Income Tax Appellate Tribunal - Ahmedabad
Kishorchand K. Bansal vs Deputy Commissioner Of Income Tax on 14 August, 2000
Equivalent citations: [2002]80ITD585(AHD), (2003)78TTJ(AHD)429
ORDER
T.N. Chopra, A.M.
1. This appeal filed by the assessee is directed against the order of CIT(A) dt. 30th Sept., 1996 for asst. yr. 1993-94.
2. The main ground agitated by the assessee, through ground Nos. 1 and 2 is against assessment of an amount of Rs. 48,35,773 as short-term capital gains by the AO by invoking the provisions contained under Section 50(2). Briefly indicated the facts are that the assessee is an individual carrying on proprietary business under the name and style of Mahavir Rolling Mill. During the accounting year relevant for asst. yr. 1993-94 under appeal, the assessee transferred the assets and liabilities of the business to the company, Mahavir Rolling Mill (P) Ltd. for the total consideration of Rs. 86,21,000 vide agreement dt. 1st Sept., 1992. The assessee worked out the capital account as well as P&L a/c and balance sheet of the proprietary concern as on 31st Aug., 1992 and worked out the surplus realised on the fixed assets at Rs. 48,35,773 and disclosed the same as long-term capital gains in the return filed on 31st Oct., 1993. The amount of capital gains in the computation sheet has been worked out by the assessee as under:
Rs.
Rs.
Total realisation for the sale of Mahavir Rolling Mill 86,21,000 Less : Towards net current assets :
Total assets (except fixed assets) 2,81,63,224 Less : Total liabilities 2,71,95,415 9,67,809 76,53,191 WDV as per IT Act for asst. yr. 1992-93 28,67,418 Less : Sale consideration of Maruti car 50,000 28,17,418 48,35,773 In the note enclosed with the return it was pointed out that since the proprietorship business has been sold as a going concern, the entire profit on such sale is considered as long-term capital gains. With regard to computation of profit the assessee explained that cost of the assets has been adopted as per W.D.V. in the books. Subsequently, however, the assessee vide letter dt. 28th Feb., 1996, filed towards the close of the assessment proceedings requested the AO that though in the return income has been declared as long-term capital gains on the sale of the undertaking, income from the sale be treated as Nil. The assessee, however, did not file any revised return. The AO observed that the computation of surplus by the assessee in the computation sheet enclosed with the return clearly reveals that the surplus has arisen on account of fixed assets i.e. block of assets of the proprietary concern and the excess over the written down value of the block of assets worked by the assessee himself at Rs. 48,35,773 is liable to be assessed as short-term capital gains under Section 50(2) of the IT Act.
3. In appeal, the learned CIT(A) upheld the action of the AO and held that surplus realised on the sale of block of assets is liable to be treated as short-term capital gains under Section 50(2) of the Act. However, the learned CIT(A) directed the AO to verify the assessee's contention regarding those assets on which no depreciation has been claimed. Aggrieved with the conclusion of the tax authorities below the assessee has come up in appeal before us.
4. Shri S.N. Soparkar, the learned counsel for the assessee submitted during the course of hearing brief synopsis of the written arguments on the issue which is reproduced hereunder:
"1. For levy of capital gains, it is necessary to determine the cost of acquisition and the cost of improvement. In case of a sale of a running business it is not possible to determine the said cost. In view of this capital gains tax cannot be levied.
A. That the 'business undertaking' is an asset independent of and distinct from the separate assets forming part of such a business. [Syndicate Bank v. Addl. CIT (1985) 155 ITR 681 (Kar); West Cost Electric Supply Co. Ltd. v. CIT (1977) 107 ITR 483 at (Mad)) The fact that no capital gains tax could be levied becomes clear from Section 50B of the Act.
B. If no cost of the asset can be ascertained then no capital gains tax. [CIT v.
B.C. Srinivasa Shetty (1998) 128 JTR 294 (SC) (Goodwill);
CIT v. Ganapathy Raju (1993) 200 ITR 612 (SC) (Route permit); A. Gasper v.
CIT (1992) 192 ITR 382 at 386 (SC) (Tenancy rights);
Addl. CIT K.S. Shiek Mohiden (1978) 115 ITR 243 (Mad)(FB); (Import entitlements); CIT v. Clive Mills Co. Ltd. (1984) 148 ITR 14 (Cal) (Loom hours); Manohersinhji P. Jadeja (1987) 28 TTJ 43 (Ahd) ; (1987) 20 ITD 121 (Ahd) (lands); GSIC Ltd. 47 TTJ 279 (Ahd) (technical know-how)] In fact this position is accepted by the legislature which becomes evident from the provisions of Section 55(2)(a) of the Act.
2. In the present case the judgment of the Supreme Court in the case of CIT v. Electric Control Gear (P) Ltd. (1997) 227 ITR 278 (SC) shall apply and not the case of CIT v. Artex Mfg. Co. (1997) 227 ITR 260 (SC) because there is no allocation of sale price into different components.
3. In any case the capital gains must be taxed as long-term. See Section 50B,"
5. Shri A.D. Makwana, the learned Departmental Representative also made written submissions and argued that the provisions of Section 50(2) are clearly applicable to the instant case since the surplus realised on the block of assets worked by the assessee himself in the return refute the contention of the learned counsel that there is no itemised valuation of sale of various fixed assets of the assessee undertaking. The learned Departmental Representative strongly relied upon the decision of Hon'ble Supreme Court in the case of CIT v. Anex Mfg. Co. (supra) and argued that in the instant case Section 50 introduced w.e.f. 1st April, 1988 is a special provision for computation of capital gains in case of depreciable assets and surplus realised on the sale of block of assets has been rightly assessed by the AO as short-term capital gains,
6. We have carefully considered the rival submissions and also gone through the judicial authorities cited before us. From the facts on record as indicated hereinbefore it is evidently clear that the surplus realisation on the sale of proprietary business worked out by the assessee at Rs. 48,35,773 is attributable to block of assets covered under Section 50(2) of the Act. The working has been given by the assessee by way of computation sheet enclosed with the return and the surplus amount of Rs. 48,35,773 has been disclosed as long-term capital gain. As per assessee's own computation the current assets and current liabilities reflected in the books of the unit as on 31st Aug., 1992 are Rs. 2,81,63,224 and Rs. 2,71,95,415 respectively. Thus excess of current assets over the current liabilities works out to Rs. 9,67,809. This excess attributable to current assets and current liabilities has been deducted from the total sale realisation of Rs. 86,21,000 and the balance comes to Rs. 76,53,191 which represents the sale realisation of the block of assets held by the assessee. Total WDV of the block of assets aggregates to Rs. 28,67,418. The assessee has deducted the sale consideration of Maruti car separately for an amount of Rs. 50,000. Thus total WDV of the block of asset (after excluding sale consideration of Maruti car) has been worked out at Rs. 28,17,419. On the basis of this computation, the assessee has worked out the surplus realisation on sale of fixed assets like building, plant and machinery, furniture and fixtures etc. at Rs. 48,35,773. In the return of income this amount has been shown as long-term capital gains. In the light of these facts, we see ample merit in the contention of the Revenue that the excess realised on the sale of fixed assets worked out by deducting the sale consideration from the total WDV of the block of assets has been rightly assessed by the AO in the facts and circumstances of the case of invoking the provisions of Section 50(2).
7. The decision of Hon'ble Supreme Court in the case of Artex Mfg. Co. (supra) by the learned Departmental Representative fully supports the view being taken by us above. The learned counsel on the other hand, pressed into service with considerable vehemence the judgment of Hon'ble Supreme Court in CIT v. Electric Control Gear Mfg. Co. (supra) and argued that since there was no evidence to indicate price of plant and machinery or building realised by the assessee, provisions of Section 50(2) would not apply and any surplus realised by the assessee would be liable to be treated as capital receipt falling beyond the purview of Section 50 or Section 41(2). We have gone through both the judgments of Hon'ble Supreme Court and we find that the ratio of the decision of Supreme Court in Artex Mfg. Co.'s case (supra) is applicable to the facts of the case in hand. In the said decision the facts were that the assessee-firm carrying on the business of manufacturing art silk cloth entered into an agreement with a private limited company whereunder the business hitherto carried on by the assessee was agreed to be sold as a whole going concern. The consideration for the sale was agreed at Rs. 11,50,400. In the agreement of sale there was no reference to the value of plant, machinery and dead stock but on the basis of the information that was furnished by the assessee before the AO it became evident that the amount of Rs. 11,50,400 had been arrived at by taking into consideration the value of the plant and machinery and dead stock as asset by the valuer at Rs. 15,87,296. On these facts, the Hon'ble Supreme Court observed at p. 276 :
"This is not a case in which it cannot be said that the price attributed to the items transferred is not indicated and, hence Section 41(2) of the 1961 Act cannot be applied. We are, therefore, unable to agree with the view of the High Court that Section 41(2) of the 1961 Act is not applicable."
We feel that the facts of the instant case before us stand on a much stronger footing inasmuch as in the present case before us, the assessee himself provided the computation of surplus realised on the case of fixed assets of business, as reflected in the balance sheet on the date of sale. In our opinion, the surplus amount resulting from the transfer of fixed assets is liable to be assessed as long-term capital gains under Section 50(2) of the Act in view of CIT v. Artex Mfg. Co. (supra).
8. Since the view being taken by us is directly supported by the decision of Hon'ble Supreme Court in Artex Mfg. Co.'s case (supra), we do not consider it necessary to consider at length various decisions relied upon by the representatives on both sides. Suffice it to say, the Hon'ble Supreme Court has in Artex Mfg. Co.'s case (supra), relied upon by us, has referred to various decisions concerning the issue of taxability of surplus realised on the sale of assets of a business undertaking.
9. Ground Nos. 1 and 2 thus stand dismissed and the view taken by the learned CIT(A) on the issue is upheld.
10. Ground No. 3 is against sustaining the disallowance of Rs. 9,001 out of motor car expenses. The disallowance of motor car expenses sustained by the learned CIT(A) seems to be fair and reasonable and no interference is called for on our part.
11. Ground No. 4 is against the addition of Rs. 26,700 on account of interest payment sustained by the learned CIT(A). The interest disallowed by the AO and sustained by the learned CIT(A) is in respect of credits appearing in the names of 8 different parties. Such credits have been treated as non-genuine under Section 68 for the immediately preceding asst. yr. 1992-93. Vide our order in IT Appeal No. 701 and 558/96 for the immediately preceding assessment year, we have restored the issue of genuineness of cash credits to the file of the AO. Consequently the issue of interest payment on such credits is also set aside and restored to the file of the AO.
12. Ground No. 5 is against levy of interests under Section 234B and under Section 234C of the Act. The learned Departmental Representative argued that interest charged under Sections 234B and 234C is compensatory in nature and no interference is called for in view of the following decisions :
(i) Dr. S. Reddappa v. Union of India (1998) 232 ITR 62 (Kar);
(ii) Nemi Chand Jain v. Union of India (1998) 234 ITR 764 (MP);
(iii) Assam Bengal Carriers Ltd. v. CIT (1999) 239 ITR 862 (Gau);
(iv) Ramjilal Jagannath v. Asstt. CIT (2000) 241 ITR 758 (MP); and
(v) AM. Sainalabdeen Musaliar v. Union of India (2000) 242 ITR 400 (Ker).
13. We are inclined to agree with this. The ground is dismissed.
14. In the result, the appeal is allowed in part for satistical purposes.