The learned counsel for the assessee pointed out that the authorities below and the learned JM have considered the following factors for coming to the conclusion that it was not a slump sale :

"(a) The transferee-company has in their books of account apportioned the price of Rs. 210 crores into various fixed assets on the basis of a valuation report dated September, 1996.

(b) There are differences between the figures shown by the assessee-company and that recorded by the transferee-company.

(c) transferee-company could not make any independent valuation without consent and active participation of the assessee-company.

(d) The assessee-company did not sell approximately 11 lakh sq. mts. of land owned by it and situated in Kalyan municipal corporation and has sold only 7.43 lakh sq. mts. to the joint venture company.

(e) The assessee-company in its application under Section 230A mentioned the sale consideration for land and building at Rs. 43.44 crores.

(f) The assessee-company applied for 230A vide letter dt. 24th April, 1996, in which it mentioned the sale consideration of Rs. 43.44 crores which is the valuation obtained by the transferee-company in September, 1996 and therefore, it is clear that the assessee-company knew of the valuation much before April, 1996.

(g) The assessee-company has deliberately not given separate sale consideration of each asset although it has that knowledge.

(h) The parties, i.e., the assessee-company and the joint venture company had agreed to undertake an 'industrial due diligence' of principal items of the assets and that due diligence cannot be completed without assigning value to each asset.

(i) That no consideration is received by the, assessee-company on account of intellectual property.

(j) That joint venture and the assessee-company have some common directors and these common directors have signed the balance-sheet of the transferee-company wherein separate prices of assets are mentioned and, therefore, the assessee-company also knew of the valuation of each asset.

(k) A close look at the documents clearly shows that the prices had been fixed for specific asset after proper valuation.

(1) The conduct of the assessee-company shows that the transfer was not a genuine slump sale."

It was submitted that all the above facts are not supported by any evidence. It was explained that the transferee-company got one valuation of land and building done in November, 1995 and one apportionment of the values paid by it into various assets in September, 1996. The figure mentioned by the assessee-company in its application under Section 230A of the Act on 24th April, 1996, was as per the valuation report got done by the transferee-company in November, 1995. Therefore, the assessee-company did have that information with it since November, 1995. As such, it did not show any separate valuation when it applied for certification under Section 230A of the Act in April, 1996 and in the covering letter it was clearly stated that the land and building have been sold for a lump sum price. The difference in the net current assets valuation of Rs. 1.84 crores was because of the gap of approximately 18 months (March, 1993 and September, 1994). It was explained that the current assets change with every transaction and, therefore, there is nothing abnormal in the assessee-company's current assets as on 29th Sept., 1994. Prior to March, 1993 and even prior to January, 1995, when the slump sale agreement was in fact executed, there was no valuation available neither with the transferor nor with the transferee. The land situated in Kalyan and not sold to the joint venture company was not a part of the Kalyan business. Regarding 'industrial due diligence' it was submitted that the mere fact that there is a value column, cannot, by any stretch of imagination, mean that the value of that asset was known and not mentioned in the form deliberately. Those forms were filled in jointly by the representatives of the assessee-company and the transferee-company and no evidence had been led to show that there was any connivance between the two. The AO did not read correctly Clause No. II.A.4. There was no additional consideration for intellectual property, which was also included in the sum of Rs. 210 crores. It was submitted that the observation of the learned JM is wrong, There is no basis or evidence for the conclusion that the price of each asset can be ascertained. The assessee-company sold land, building, plant, machinery, furniture, fixtures, benefit of trained labour, intellectual property, dealer network, trained suppliers and benefits of many other contracts, in one go. The assessee-company has, in fact, closed down its Kalyan business which was manufacturing 118 NE cars. Therefore, the conclusion that the assessee-company has not put an end to its business is wrong. So also the interpretation of 'industrial due diligence' taken by the learned JM. The technicians, who did the due diligence, knew the fact that slump price has already been fixed and, therefore, did not value each asset. As regards the opinion of the learned JM in the matter of application under Section 230A of the Act, it was submitted that the assessee-company agreed to sell the fixed assets as a going concern for a lump sum price. The learned JM was not right in assuming something, which was not on record. The learned JM has held that the assessee-company did not give any justifiable reasons as to why the sale value of land and building was mentioned in 230A application instead of stating that it was a slump sale. He failed to appreciate that the covering letter dt. 24th April, 1996, specifically mentions the same. It was submitted that in the absence of any suggestion of bad faith or fraud, the true principle is that a taxing statute has to be applied in accordance with the legal rights of the parties to the transactions. What is apparent is the true state of affairs till proved otherwise. The learned counsel for the assessee supported the view taken by the learned AM and he took me through his order.

21. The learned Departmental Representative, Shri S.D. Kapila, referring to the questions and the finding given by the learned AM, submitted that he, the learned AM, has not controverted a single finding of fact arrived at by the learned JM. On the other hand, he has stated in para 2 of his order that the learned JM has given the facts in a very apt manner and in detail He has merely controverted the conclusion arrived at by the learned JM in a bland manner without bringing on record any other evidence or even inference to rebut the specific factual findings of the learned JM. Further, the order of the learned AM is totally silent on the alternative submissions on which the learned JM has held that even assuming it to be a case of slump sale, the surplus or gam arising on transfer is taxable under Section 45 of the Act. He made submissions under the following heads :

(i) Concept of slump sale In this connection, it is submitted that slump sale implies of sale of a going concern "lock, stock and barrel" and the sale should be on "as is and where is" basis. In the case of a branch or a unit or an independent undertaking, it involves sale of the entire branch, unit or the undertaking, including all its assets and liabilities. Where such a unit is allegedly sold without selling all its assets or without transferring all its liabilities or by selling as a composite part of such a sale substantial assets or other units, it cannot be said to have the character of slump sale. A slump sale involves a lump sum price for all assets and liabilities without allocating the price to individual assets. In this context, he referred to the decision of the Hon'ble Bombay High Court in the case of Narkeshari Prakashan Ltd. (supra) wherein it was held "a mere look at the agreements would clearly indicate that what was sold was the entire branch business as a whole lock, stock and barrel. Several items were such as would not be independently purchased. The value of the liabilities is adjusted against the value of assets". It is submitted that in the present case, the assessee sold the business in bits and pieces and after the slump sale the assessee was allowed to operate the business in a different capacity, which has not been appreciated by the learned AM.

(ii) Assets other than Kalyan undertaking were also transferred by the assessee It is submitted that it is not a case of slump sale and also not exclusive transfer of Kalyan business, but it is transfer of assets located in other plants or units of the assessee. Referring to the finding given by the learned AM, it is submitted that his finding that out of three units the assessee was running before the sale, the assessee was left with only two units and everything connected with the third unit was transferred for a fixed price is incorrect. In this connection, my attention was invited to Clause F (p. 41 of the assessee's compilation), wherein it is mentioned that "As set forth in the MOU, PAL and AP agreed that subject to the terms and conditions of the slump sale agreement, PAL would sell to KMCL some of its assets including inter alia plant and machinery situated at Kalyan or any other locations, such assets hereinafter referred to as 'Kalyan business'. It is submitted that it was not a sale of Kalyan assets only, which were manufacturing 118 NE Cars, but in addition to Kalyan assets, the assessee transferred the following assets :

Engine machining workshop, which comprises of a series of machines. Similarly a gear box assembling workshop from Kurla unit was transferred. The assessee also transferred 116 NE and 137 diesel engine licence also.

In this connection, reference was made to "II.2. Facilities" of the MOU dt. 11th March, 1993. It is further pointed out that the assessee agreed that its contribution of capital would be in the form of Kalyan facilities, engine machine and gear box assembling unit, as described in Articles II.2 and IV. In the supplemental MOU dt. 17th May, 1994, it was agreed that assets from other locations were also required to be transferred by the assessee to Kalyan Motors Co. (P) Ltd. (KMCPL). In this Connection, my attention was invited to the said clause and further submitted that the CIT(A) in para 50 of his order has clearly mentioned that the assessee did not furnish the details of assets transferred from other locations as also the current assets transferred by the assessee, whose value was reflected at Rs. 36.13 crores in the books of the assessee whereas the transferee-company had reflected it at Rs. 37.14 crores, deliberately. Shri Kapila drew my attention to Clause 2C of the agreement dt. 6th Jan., 1995 (p. 123 of the assessee's paper book-APB) which establishes that the assessee transferred assets other than Kalyan undertaking. This clause stipulates that dismantling and transport cost of assets shall be borne by the assessee, which establishes that the assessee transferred assets other than Kalyan undertaking, My attention was also invited to Clause 3.16 of the slump sale agreement, Clause H.2 of the MOU, para 2(a)(ii) of supplementary MOU and para 10 of the letter dt. 9th Dec., 1997.

(iii) Not all assets located at Kalyan undertaking or all assets of Kalyan undertaking were transferred Shri Kapila submitted that the assessee owned land to the extent of 18,19,769 sq. mts. It transferred as part of Kalyan assets land to the extent of 7,23,449 sq. mts. It did not bring any evidence to prove that the remaining land was not owned by Kalyan unit or not connected with the business. My attention was invited to the agreement dt. 27th May, 1996, which clearly stated that the entire land was owned by the assessee and it had agreed to transfer only 7.2 lakhs sq. mts. for a consideration of Rs. 43.44 crores. In this way the entire land was not transferred and there are no other manufacturing facilities at Kalyan other than what had been transferred. There is no evidence to establish that the remaining land was owned by Kurla unit or Pune unit. This fact is further established from Clause 3.22 of slump sale agreement (p. 140 of APB). In this agreement it was further agreed that some of the assessee's movable assets would remain located in the Kalyan premises of the assessee-company, which shows that all assets were not sold (p. 144 of APB). In a slump sale the going concern is transferred "as is and where is" basis. After transfer of the undertaking, the transferee should run the business. The assessee transferred its Kalyan business including paint shop. At the time of transfer, paint shop was under construction and the assessee agreed to complete the construction of paint shop within a stimulated time and also agreed to pay liquidated damages for non-completion of the paint shop within the stipulated time. In this connection, my attention was invited to the relevant portion given at p. 120 of APB. The assessee did not maintain separate books of account for the Kalyan unit and no books were maintained for the period from 1st April, 1994 to 31st March, 1995. Further, the assessee also did not produce the fixed assets register before the AO to substantiate that all assets relating to Kalyan unit were transferred. The learned JM held that the assessee retained the excess land available at Kalyan undertaking. He further held that in the application made under Section 230A of the Act, the assessee had mentioned specific value for the land and building at Rs. 43.44 crores in April, 1996 whereas the transferee valued the property in September, 1996. Thus the assessee was aware of the sale price of the land and building before the valuation of the properties by the transferee. There is a categorical finding by the learned JM that in the registered document dt. 27th May, 1996, the assessee recorded the sale consideration for transfer of the land and building. While dealing with the Government Department the assessee is expected to give true and correct statement and the statement given in the public proceedings has to be taken as true and correct unless proved otherwise. In the application under Section 230A, item No. 15 contains two columns, one relating to the value of the consideration for which the property is transferred and the other relating to the valuation for the purpose of stamp duty, if the transfer is made without consideration. In the present case, the assessee chose to write consideration against col. No. 1, which indicates that the assessee knew the sale value of the land and building.

(iv) Not all liabilities of Kalyan undertaking were transferred Shri Kapila pointed out that all liabilities were not taken over by KMCPL, such as the deposits from various customers were not transferred by the assessee. (slump sale agreement Clauses 4.6-1; 4.6-13 and 4.6-14 - p. 144 of APB). He further submitted that the assets transferred were not free from encumbrances. ICICI and other institutions' permission was needed for transfer of assets. In this connection, my attention was invited to Clause 2.D of the agreement (p. 123 of APB). It is further submitted that the deposits/advances from any distributors, dealers and customers prior to the date of sale related to the Kalyan business were retained by the assessee-company. The assessee did not transfer the creditors to the tune of Rs. 13 crores and the assessee agreed to discharge such liability. In this connection, my attention was invited to Clause 2.A.2 of the agreement (p. 116 of APB). It is further submitted that the assessee did not transfer depreciation fund of Rs. 35.02 crores, revaluation of depreciation fund of Rs. 3.5 crores and revaluation reserve of Rs. 14.4 crores. It also did not transfer the other liabilities, attributable to residuary business. My attention was invited to Clause 3.8 of slump sale agreement (p. 131 of APB). Adverting my attention to pp. 127 to 131 of APB, it is submitted that all liabilities were not transferred. Besides this, all liabilities and pending Court cases of the assessee prior to the date of sale deed were not taken over by the transferee, because the agreement further stipulates that liabilities arising out of settlement with labour of the assessee pertaining to the period prior to the date of sale is to be discharged by the assessee, which is clear from Clause 3.7-5 of the slump sale agreement.

(v) The assessee did not receive single price for the transfer of assets Shri Kapila submitted that the slump sale agreement dt. 6th Jan., 1995 stipulates, separate sale consideration for immovable assets, movable assets, current assets and current liabilities. The assessee received Rs. 210 crores towards the value of immovable and movable assets. It separately received consideration for transfer of net current assets amounting to Rs. 37.84 crores, whereas it has accounted for in the books of account only Rs. 36.13 crores. Thus the total consideration received was Rs. 247.84 crores. This is also clear from assessee's letter dt. 15th Jan., 1998. This fact has been highlighted by the learned JM in paras 45 and 46 of his order and the learned AM did not consider Clause 2.B of the slump sale agreement to which my attention was also invited. It is submitted that there were three sales by the assessee. The first sale was net current assets for a sum of Rs. 37.84 crores, the second sale was of land and building for a consideration of Rs. 43.44 crores and the third sale was of plant and machinery, furniture and incomplete paint shop for a consideration of Rs. 166.56 crores. Therefore, the learned Departmental Representative, Shri Kapila, submitted that it was not a sale of going concern, but it was sale of various assets owned by the assessee at various places.

(vi) Valuation of assets was there and price of each asset was ascertained but not furnished.

Shri Kapila submitted that Clause IV of the MOU dt. 11th March, 1995, clearly specifies about the valuation of assets and liabilities. Therefore, the finding given by the learned AM is contrary to this clause. It is further contended that the supplemental agreement dt. 17th May, 1994, brings out the fact that there was valuation in the form of 'industrial due diligence' and the contention of the assessee that values were not given is not tenable. In this connection, my attention was invited to Clause 2(ii) (p. 3 of the supplemental MOU) and submitted that the assessee-company transferred various assets including Kalyan assets at a price mutually agreed upon after 'due diligence' exercise of the Kalyan assets. It was pointed out that for the purpose of 'due diligence' the transferee appointed auditor/advisor and it did not furnish these details, purposely. My attention was invited to the relevant portion of the supplemental MOU, where the term 'due diligence' and Clauses II and III have been set out. It was further stated that the valuation of assets was there and Clause 8.1 of the joint venture agreement dt. 19th Oct., 1994, establishes this fact, which is reproduced below:

"8.1 The full contribution of PAL to the company shall have been made by consideration of the sale of Kalyan business at the values and in the manner more particularly set out in the slump sale agreement. The contribution of PAL shall, after all the instalments of AP's contribution be paid, be equal to AP's contribution and shall thereafter, unless otherwise agreed, at no point of time exceed AP's contribution."

Further, my attention was invited to the fact that in the slump sale agreement it is clearly mentioned that the assets were valued by the statutory auditors, which is clear from the following :

"Statement of acquired net assets shall mean and contain the particulars of acquired net assets together with the relevant values."

"The value as of the sale date of the acquired current assets and acquired current liabilities will be precisely determined by one of PAL's statutory auditors within 5 weeks from the execution date..."

Shri Kapila commented upon the finding given by the learned AM and submitted that it is not in consonance with the registered sale deed dt. 27th May, 1996, and the assessee did not place any evidence to establish that the land and building was valued in September, 1995. The assessee filed application under Section 230A of the Act in April, 1996 and the property was registered in May, 1996. The CIT(A) has also held that the certificate under Section 230A was obtained on 24th April, 1996 and the transferee-company has got the valuation of plant and machinery done in September, 1996. Shri Kapila brought to my notice paras 43 and 44 of the order of the learned JM and also Schedule 2B of the slump sale agreement where it is clearly mentioned that "price not included". With reference to the observations of the learned AM about the "petty aberrations" and the decision in the case of Electric Control Gear Mfg. Co. (supra) are concerned, it is submitted that the said findings are without any basis and he did not consider the various agreements entered into by the assessee. In this connection, he pointed out the different findings given by the learned JM in para 36 of his order wherein it is mentioned that the issue as to whether the amount is assessable to tax under Section 45 of the Act or not was not the subject-matter of consideration by the Hon'ble Supreme Court in the case of Electric Control Gear Mfg. Co. (supra) and thus that decision of the apex Court has no application to the facts of the present case. Shri Kapila further pointed out that in the case of Electric Control Gear Mfg. Co. (supra) the issue involved was whether the excess amount between the sale price and the written down value was chargeable under Section 41(2) or not. But in the present case, the question is whether the assessee has earned capital gains or not, which was not there before the apex Court. In fact, the High Court in this case gave the decision in respect of taxation of capital gains in favour of the Revenue. He pointed out that the learned AM has ignored the finding of the CIT(A) given in para 105 of his order.

(vii) Slump sale was not at arm's length Shri Kapila commented upon the order of the learned AM, where he has held that the valuation of the assets was done by the transferee-company in September, 1996 and in his opinion there was no price for each asset. While giving this finding, the learned AM ignored the material available on record which establishes the fact that the management of transferee-company was carried on by the transferor-company in consultation with the Pal Peugeot Ltd. There were common directors. All significant or material decisions relating to KMCPL or transferee were taken by the assessee-company and it deputed its officials to transferee-company for running the day to day business. Thus the assessee manages the business of the transferee-company. My attention was invited to p. No. 5 (Clause 5 of MOU dt. 11th March, 1993); p. No. 21 (supplemental agreement Clause 5) and p. Nos. 45, 52 and 70 (joint venture agreement).

(viii) Capital gain arising on transfer of industrial undertaking is assessable under Section 45 of the Act Shri Kapila submitted that the gain arising from transfer of Kalyan business is assessable to tax under Section 45 of the IT Act. The word 'property' in the definition of 'capital asset' would include an undertaking acquired as a whole. He referred to the decision of the Hon'ble Kerala High Court in Kar Valves Ltd.'s case (supra) and also in the case of F.X. Periera & Sons (Travancore) (P) Ltd. (supra) for the proposition that when a business is sold as a going concern, it itself constitutes transfer of a capital asset as defined in Section 2(14) of the IT Act. It was submitted that the business undertaking as a whole would constitute 'capital asset' within the meaning of Section 2(14) of the Act. Reference was made to the decision of the Hon'ble Delhi High Court in the case of P.N.B Finance Ltd. v. CIT (2001) 252 ITR 491 (Del) and to the decision of the Hon'ble Supreme Court in the case of Artex Mfg. Co. (supra). It was submitted that the finding given by the learned AM is contrary to the facts and case laws cited above. He also relied on the following decisions for the proposition that capital gain on such transfer is assessable under Section 45 of the Act :

(i) Killick Nixon & Co.'s case (supra)

(ii) Artex Mfg. Co.'s case (supra)

(iii) Electric Control Gear Mfg. Co.'s case (supra)

(iv) P.N.B. Finance Ltd.'s case (supra)

(v) Anand Electric Co. Ltd.'s case (supra)

(vi) Akola Electric Supply Co. (P) Ltd.'s case (supra)

(vii) Nagpur Electric Light & Power Co. Ltd.'s case (supra)

(viii) Artex Mfg. Co. v. CIT (1981) 131 ITR 589 (Guj)

(ix) Dasaprakash Bottling Co.'s case (supra)

(x) Southern Roadways Ltd.'s case (supra)

(xi) West Coast Electric Supply Corporation Ltd v. CIT (1977) 107 ITR 483 (Mad).

22. Shri Kapila submitted that the next question that is placed before me is whether the sale proceeds on the sale of assets to KMCPL are assessable to tax as long-term capitals gains, short-term capital gains and business income? It is submitted it was not a case of slump sale. The assessee did not file details of current assets which were transferred. The assessee itself had mentioned the price of land and building while obtaining certificate under Section 230A of the Act. In this connection, it is further submitted that as per the decision of the Hon'ble Rajasthan High Court in the case of Vimal Chand Golecha (supra), the decision of the Kerala High Court in the case of V. Prakashan (supra) and the Madras High Court in the case of CIT v. T.C. Itty Ipe (2001) 249 ITR 591 (Mad) the AO is entitled to bifurcation if there is a consolidated price for transfer of capital assets.

23. Shri Kapila further submitted that the assessee claimed depreciation on building, plant and machinery and paint shop. So the gain arising from transfer of these assets has been rightly brought to tax as short-term capital gains under Section 50 of the Act. Long-term capital gain arises on transfer of land. The learned AM, it was submitted, has not given any reasons for not bringing the gain or surplus arising from the transfer of land to tax. It was submitted that though in para 10 of the order of the learned AM a direction was given to the AO stating that for the purposes of calculation of depreciation allowable to the assessee, the amount of Rs. 210 crores is to be split up as per transferee-company's allocation, he (the learned AM) further held that the splitting up is only. for the purpose of calculating the allowable depreciation. In this connection, it was submitted that in a way the learned AM has approved the computation of long-term capital gains. He further pointed out that the AO has adopted the value reflected by the transferee-company for the purpose of calculation of depreciation. In the case of plant and machinery, building and paint shop, the selling price was more than the opening written down value. Therefore, the AO has rightly assessed the short-term capital gains arising from the transfer of various assets.

24. The learned Departmental Representative, Shri Kapila, made alternative submissions in regard to question Nos. 1 and 2. He submitted that on sale of assets of the Kalyan business, a profit of Rs. 1.84 crores will be brought to tax. Regarding land and building, it was submitted that these assets were sold by the sale deed dt. 27th May, 1995 and as per Section 47 of the Registration Act it will relate-back to the sale agreement dt. 6th Jan., 1995. In this connection, reliance was placed on the Full Bench decision of the Hon'ble Gujarat High Court in CIT v. Mormasji Manchaiji Vaid (2001) 250 ITR 542 (Guj)(FB) and the Supreme Court decision in the case of Gurbaxsingh v. Kartarsingh (2002) 122 Taxman 121 (SC). The sale deed was furnished in the course of assessment proceedings and, therefore, the valuation for consideration has to be given due cognizance. It was submitted that even where consideration was not ascertained, capital gain is chargeable in the year of transfer as contemplated under Section 2(47) of the Act. In this connection, reliance was placed on the decision of the Delhi High Court in the case of CIT v. Rohtak Textile Mills Ltd. (1982) 138 ITR 195 (Del) and of the Madhya Pradesh High Court in the case of Smt. Jeejeebai Shinde v. CIT (1983) 144 ITR 693 (MP). Lastly, it was submitted that though the slump sale agreement was for both movable and immovable properties, the sale deed was executed and registered only for immovable properties. Therefore, it was not a slump sale, as there is no combined sale deed. In this connection reliance was placed on the decision of the Calcutta High Court in the case of K.C. Pal Chowdhury v. CIT (1962) 46 ITR 1 (Cal) at 13 and on the decision of the Supreme Court in the case of Alapati Venkataramiah v. CIT (1965) 57 ITR 185 (SC). The sale has, therefore, taken place in three clear transactions as mentioned below :

1. Sale of immovable property by sale deed dt. 27th May, 1996.

2. Sale of current assets as per slump sale agreement dt. 6th Jan., 1995.

3. Balance fixed assets, as mentioned in para 47 of the order of the learned JM.

25. In reply, the learned counsel for the assessee supported the findings of the learned AM and controverted the arguments of the learned Departmental Representative and also the findings of the learned JM. It was submitted that two machineries taken from Pune and Kurla were required to complete the capacity of the plant to manufacture 50 to 60 thousand cars per annum. Therefore, these machineries were sold along with the Kalyan business. The assets transferred from Kurla and Pune are known to the Department and the full details of Rs. 37.14 crores are with them. Regarding the non-transferring of land located at Kalyan and sundry debtors, it was submitted that the assessee owned Kalyan plant and some pieces of land situated in Kalyan municipality, but not within the Kalyan business. As regards the debtors relating to the Kalyan undertaking not transferred, it was submitted that all the debtors of the Kalyan business effective from 1st Sept., 1994, were transferred. This proves that the assessee had sold everything belonging to Kalyan business. As regards the non-transferring of deposits, it was submitted that the deposits were not taken over by the joint venture because the deposits were received from several depositors and it was physically impossible to obtain each depositor's consent for transferring the same. So also the liability of Rs. 13 crores was not transferred because the assessee-company had agreed to sell completed paint shop and Rs. 13 crores were expected to be spent to complete the paint shop. Regarding the encumbrances on the assets, it was submitted that the assessee-company owe some money to ICICI for which permission to sell was obtained and ICICI did not have any lien on this facility. With regard to the non-transferring of depreciation fund, revaluation of depreciation fund and revaluation reserve, it was submitted that they were not the liabilities and hence they were not transferred. It was pointed out that in all purchases of running business, liabilities known and recorded were taken over by the purchaser and they have not taken over unknown and unspecified liabilities and Court cases. It is wrong to say that there were three sales. The company had made only one composite sale. The use of the word "consideration" in the conveyance deed was one step towards implementing the slump sale agreement. Since immovable property cannot be transferred without payment of stamp duty, the value has to be fixed in the document. Therefore, value was fixed in the conveyance deed and also shown in the application under Section 230A of the Act. But the assessee has explained in its letter dt. 24th Sept., 1994, that it was a slump sale of a going concern. It was further submitted that all liabilities that had been incurred or accrued till 29th Sept., 1994, had been taken over and when the business is taken over the known liabilities are also taken. The conclusion of the learned JM that the valuation of the assets was not mentioned deliberately is wrong. In the light of the facts mentioned above, it was pointed out that it was a case of slump sale for a lump sum payment and it has been mentioned in the application under Section 230A of the Act also. Regarding the argument on Schedule 2B, where the value column was left blank and in some of the documents the words "excluding price", it is submitted that out of the total 906 due diligence cards, only in 241 cards such words are mentioned. The use of the words "excluding price" did not make any difference. The persons undertaking due diligence did not take into account the price of the asset. Referring to the conveyance deed, the learned counsel for the assessee submitted that the so-called consideration of Rs. 43.44 crores was not paid by any separate cheque but was included in the monies due to the assessee-company. Further, the mere fact that the transferee-company and the assessee-company had some common directors does not mean that the contract was not at arms length, especially when the company is a reputed foreign company. As regards the argument that capital gain is chargeable under Section 45 of the Act, it was pointed out no such plea was taken before any authority. So the Tribunal cannot take notice of the same. It was further submitted that details of current assets and liabilities amounting to a net figure of Rs. 37.84 crores had been with the Department. Otherwise, how the Department could tax Rs. 1.84 crores as business income. The learned counsel for the assessee tried to distinguish the facts of the case in the following decisions :

(i) Vimal Chand Golecha's case (supra)

(ii) V. Prakashan's case (supra)

(iii) T.C. Itty Ipe (supra) It was pointed out that the learned AM has only held that for the purpose of working out depreciation, the price may be split up and not for any other purpose. As regards the argument that on the balance fixed assets forming part of block assets depreciation was allowed it was submitted that this statement is not correct, because no depreciation was claimed on plaint shop. Similarly, there is no profit element in the sale of current assets.

26. The learned counsel for the assessee further tried to explain the decision in the case of F.X. Periera & Sons (Travancore) (P) Ltd. (supra). At the end it was submitted that the assessee had no objection to the amount being taxed in this year if it is taxable. However, the case of the assessee is that no part of Rs. 210 crores is taxable because it is not divisible. When it is not divisible, long-term capital gain or short-term capital gain cannot be worked out. It was further submitted that the cases relied upon by the learned Departmental Representative K.C. Pal Chowdhury's case (supra) and Alapati Venkataramiah's case (supra) are not applicable to the facts of the present case.

27. I have considered the rival submissions and have gone through the material available on record. The first question referred by the Hon'ble President is as under :

"Whether the sale of assets termed by the assessee as the sale of Kalyan business is slump sale?"

In order to appreciate the concept of slump sale, we have to look into the definition given by the jurisdictional High Court in the case of Narkeshan Prakashan Ltd. (supra). The Hon'ble High Court held as under :

"A mere look at the agreements would clearly indicate that what was sold was the entire branch business as a whole lock, stock and barrel. Several items were such as would not be independently purchased. The value of the liabilities is adjusted against the value of assets."

Thus, slump sale implies sale of going concern lock, stock and barrel, and the sale should be on "as is and where is basis". In case of a branch or a unit or an independent undertaking, it involves sale of entire branch, unit or the undertaking including of all its assets and liabilities. Applying the principles laid down by the Hon'ble High Court, where a unit is sold without sale of its assets or liabilities or by selling as a composite part of such a sale substantial assets of other units, it cannot be said to have the character of slump sale. A slump sale involves a lump sum price for all assets and liabilities. The assessee-company has alleged that it has transferred Kalyan business which has been set out in joint venture vide agreement dt. 19th Oct., 1994. If we look into the relevant Clause 'F' of joint venture agreement, we find that Clause 'F' mentions as under ;

"(F) As set forth in the MOU, PAL and AP agreed that subject to the terms and conditions of the slump sale agreement, PAL would sell to KMCL some of the assets including, inter alia, plant and machinery situated at Kalyan or any other locations such assets hereinafter referred to as Kalyan business."

28. From the above, it is clear that it is not a sale of Kalyan assets only. In addition to Kalyan assets, the assessee transferred assets located in other plants, i.e., it transferred engine machining workshop, which comprises of a series of machines as well as a gear box assembling workshop from Kurla Unit and also transferred 116 NE and 137 diesel engine licence, which is clear from the relevant portion of MOU dt. 11th March, 1993, which reads as under:

"The joint venture will operate, either at Kalyan or at any other mutually agreed place as appropriate, an engine machining workshop to be transferred from Pune and a gear box assembling workshop to be transferred from Kurla."

Thus,, it was not exclusive transfer of Kalyan unit, rather it was transfer of assets located at various plants of assessee. The supplementary MOU dt. 17th May, 1994, reveals that wherein it was agreed that assets from other locations were also required to be transferred after due verification process (industrial due diligence) for verification of principal items of the assets including plant and machinery situated at Kalyan or any other locations (Kurla, Pune and other locations) with a view to carry out broad verification of such items. Besides this, it is significant to note that Clause 2C of the agreement dt. 6th Jan., 1995, establishes the fact that the assessee transferred assets other than Kalyan undertaking because this clause stipulates the dismantling and transport cost of the assets to be borne by the assessee. This is clear from the following Clause 2C :

"2C. It is agreed that : (i) All costs relating to dismantling and transportation of the acquired net assets up to the site of Kalyan (whether such dismantling and transportation occurs on the sale date or at any other time as mutually agreed by the parties) will be borne by PAL. (ii) All costs relating to the installation and putting into operation of the acquired net assets will be borne by the company."

Thus, the above clauses of MOU and agreement clearly show that the assessee had transferred assets from Kalyan business as well as from other locations.

29. The learned CIT(A) has pointed out that when the assessee was called for to furnish the details of current assets transferred by the assessee-company, whose value was reflected at Rs. 36.13 crores, the assessee could not furnish the details. The claim of the assessee is that these details were available on the record of the AO. However, this fact could not be established. Further, it is worthy to note that the value of the current assets reflected by the transferee was at Rs. 37.14 crores as against the value reflected by the assessee at Rs. 36.13 crores.

30. The assessee has sold land as part of Kalyan assets. The assessee owned land to the extent of 18,19,769 sq. mts., but it transferred land to the extent of 7,23,449 sq. mts. as part of Kalyan assets. In the agreement dt. 27th May, 1996, the assessee clearly stated that the entire land was owned by the assessee and it has agreed to transfer 7.2 lakhs sq. mts. for a consideration of Rs. 43.44 crores. Thus, it is clear that as per the agreement, the entire land was not transferred. The reason why the remaining portion of the Kalyan business was not transferred show the circumstances which establish that the entire Kalyan undertaking was not transferred. In the slump sale agreement, it was agreed that some of the assessee's movable assets will remain located at Kalyan premises of the company, which is clear from the following Clause 4.3 :

"4.3 After the sale, some of the acquired movable assets will remain located either in PAL's residuary business premises or in vendors' premises. PAL shall fix a plate indicating that such acquired movable assets are owned by the company and shall file any relevant documents, if necessary, to make such ownership enforceable towards any third party. PAL shall cause its vendors to fix such plates on the acquired movable assets lying or situated in the vendors' premises."

Besides this, Clause 3.22 also shows that the accounts receivable shall continue to belong to PAL and the company was not liable or entitled to take over the same and make any payment to PAL in respect thereof. However, the company shall at the cost and expenses of PAL assist PAL in the realization of the accounts receivable owed to PAL by their customers but without in any manner suffering any loss or detriment to the business taken over by the company.

31. As per agreement after transfer of the undertaking, there was an agreement whereby the business was run by the directors of the assessee-company on behalf of joint venture company. It is noteworthy that there are common directors in the transferor and transferee-companies. The management of the transferee-company was carried on by the transferor-company in consultation with Pal Peugeot Ltd. All significant and material decisions relating to KMCPL or transferee were taken by the assessee-company. The assessee-company deputed its officials to transferee-company for running the day to day business. Thus the assessee-company managed the business of transferee-company which is clear from Clause 5 of MOU dt. 11th March, 1995, supplementary agreement Clause 5 and joint venture agreement. The assessee-company transferred Kalyan unit including paint shop. At the time of transfer, paint shop was under construction and the assessee agreed to complete the construction of paint shop within a stipulated time and also agreed to pay liquidated damages for non-completion of paint shop within the stipulated time. Thus, this clause of slump sale agreement dt. 6th Jan., 1995, establishes the fact that it was not a slump sale and the assessee agreed to complete it, which is clear from the following clause of the agreement:

"(6) Should the paint shop as of 31st Jan., 1995 still not meet the acceptance requirements as determined in Shedule 2.B.2(3) and should such delay be directly attributable to PAL, then it is agreed that PAL shall pay to the company liquidated damages calculated on a pro rata basis."

So it is clear that the paint shop, which was agreed to be transferred, was still under construction and could not be transferred.

32. It is observed that the assessee did not maintain separate accounts for Kalyan unit and further no books of account were maintained between the intermediate period of joint venture agreement for period from 1st April, 1993 to 31st March, 1995. The AO has mentioned that the assessee did not produce fixed assets register to substantiate the fact that all the assets relating to Kalyan unit were transferred.

33. It is an admitted position that the assessee-company did not transfer the deposits of various customers, which is clear from Clauses 4.6.1, 4.6.13 and 4.6.14 of slump sale agreement. Clause 2D of the slump sale agreement reveals that the assessee did not transfer the loan obtained from ICICI, which is clear from the following paragraph :

"2D, As soon as practicable, PAL will obtain agreements of the lenders which are a party to agreements with or relating to the Kalyan business, which will give effect to certain modifications and relaxations granted by the lenders. It is agreed that any prepayment costs or additional interest costs subject to overall ceiling of Rs. 2,00,00,000 (rupees two crores) actually imposed by the lenders in order to effect the above modifications or relaxations shall be for the account of the company. The company shall reimburse this amount to PAL only on confirmation from the lenders that such payment has been made by PAL to the lenders thereby fulfilling their conditions."

The assessee did not transfer the creditors to the tune of Rs. 13 crores and it agreed to discharge such liability. Further, the assessee did not transfer depreciation fund to the tune of Rs. 35.02 crores, revaluation of depreciation fund of Rs. 3.5 crores and revaluation reserve of Rs. 14.4 crores. The assessee did not transfer other liabilities attributable to residuary business, which is clear from Clause 3.8 of slump sale agreement. All liabilities and pending Court cases of the assessee prior to the date of sale deed were taken over by the transferor. The slump sale agreement stipulates the liabilities arising out of settlement with labour by the assessee pertaining to the period prior to the date of sale are with the assessee," which is clear from Clause 3.7.5 of the slump sale agreement. In this way, the evidence at pp. 127, 131 and 134 of the paper book show the facts that all the liabilities were not transferred.

34. The learned Departmental Representative has pointed out that the assessee did not receive single price for transfer of various assets, which is clear from Clause 2B of the slump sale agreement. Similarly, it is pointed out that the first sale was for net current assets for a sum of Rs. 37.84 crores. The second sale was of land on 27th May, 1996, for consideration of Rs. 43.44 crores. The sale deeds stipulate that the assessee agreed for this consideration, which is clear from following averments :

"Whereas the vendor is seized and possessed of or otherwise well and sufficiently entitled to all those pieces or parcels of land together with factory buildings, sheds and other structures situated at Kalyan in the registration district and sub-district of Thane admeasuring 7,23,449 sq. mts. more particularly described in the Schedule hereunder written (hereinafter referred to as 'the said property');

And Whereas the purchases has valued the said property at Rs. 43,44,59,477.50;

And Whereas it is agreed by and between the parties hereto that the vendor shall sell to the purchaser and the purchaser shall purchase from the vendor the said property together with factory buildings, sheds and other structures standing thereon at and for the consideration of Rs. 43,44,59,500."

The assessee vide above letter dt. 15th Jan., 1998, admitted that it had sold the entire running Kalyan business for a consideration of Rs. 247 crores, whereas the allegation of assessee is that it has received an aggregate consideration of Rs. 210 crores for slump sale. The assessee thus received Rs. 210 crores towards the value of immovable and movable assets and Rs. 37.84 crores for net current assets. Thus, the total consideration received by the assessee comes to Rs. 247 crores, which is established by letter dt. 15th Jan., 1998. From the above, it is clear that the assessee did not sell the Kalyan business as a going concern "lock, stock and barrel". Therefore, as per the decision of Hon'ble Bombay High Court in the case of Narkeshari Prakashan Ltd. (supra), it cannot be said that the case of the assessee fits in the parameter of concept of "slump sale".

35. Besides the above features, I find that in the application moved under Section 230A of the IT Act before the tax authorities, the assessee mentioned specific value for the land and building. The same value is adopted by the transferee for the purpose of claiming depreciation. The case of the assessee is that in the covering letter it was specifically mentioned that there was tax on slump sale as per agreement, whereas the contents in the application under Section 230A gains importance and not the covering letter inasmuch as the AO, in common practice, would take action only on the basis of the contents furnished in an application under Section 230A and the covering letter may not have been noticed. In the said application, the assessee chose to specify the transfer price of land and building at Rs. 43.44 crores against col. (1), which speaks of the actual consideration for which the property was purported to be transferred. The fact that the same price is mentioned in the sale deed for the purpose of registration under the Stamp Duty Act wherein it was categorically mentioned without any iota of doubt that the assessee had agreed to sell the land and building at Rs. 43.44 crores and the purchaser had agreed to purchase the same at that price, indicates that the assessee had fixed the price for the transfer of land and building and it was not intended to be slump sale. A reading of Section 230A application together with the sale deed would make it clear that the assessee was aware of the price at which the land and building were to be transferred and this substantial evidence proves that the assessee's intention was to give colour of slump sale, though, in fact, the price of each item transferred to the purchaser was properly known to the assessee before the date on which the purchaser recorded in its books specific price for the purpose of claiming depreciation. Even as per MOU dt. 11th March, 1993, individual assets were assigned some value and as per the supplemental MOU the parties have agreed to undertake a verification process (industrial due diligence) for verification of principal items of the assets including plant and machinery situated at Kalyan or any other location. Joint venture agreement dt. 19th Oct., 1994 also indicates that the contribution of PAL is the consideration of sale of Kalyan business at the values and the manner particularly set out in the slump sale agreement. The "statement of acquired net assets" shall mean and contain the particulars of acquired net assets together with relevant values. In the same agreement, it was mentioned that the value as of sale date of acquired current assets and acquired current liabilities will be determined precisely by the assessee's statutory auditors.

36. Due diligence report is not an empty formality. It ordinarily means ascertaining the condition of the asset in relation to the approximated price agreed upon, so as to appreciate whether the slump sale price fixed is reasonable or not. It presupposes valuation of the assets also as, otherwise, there would be no meaning in the due diligence exercise. There is no statutory format for the purpose of obtaining due diligence report. It cannot be said that standard formats are available in the market. Due diligence reports are taken by certain companies under certain circumstances and since there would not be any market for such formats, readymade formats would not have been obtained from the market. When the assessee has prepared its own due diligence report, there was no need to have a column to indicate the price of each asset. The circumstances, thus, clearly show that though the exercise of fixing a price for each asset was undertaken by both the parties, the price was not mentioned in the due diligence report. The case of the assessee is that in some forms against the value column, it was specifically mentioned "excluding price". Apart from supporting the case of the assessee, this would support the stand of the Revenue because it establishes the fact that the parties ascertained the price, but it was not included in the due diligence report.

37. The totality of the facts and circumstances, evidence on record and preponderance of probabilities are in favour of holding that the price of each asset transferred by the assessee is known beforehand. In the instant case, the matter needs to be examined by taking into consideration the entire gamut of facts and circumstances of the case. It is well settled that "men may lie but the circumstances may not". Sometimes, even after a careful tax planning, some narrow gaps are left which would hint at the real state of affairs proving the well-known saying that guilty conscious speaks of itself. Mention in some of the due diligence reports "excluding price" and the sale deed registered before the stamp duty authorities are the glaring circumstances, apart from other indications, to show that the transfer was not a slump sale.

38. The main contention of the assessee is that there is no evidence to show that the assessee has valued each asset before settling for the price of Rs. 210 crores. It was also contended that the original schedules were verified by the CIT(A) in the presence of AO which clearly shows that the column for value was left blank even in the original schedules annexed to the slump sale agreement. In my considered view, the parties to the agreement would not have allowed the column to be written if it is of no consequence to the deal and, therefore, the tax authorities were correct in assuming that the value of assets were not mentioned consciously in the slump sale agreement.

39. The assessee's counsel has heavily relied on the decision in the case of Mugneeram Bangui & Co. (supra). It would be worthwhile to note that issue as to whether the sale of capital asset is assessable to tax under the head "capital gains" was not the subject-matter of consideration before the Hon'ble Supreme Court. It may also be noted that the seller is not different from the purchaser because the partners of the selling firm were the shareholders of the company, which purchased the business. Under these circumstances, the Hon'ble Supreme Court observed that the vendor might not have valued the land at the time of sale.

40. The learned counsel for the assessee relied on the decision of Narkeshari Prakashan Ltd. (supra). I have already discussed the principles of law laid down in that case by the Hon'ble High Court. Besides this, I would like to mention here that was a case relating to provisions of Section 41(2) of the IT Act inasmuch as in that case where the business was sold as a going concern, the excess realized may not be business profit but will be capital gain chargeable to tax. In that case, there was sufficient evidence to show that the project was sold as a whole "lock, stock and barrel", whereas in the case of the assessee before me, it is not so.

41. Heavy reliance was placed by the learned counsel in the cases of Artex Mfg. Co. (supra) and Electric Control Gear Mfg. Co. (supra). In the case of Artex Mfg. Co. (supra) the question before Hon'ble Supreme Court was whether the surplus as a result of difference between written down value, and the sale consideration for the plant and machinery and dead stock transferred by the assessee was taxable under Section 41(2) of the IT Act. The Hon'ble Supreme Court observed that in a case where it can be found that a particular price is attributable to a particular item, then the excess amount would be charged to tax under Section 41(2) of the Act. Since the assessee admitted before the AO that the plant and machinery and dead stock having revalued at the time of agreement for sale, same has to be taken into consideration for the purpose of Section 41(2) of the Act even though in the sale agreement the assessee has not mentioned the value of the plant and machinery and dead stock separately. Since the income was held to be chargeable to tax under Section 41(2), the same is not assessable to tax under Section 45. The Court observed that under Section 41(2) the amount of surplus to the extent of difference between the written down value and the actual cost has to be treated as capital gain for the purpose of taxation.

42. In the case of Electric Control Gear Mfg. Co. (supra), the firm transferred the entire assets of the business together with liabilities as a going concern to the limited company. The partners of the assessee-firm were allotted shares of the same value in the profit sharing proportion. Following questions were referred for the consideration of the Hon'ble Supreme Court :

(1) Whether, on the facts and circumstances of the case, Section 41(2) was applicable?

(2) Whether, on the facts and circumstances of the case, the Tribunal was right in holding the status of assessee-firm as registered firm and not as AOP?

(3) Whether the assessee was not entitled to relied on the basis of two circulars referred by it?

The Hon'ble Supreme Court held that there is nothing to indicate in the present case that the price attributable to assets like building, plant and machinery may be out of the consideration. Merely because a sum has been allowed as depreciation to the assessee-firm, it cannot be said that there was excess amount between the price and the written down value. It has been observed that the question as to whether the amount is assessable to tax under Section 45 of the Act or not is not subject-matter of consideration by the Hon'ble Supreme Court and thus it has no application.

43. In the case of B.M. Kharwar (supra), the firm which carries on business of manufacture, purchase and sale of cloth closed the manufacturing site and transferred its machinery to a private limited company in the share capital of which the partners of the firm had the same interest as they had in the assets and profit of the partnership. The question arose whether the amount received in excess over the written down value of the machinery is liable to tax by applying the second proviso to Section 10(2)(vii) of the Indian IT Act, 1922 and, considering the facts of the case, the Hon'ble Supreme Court held as under:

"It is now well-settled that the taxing authorities are not entitled in determining whether a receipt is liable to be taxed, to ignore the legal character of the transaction which is the source of the receipt and to proceed on what they regard as 'the substance of the matter'. The taxing authority is entitled, and is indeed bound, to determine the true legal relation resulting from a transaction. If the parties have chosen to conceal by a device the legal relation, it is open to the taxing authorities to unravel the device and to determine the true character of the relationship, put the legal effect of a transaction cannot be displaced by probing into the 'substance of the transaction'. This principle applies alike to cases in which the legal relation is recorded in a formal document, and to cases where it has to be gathered from evidence oral and documentary and conduct of the parties in the transaction."

The facts of the present case are distinguishable from the facts of the case cited by the learned counsel for the assessee. Therefore, the ratio laid down by the Hon'ble Supreme Court is not applicable to the facts of the present case.

44. The learned Departmental Representative has made an alternative submission that, without prejudice to the arguments and conceding that it was a slump sale, the gain arising from the transfer of Kalyan business is assessable to tax under Section 45 of the IT Act. In this connection, reliance was placed in the decisions of Kerala High Court in Kar Valves Ltd. (supra) and F.X. Periera & Sons (Travancore) (P) Ltd. (supra) and Delhi High Court in P.N.B. Finance Ltd.'s case (supra) for the proposition that where the whole business together with its assets and liabilities was transferred for a consolidated price and not sold by any itemized value or item-by-item price fixed for different assets, any surplus will be capital gain.

45. I have considered the arguments of learned Departmental Representative in the light of above cited cases. It has been held that the gain or surplus arising from the transfer of an undertaking is chargeable to tax under Section 45. The Hon'ble Delhi High Court relied on the decision of apex Court in the case of Artex Mfg. Co. (supra) and came to the conclusion that capital gain arising in slump sale is liable to tax under Section 45. Even on this count also, the case of the Department is very strong. In the case of T.C. Itty Ipe (supra) and in Vimal Chand Golecha's case (supra), it has been held that the definition of "capital asset" includes property of any kind and the land and building held by the assessees are capital assets. It is not possible to say that by construction of building, the land, which was long-term capital asset, has ceased to be a long-term capital asset. The land is an independent capital asset and it continues to remain as independent capital asset even after construction of building. So, the price has to be bifurcated. The capital gain arising from the sale of land has to be treated as long-term capital, whereas for the building it has to be treated as short-term capital gain.

46. Therefore, taking into consideration the legal position coupled with the facts and circumstances, evidence and preponderance of probabilities, I am of the opinion that the sale in the present case was not a slump sale. Therefore, I agree with the view taken by the learned JM. Hence, question No. 1 referred by the Hon'ble president is answered in negative and in favour of the Revenue.

47. The next issue arises as to whether the sale proceeds of assets of Kalyan Motor Co. are taxable as long-term capital gain, short-term capital gain and business income respectively. In the preceding paras 1 have already discussed that bifurcation of sale price is in accordance with law. The learned JM has mentioned that the issue relating to the amount of Rs. 20,49,56,346 is set aside to the file of AO. This issue was not pressed by the learned counsel. Accordingly, the inclusion of this amount is not taken up for consideration. Regarding Rs. 91)28,51,794 the case of the learned counsel is that there are assets such as technical know-how and capital work in progress. As can be seen from p. 59 of assessment order, the inclusion of aforementioned sum is referable to short-term capital gain as under :

   

Rs.

(i) On sale of building as per para 11.26 19,31,67,078

(ii) On sale of plant and machinery as per para 11.28 64,39,50,057

(iii) On sale of paint shop as per para 11.29 7,57,34,659     91,28,51,794 The assets transferred included building situated at Kalyan and also plant and machinery. The assessee admittedly claimed depreciation on those assets, which was allowed in earlier years, and they were considered for depreciation as a block of assets under Section 50. Any amount received on account of transfer of an asset goes to reduce the block and in case there has been addition, the block of assets has to be increased. In this case, sale price of the building was taken at Rs. 23.24 crores by the AO. Accordingly, the short-term capital gain on sale of building was worked out at Rs. 20.61 crores. The AO has also given the reason for arriving at profit on account of sale of plant and machinery at Rs. 64.39 crores.

48. The issue regarding profit on sale of paint shop was considered by CIT(A) at para 110 of his order. The case of the assessee is that when Rs. 210 crores is the lump sum price, which is not divisible, long-term capital or short-term capital gain cannot be worked out. Since I have held that it is not a slump sale and assessee had claimed depreciation on building, plant and machinery and paint shop, the gain arising from transfer of these assets has been rightly assessed for tax as short-term capital gain under Section 50 of the IT Act. The claim for treating the gain arising on transfer of land as long-term capital gain was upheld by the learned JM after considering various aspects. With regard to the inclusion of Rs. 1.84 crores as business income, the AO has discussed this issue in para 11.30 of his order. The slump sale agreement dt. 6th Jan., 1995, mentions the price to be paid by the transferee-company to the assessee-company as a consideration, which includes an amount to be determined after execution date corresponding to the value as on sale date of the acquired current assets and acquired current liabilities. Therefore, the price for sale was to be determined as per auditors' report. The value of net current assets was claimed to be Rs. 36 crores as per assessee's books, whereas the net price of the current assets shown by the transferee-company (joint venture) is at Rs. 37.84 crores. Therefore, the difference of Rs. 1.84 crores was rightly brought to tax. I, therefore, do not agree with the submission of the assessee's learned counsel that this amount is not separately taxable. The learned CIT(A) had set aside this issue for proper examination vide para 111 of his order. I do not find any infirmity in the said order. It will be pertinent to mention that the learned AM also indirectly agreed with the finding of learned JM in paras 9 and 10 of his order. I, therefore, agree with the finding given by the learned JM. In view of the above facts and circumstances, question No. 2 is also answered in favour of the Revenue and against the assessee.

49. Consequently, the findings of learned JM on these two issues are hereby confirmed.

50. The matter will now go before Regular Bench for disposal of the appeal in accordance with the opinion of majority.

BY THE BENCH :

1. The following points of difference were referred to the Third Member to resolve the controversy :

"1. Whether the sale of assets, termed by the assessee as the sale of Kalyan business, is a slump sale?

2. Whether the sale proceeds on the sale of assets to Kalyan Motor Co. Ltd. are assessable to tax as long-term capital gains, short-term capital gains and business income?"

2. The Hon'ble Third Member has confirmed the findings of the JM on these two issues. In conformity with the view of the majority, we hold that the sale of assets termed by the assessee as the sale of Kalyan business is not a slump sale and the sale proceeds on the sale of assets to Kalyan Motor Co. Ltd. are assessable to tax.

3. At the time of hearing, learned counsel for the assessee filed an affidavit i.e., affidavit of Mr. Maitreya Doshi, managing director of the Premier Automobiles and a letter dt. 19th April, 2002, addressed by general counsel of Peugeot to the assessee-company wherein it was confirmed that there was no collusion with PAL and AP and the transaction between the two was a transaction of slump sale. Learned counsel placed reliance on several decisions including the decision of Hon'ble Allahabad High Court in the case of Jan Mohammed v. CIT (1953) 23 ITR 15 (All) at 26 in support of his contention that the additional evidence can be considered by the Bench while giving effect to the order of the Third Member. We are unable to agree with the contention of the assessee. It may be noticed that this very evidence was furnished before the Third Member which was not admitted by the Hon'ble Third Member. At any rate, as per s. 255(4) of the IT Act, 1961 when a Third Member decides the issue, the Division Bench which has originally heard the case should merely decide on those points as per the opinion of the majority and on the same point, it cannot take a different view. The evidence which is sought to be placed before us at this juncture, does not pertain to any new point in dispute and therefore, the same cannot be accepted at this stage. We, therefore, do not take additional evidence on record.

4. In the result, appeal filed by the assessee is partly allowed.