Income Tax Appellate Tribunal - Lucknow
L.H. Sugar Factories Ltd. vs Asstt. Cit on 28 February, 2002
Equivalent citations: (2004)86TTJ(LUCK)1012
ORDER
P.N. Parashar, J.M. These are cross-appeals against the order of learned Commissioner (Appeals) dated 12-7-1996, for the assessment year 1993-94.
2. Shri G.N. Gupta, Adv., appeared on behalf of the assessee, whereas Shri D.K. Shrivastava, learned senior departmental Representative represented the department.
3. The assessee has taken as many as ten grounds in its appeal. ~Iowever, before dealing with these grounds of appeal, we consider it proper to narrate the facts relating to this matter in brief. These are as under :
4.1 The assessee appellant, a limited company, was - engaged in the manufacture and sale of sugar. It had two units, namely, Pilibhit unit and Kashipur unit. In respect of these units, the company was maintaining separate accounts, but at the end of the year, the accounts of both the units were merged and a common P&L a/c and balance sheet were drawn.
4.2 Vide memorandum of understanding dated 5-11-1992, entered into between the assessee and Dhampur Yeast Company Ltd., Kashipur unit Was sold for a net consideration of Rs. 4.40 crores.
4.3 The assessee filed its return of income showing loss of Rs. 7.23 crores, which included current year's loss of Rs. 2.20 crores and carry forward loss of Rs. 5.27 crores. From this loss, the income from other sources at Rs. 26.85 lakhs was reduced. The return was processed under section 143(1)(a) of the Act, at a loss of Rs. 7,23,68,245.
4.4 Later on, a notice under section 143 of the Act was issued to the assessee, in response to which the assessee filed the required details.
4.5 The assessing officer made reference on 12-2-1996, under section 144A to Addl. CIT on the issue relating to capital gains on land and building as well as furniture and fixture on account of sale of Kashipur unit.
4.6 The Addl. CIT formulated certain issues and asked the assessee to make submissions with regard to certain points.
4.7 The assessee submitted that surplus on the sale of Kashipur unit was worked out at Rs. 6,85,03,149 and this amount was included in the P&L a/c as receipt under the head "Otherincome" disclosed at Rs. 7,69,93,043. The assessee also explained the position with regard to other points including driage and interest on extra realization of levy price of sugar.
4.8 The Addl. CIT found that the assessee had sold one of its two units i.e., Kashipur unit by the MOU dated 5-11-1992, and bills dated 5-11-1992, and 4-3-1993, were drawn up in respect of plant and machinery, furniture and fittings and other items as well as in respect of its stock, store, the spares, cash in hand, etc. The Addl. CIT also held that the value of stock-in-trade and stores and raw material so transferred and pertaining to Kashipur unit and profit from its sale was to be included as income of business and profession for this assessment year under section 28 of the Income Tax Act, 1961. He also held that since the assessee-company having been benefited by way of remission and cessation of liability, it would have been liable to include the value obtained in cash or the value of benefit accruing to it under section 41(1)(a) of the Act as income under the head "Gains of business and profession". The Addl. CIT further held that though the assessee had not attributed in the MOU any specific value to any specific asset, but in its bills and list of liabilities, drawn up through letter dated 20-3-1993, addressed to the purchaser, it has attributed value to these assets, therefore, the assessee is liable to capital gains on transfer of its capital assets, pertaining to Kashipur unit. The Addl. CIT worked out the following method of computation of capital gain under section 144A.
Fixed assets (as per bill copy) 7,79,22,085.65 Land & Building (as per regd. copy) 60,85,000.00 8,40,07,085.66 1,33,27,811.89 Less : Cost of above as per account books Less : Cost of building & land held 11,63,887.87 1,26,63,924.02 Surplus 7,13,43,161.63 Less : Bad debts 2,90,112.00 Balance surplus 7,10,53,049.63 Central investment subsidy realized and credited to said account 25,00,000.00 Balance surplus 6,85,53,049.63 School building subsidy relized and credited to said account 50,000.00 Balance surplus carried to P&L a/c 6,85,03,049.63 4.9 The assessing officer proceeded to consider the matter. He took the value of current assets at Rs. 17,43,84,417.64 and added to it the credit balance of Kashipur Sugar Unit, cost of land and building and after reducing the investment allowance and reserve of central subsidy as well as reserve of school building. He worked out the figures at Rs. 20,40,30,139.98.
4.10 The assessee had shown liabilities at Rs. 13,55,27,000.35, the details of which are given on p. 10 of the assessment order, which do not require reproduction here. The assessing officer also held that the increase in the liabilities by reserve from Central Subsidy of Rs. 25,50,000 and the reserve for doubtful debts of Rs. 2,90,112 was not permissible. Thus, he held that net worth on the sale of the unit will be included in the income at Rs. 3,57,55,945.63 4.11 The assessee preferred appeal before the learnedCommissioner (Appeals) against the order of the assessing officer. The version of the assessee was that the total consideration of Rs. 4,40,00,000'paid by the buyer was dealt with in the accounts of the assessee in the ordinary commercial manner and for the purposes of income-tax, it was dealt according to the provisions of Income Tax Act. The assessee, in particular, placed the working in relation to the current assets, loans and advances and investment as per books of account. It was the version of the assessee that as per books of account, these were taken at Rs. 9,03,77,392 and as per sale consideration also the same figures were taken and the accounts were credited and closed and the account of the buyer was debited by the above sum of Rs. 9,03,77,391.99. Likewise, regarding the position of liabilities as on 31-10-1992, it was submitted that as per books of account, the liabilities were to the tune of Rs. 13,26,86,978 and as per sale consideration (debit note) also the same figures were taken and the liability account was debited and closed on account of the buyer accordingly. It was further submitted that since the amount for liabilities transferred to buyers was more than the amount for current assets, etc., the net position was minus figure of Rs. 4,23,09,586 i.e., the assessee became liable to pay to the buyer a sum of Rs. 4,23,09,586 on account of excess of liabilities over the current assets.
4.12 So far as the fixed assets sold or transferred to the buyer were concerned, according to the assessee, the book value of these assets was at Rs. 1,38,27,811 whereas sale consideration as per bill/debit note was Rs. 8,63,09,586. After deducting the value of part of land and building, which was transferred in subsequent year, which was at Rs. 48,52,500. The sale consideration figure for this assessment year on account of fixed assets was shown by the assessee at Rs. 8,14,67,086. The surplus on the sale of transfer of Kashipur unit fixed assets (excluding land and building regd. in the subsequent year) was, thus, taken at Rs. 6,87,93,163) Rs. 8,14,57,086 (-) 1,26,63,923. The assessee had further claimed deduction of Rs. 2,90,113 on account of bad debt of Kashipur unit (written off) and, thus, showed an amount of Rs. 6,85,03,050 in its P&L a/c.
4.13 The claim of the assessee was that so far as fixed assets are concerned, the tax treatment of the sale consideration, with regard to these assets on which depreciation had been allowed to the assessee, was to be regulated by the provisions of section 50(1) and 50(2) and section 43(6)(c) of the Act, which may be illustrated by giving following example of block of assets under the head "Furniture and Fittings".
"3.3.2. 1(1) Block-Pilthit and Kashipur furniture and fittings :
Rs.
Rs.
Rs.
Opening WDV 4,77,597 Additions in the year 21,211 4,98,808 Sale in Pilibhit
-8,600 Sale, Kashipur factory as per MOU 6,00,000
-6,08,600
-1,09,792 Thus, the above amount of Rs. 1,09,792 was worked out short-term capital gain on this block".
4.14 Similar approach was adopted in respect of other blocks of building and plant and machinery.
4.15 So far as non-depreciable fixed assets are concerned, the assessee claimed that the sale consideration for land transferred was against Rs. 6,40,000 and since the fair market value of the portion of land transferred during the assessment year under consideration for the financial year 1981-82 was estimated at Rs. 1,28,000, by applying the index cost of acquisition at Rs. 2,50,440 and after deducting this amount from the sale consideration of Rs. 6,40,000, the long-term capital was to be worked out at Rs. 3,54,560.
4.16 Before the learned Commissioner (Appeals), it was also submitted that what was credited to the P&L a/c i.e., Rs. 6,86,03,050, was not only included the net consideration of Rs. 4.40 crores received on the transfer of Kashipur unit, but also various debit and credit balances between the Kashipur unit and head office i.e., Pilibhit unit and that this entry had to be passed only to square up the account of the Kashipur unit and in the books of head office.
4.17 The learned Commissioner (Appeals) agreed to the contention of the assessee that the net consideration received on the sale of Kashipur unit was at Rs. 4.40 crores. He, therefore, took this amount and considered it for tax purposes. The learned Commissioner (Appeals), thus, directed the assessing officer to compute the tax on this figure of Rs. 4.40 crores in place of Rs. 8,57,55,945 as the short-term capital gains taken by the assessing officer.
4.18 The assessee has challenged the approach of the learned Commissioner (Appeals) in its appeal before us by taking various grounds. On the other hand, the department has also objected to this approach and has supported the order of the assessing officer by taking various grounds in the cross-appeal.
In the setting of the above background, we proceed to consider the grounds taken by the assessee in its appeal.
ITA No. 1706/All/1996: Assessee's appeal:5. Ground Nos. 1 to 4 have been taken by the assessee to challenge the findings of the learned Commissioner (Appeals) on the issue relating to computation of capital gains. Since ground Nos. 2, 3 and 4 raise the basic legal issue pertaining to this subject, we consider it proper to take up these grounds of appeal first.
6. Grounds Nos. 2, 3 and 4 of the appeal are being reproduced below "2. Learned Commissioner (Appeals) erred in law and on facts in not deducting cost of acquisition in the manner prescribed by section 48 of the Income Tax Act, 1961, from Rs. 4,40,00,000 the amount for long-term capital gain determined by him in respect of sale of Kashipur Sugar Unit as a going concern treated as sale of a single asset.
3. While holding that section 50 of the Act was not applicable to the sale of Kashipur Sugar -Unit as a going concern treated as sale of a single asset the learned officers below were not justified and acted arbitrarily in not revising the depreciation due and admissible for the year on the basis of such treatment adopted by them.
4. Without prejudice to the foregoing grounds :
The law relating to taxation of capital gains having undergone structural and basic changes making section 60 of the Act mandatory in respect of depreciable assets, learned Commissioner (Appeals) was not legally right and justified in applying the principle laid down in CIT v. Mugneeram Bangur & Co. (1965) 57 ITR 299 (SC) and Board Circular No. 23-D(LXXVII-6) of 1965 when such law was different."
7. Out of the above grounds, the main ground appears to be ground No. 4, which challenges the approach of the learned Commissioner (Appeals) in applying the principle laid down in CIT v. Mugneerarn Bangur & Co. (1965) 57 ITR 299 (SC) and the Board's Circular No. 23-D(LXXVII-6) of 1965 to the facts of the case.
8. It may be pointed out that the contention of the assessee before the learned Commissioner (Appeals) was that though a sum of Rs. 4.40 crores was the net consideration that was paid by the buyer to the assessee, but even this amount cannot be assessed as a lumpsum figure and the profit on sale of different block of assets must be computed in accordance with section 50(1) and (2) read with section 43(6)(c) of the Act. It was also submitted on behalf of the assessee that the assessee had worked out the short-term capital gains as per section 50(1) and (2) but the assessing officer has not considered the same.
9. The learned Commissioner (Appeals) agreed with the assessee that the net consideration received by it on account of sale of Kashipur unit was only Rs. 4.40 crores, but so far as the applicability of section 50(1) and (2) is concerned, he rejected the plea of the assessee by observing as under
"There is, however, no force in the argument of the learned authorised representative that the profit on the sale of fixed assets must be worked out as per section 50(1)/(2) of the Act. The reading of MOU dated 5-11-1992, makes it amply clear that whole unit of Kashipur has been sold as a going concern; and the buyer has paid a lump-sum amount of Rs. 4.40 crores to the appellant for taking over all the assets and liabilities of Kashipur unit. The individual items of fixed assets have not been transferred separately, but alongwith Kashipur unit only. Though the appellant has drawn bills or debit notes fixing up price of individual items of fixed assets, but same was with a view to work out the cost of whole unit as such. The manner in which the figure of Rs. 4.40 crores has been arrived at also clearly demonstrates that whole unit has been sold as one single item. The ratio of Hon'ble Supreme Court decision in CIT v. Mugneeram Bangur & Co. (1965) 57 ITR 299 (SC)) as well as Board's Circular No. 23D(LXXVII 6) of 1965 thus clearly applies to the facts of the present case. The, assessing officer is accordingly directed to tax Rs. 4.40 crores in place of Rs. 8,57,65,945 as the short-term capital gains arising to the appellant on the transfer of Kashipur unit (Relief = Rs. 4,17,55,945).
10. Before us, Shri G.N. Gupta, Advocate, challenged the view taken by the learned Commissioner (Appeals) and submitted that although vide MOU dated 5-11-1992, Kashipur unit was transferred to the purchaser, but this was not a transfer of a going concern as a whole, inasmuch as Kashipur unit was only a division or part of the assessee- company and along with the MOU, bill/debit notes were prepared to show the position of stocks and liability etc. In this regard, the learned counsel for the assessee, pointed out that the assessment of company was made in earlier year and Kashipur unit was not treated to be a separate assessee. The learned counsel for the assessee further submitted that it was not a lumpsum sale, but sale of unit of a company and value of assets were disclosed in the debit note for working out the sale consideration. According to the learned counsel for the assessee, the value of assets can be cut off and determined separately and, therefore, neither the decision of Hon'ble Supreme Court in the case of CIT v. Mugneeram Bangur & Co. (supra), is applicable nor the Circular of the Board referred to in the decision of the learned Commissioner (Appeals) is applicable to the facts of this case.
11. The learned counsel for the assessee emphatically contended that in view of the debit notes, price of each item, relating to the assets transferred to the purchaser was available and determinable and, therefore, decision of the Hon'ble Supreme Court of India in the case of CIT v. Artex Mfg. Co. (1997) 141 CTR (SC) 290 : (1997) 227 ITR 260 (SC) is applicable, wherein it has been held that difference between actual cost and written down value of assets was assessable as business income and surplus over such difference was assessable as capital gains. Elaborating his point, the learned counsel for the assessee submitted that on the basis of the facts and material available during the assessment proceedings, particular price was attributable to particular items and, thus the decision of CIT v. Mugneeram Bangur & Co. (supra) was not applicable.
12. The other plea of the learned counsel for the assessee, in the alternative, was that if the ratio laid down in the case of CIT v. Artex Mfg Co. (supra) was not applicable, then as the cost of acquisition of entry Kashipur unit as a whole was not ascertainable, no capital gain can be levied.
13. In this regard, the learned counsel for the assessee also made reference to the decision of Hon'ble Supreme Court of India in the case of CIT v. B. C. Srinivasa Setty (1981) 21 CTR (SC) 138 : (1981) 128 NR 294 (SC) and submitted that in view of the ratio of that decision, a transaction to which those provisions cannot be applied must not be regarded as an asset includible under S. 45 to be the subject of the charge. According to him, what is contemplated by section 48(2) is an asset in the acquisition of which it is possible to envisage a cost i.e., it must be an asset, which possesses the inherent quality of being available on the expenditure of money to person seeking to acquire it. It was further submitted that none of the provisions pertaining to the head "Capital gains" suggests that they include an asset in the acquisition of which no cost at all can be -conceived.
14. The learned counsel for the assessee placed heavy reliance on the amended provisions of section 50(1) and (2) and section 50B and argued that neither the Income Tax Officer nor the learned Commissioner (Appeals) have applied the relevant provisions as amended and as applicable to the assessment year under consideration. In this regard, the learned counsel for the assessee also invited our attention to pp. 63 to 71 of the paper book. The learned counsel also further referred to the written submission made on behalf of the assessee before the learned Commissioner (Appeals).
15. The learned senior departmental Representative Shri D.K. Shrivastava, on the other hand, supported the order of the learned Commissioner (Appeals) and submitted that a close reading of the MOU shows that it is a bilateral document through which the seller decided to sell sugar mill of Kashipur to the purchaser as a going concern, together with all the assets and liabilities and, therefore, the subjectmatter of the transfer as revealed out from MOU, was the entire mill and the full unit and not individual assets. According to him, the MOU also indicates the decision of the parties, which was for the transfer of unit as a whole. The learned senior departmental Representative contended that in the MOU itemwise value of the assets has not been mentioned, rather, on the other hand, a lumpsum consideration has been mentioned. In support of this contention, the learned departmental Representative invited our attention to various paras of the MOU, a copy of which is available at pp. 64 to 62 of the paper book. He made specific reference to paras 1, 5, 8 and 13 of the MOU and after reading these paragraphs of the MOU, he construed the MOU as a document of transfer of the Kashipur unit as a whole. He also pointed out that in the MOU, the mode of payment was also set out and the purchaser was to be put in possession in pursuance of this MOU. According to him, the purchaser was not made owner of the individual assets, because individual assets were not transferred to it. About the letter dated 22-3-1993, appearing on p. 63 of the paper book containing details of bills/debit notes dated 6-11-1992, and 4-3-1993, appearing at pp. 64 to 67 of the paper book, the submission of the learned senior departmental Representative was that- these documents cannot be tfeated to be bilateral in nature, because the assessee has prepared these documents subsequently and are self-serving documents. In this regard learned senior departmental Representative also pointed out that the letter dated 22-3-1993, was prepared after four or five months of the sale transaction and are on account of after thought on the part of the assessee.
16. About the scheme of provisions included under the head "Capital gains", the submission of the learned senior departmental Representative was that the provisions contained under section 50(1) and (2) do not apply in a case where the entire business was transferred as a going concern or the business was closed.
According to him, the decision of Hon'ble Supreme Court of India in the case of Artex Mfg. (supra) is not applicable to the facts of the case, because in that case, the business of the firm was transferred to the company and the firm was converted into company. He further contended that in view of the provisions contained under section 41(2) of the Act and section 54 of Transfer of Property Act, the sale was not contemplated of individual assets under the MOU, which specifically mentions the transfer of unit as a whole. According to him, the decision of the Hon'ble Supreme Court in the case of CIT v. Mugneeram Bangur & Co. (supra) and the circular letter of the Board as mentioned in the order of the learned Commissioner (Appeals) are applicable to the facts of this case.
17. Regarding the provisions contained in section 50B, his submission was that the provisions are declaratory in nature because the provisions for treating slump sale was already eyisting and in order to overcome the decision of Hon'ble Supreme Court of India in the case of CIT v. B. C. Srinivasa Setty (supra) the provisions of section 50B was inserted through amendment, which also provides for working out of short-term capital gains and long-term capital gains in the cases of slump sales.
18. So far as the working of assets and liabilities given in the assessment order by the assessing officer is concerned, the contention of the learned senior departmental Representative was that the assessing officer had gone by the figures of the assessee and mentioned the same in the assessment order, but that does not mean that the value of each asset was to be taken separately or it was to be worked out in view of the provisions contained under section 60(1) and (2) of the Income Tax Act, 1961. The learned senior departmental Representative also placed reliance on the following decisions in support of his arguments made before us
(i) CIT v. Electric Control Gear Mfg. Co. (1997) 141 CTR (SC) 302 : (1997) 227 ITR 278 (SC).
(ii) CIT v. Mugneeram Bangur & Co. (supra)
(iii) Sarabhai M Chemicals Ltd. v. Competent Authority (1980) 16 CTR (Guj) 315 (1980) 126 ITR I (Guj)
(iv) CIT v. F.K. Periera & Sons (P) Ltd. (1991) 94 CTR (Ker) 176 : (1990) 184 ITR 461 (Ker)
(v) CIT v. Sarabhai Management Corpn. Ltd. (1992) 103 CTR (Guj) 218: (1992) 196 ITR 436 (Guj)
19. We have carefully considered the facts and circumstances relating to this matter, the entire material including the case laws, to which our attention was invited by the learned representatives of the parties and their submissions.
20. In order to decide the real issue involved in ground No. 4 as reproduced above, it is to be ascertained as to whether the unit of the assessee was transferred as a going concern and as a whole in a lumpsum sale or the unit was transferred with its assets and habihties and other components. For a proper decision on the above issue, a close analysis of the MOU and the related documents pertaining to the transaction of transfer of the unit as well as the stand of the assessee before the assessing officer is very necessary. On perusal of the MOU following facts are found :
(1) The assessee-company i.e., L.H. Sugar Factories Ltd. decided to transfer a sugar mill at Kashipur, which was referred to in the MOU as "Sugar Mill" (page 1, paras 1 and 2 of the MOU).
(2) The object for transferring the sugar mill was to get discharged from various liabilities and to inject the sale proceeds of the said sugar mill into the other factory of the assessee, (3) The sugar mill was transferred as a going concern together with "its various assets and liabilities" as per statement as on 31-10-1992, (para 3 of MOU).
(4) The assets, liabilities as well as contingent liabilities of the Kashipur Sugar Mills were specified in the MOU, which are as under:
"Assets of Kashipur Sugar Mifls
(i) Land admeasuring about 50 acres at factory complex Kashipur, Distt. Nainital.
(ii) Land Hempur Farm, Kashipur, Distt. Nainital.
(iii) Factory building, residential quarters and all the ancillary buildings forming part of the complex.
(iv) Plant and machinery with an installed capacity of crushing 2500 TCD sugarcane and making sugar therefrom.
(v) Cane roads, tubewell, motors and vehicles, furniture and fittings.
(vi) Capital work-in-progress.
(vii) Investment
(viii) Current assets including inventories of sugar, molasses, bagasse and stores, sundry debtors, cash and Bank balances, loans and advances, security deposits with Various Government departments, including UPSEB, Courts and authorities.
(ix) Claims arising from various pending cases pertaining to the Kashipur Sugar Unit.
Liabihties of Kashipur Sugar Unit :
(i) Loans from State Bank of India
(ii) Loans from U.P. Government and interest due thereon.
(iii) Cane dues and Society commissions.
(iv) Provisions consisting of gratuity liabilities, bonus and other dues of employees.
(v) Other liabilities including those due to sugar selling agents, contractors, cane transporters, liability to suppliers, purchase-tax, sales-tax payable.
(vi) Outstanding disputed liabilities on account of excess levy price reahzation and interest thereon.
(vii) Contingent liabilities on account of pending cases."
(5) The consideration for taking over the "assets and liabilities", as enumerated above, was agreed to be at Rs. 4.40 crores and mode of payment was also settled. (para 5 of MOU).
(6) In the MOU, a provisions was made for further liabilities also in para 6 and it was agreed that further liabilities on account of acts pertaining prior to 31-10-1992, shall be on account of L.H. Sugar Factories, which will be deducted from the balance payable to them.
(7) It was also decided that conveyance deeds and invoices shall be prepared for transferring various assets. In this regard, the stipulations contained under para. 8 of the MOU is also reproduced, which is as under
"8. The plant and machinery, vehicles, furniture and fittings will be transferred by raising invoices thereof at the earliest and land, building, tubewell and cane roads will be transferred either through a conveyance deed or by duly executed perpetual lease giving all the rights to transfer, mortgage, creating charge, subdivision, changing use thereof, leasing further leasing etc. without any prior permission from L.H. Sugar Factories LtC.. All other movable assets, inventory of stock of sugar, sugar in process, molasses stores, bagasse, debtors, advances etc. alongwith liabilities towards State Bank of India for advances against stock and other current liabilities are being transferred today alongwith signing of this MOU.11 (8) It was also agreed that both the parties shall execute all acts, deeds, assurances and things as may be necessary for carrying out the terms of this memorandum of understanding.
21. Thus, it is clear that individual items and assets to be transferred along with the unit were specified and for their proper transfer further acts and deeds in the form of invoices and conveyance were to be executed 'in compliance to the conditions laid down in the MOU.
22. The letter dated 22-3-1993, which refers to the MOU dated 5-11-1992, and which is addressed to D.S.M. Sugar, (Kashipur) Ltd. i.e., the purchaser mentions that bills/debit notes subject to receipt of NOC from Banks, etc. are being sent. This letter is being extracted below.
DSM Sugar Kashipur Ltd.
(Earlier Dhampur Yeast Co. Ltd.) Kashipur.
Distt. Nainital Dear Sirs In reference to MOU dated 5-11-1992, entered by us for the sale of Kashipur Sugar Factory, we are enclosing herewith, the following bills/debit notes subject to receipt of NOC from Banks and financial institutions as the same are hypothecated to them.
1. Bills/debit note dated 5-11-1992 for Rs. 2,89,01,826 for current assets, loans and advances (after adjusting lien on sugar stocks in respect of Bank advance and guarantees for Rs. 6,14,75,565.
2. Bills/debit note dated 4-3-1993 for Rs. 7,79,22,086 for movable fixed assets.
3. List of liabilities as on 1-11-1992 for Rs. 7,37,61,412 to be paid by you on our behalf alongwith annexure of contingent liabilities and pending cases (Annexure A).
The net amount payable to us against the aforesaid bills/debit notes for current assets, loans and advances and movable fixed assets after adjusting liabilities to be paid by you on our behalf, comes to Rs. 3,30,62,500 (Rupees three crores thirty lacs sixty two thousand and five hundred), which you are requested to pay at the earliest. NOC from Bank and financial institutions is expected shortly. We are also enclosing herewith copies of Bank resolution passed in our Board for effecting the aforesaid sale."
Kindly acknowledge receipt.
Thanking you, Yours faithfully, For L.H. Sugar Factories Ltd.
Encl As above. (Madhava Prasad) Executive Director"
23. With the letter reproduced above, two bills/debit notes dated 6-11-1992, and 4-3-1993, were also annexed. A perusal of these bills discloses that the quantity of sugar in free quota and levy quota as well as rates per bag referring to these quotas were specifically mentioned in these debit notes, which are exhaustive and specific in relation to every item included in the stock. The value of each item has also been very specifically given. Not only this in the bill/debit note dated 4-3-1993, the value of plant and machinery, furniture and fittings, vehicles, etc. was also given. In the other annexure available at pp. 67 to 69, the value of weigh scale, beam scale, fibrisers with turbine, cane unloaders and other smaller items was also specifically given. The total of bill/debit note dated 5-11-1992, was also worked out.
24. A perusal of these documents related and connected with the transfer of Kashipur unit shows that they were prepared to explain the working of the consideration price of Rs. 4.40 crores.
25. In this regard, specific reference may again be made to the contents of the letter dated 2-3-1993, and debit notes dated 5-11-1992, and 4-3-1993, which are available at pp. 63 to 71 of the paper book. It may be pointed out that the debit note dated 5-11-1992, is of the same date on which the MOU was executed. In this bill/debit note, the assessee has specifically mentioned the cost of stores, spares and other current assets. The total cost of current assets worked out through this debit note is at Rs. 2,89,01,826. Further break up of these current assets have also been worked out on the next page which contains Annexure 'B' and Annexure 'C'. The date of this debit note goes to show that it was prepared simultaneously with the MOU and is contemporaneous in point of time. Alongwith these debit notes, there are two sale deeds, which are dated 29-1-1994, and 20-2-1996. These are placed at pp. 72 to 77 of the paper book. The letter dated 22-3-1993, as reproduced above, goes to show that whereas in paras I and 2 of this letter, details of current assets and movable fixed assets and total cost thereof, has been mentioned, in its para 3, the amount of liabilities has been indicated. In para. 1, the cost of current assets is shown at Rs. 2,89,01,826, which is exactly the total of debit note dated 6-11-1992. In para 2 of this letter, vdlue of movable fixed assets has been shown at Rs. 7,89,22,086. This amount also tallies with the total sum of debit note dated 4-3-1993. Para 3 of this letter refers to the list of liabilities as on 1-11-1992, and the total liabilities are shown at Rs. 7,37,61,412. If I 6he liabilities are adjusted from the value of the current and movable assets as specified in two debit notes, the difference will be worked out at Rs. 3,30,62,500. If the value of land and building shown in the two sale deeds mentioned above i.e., at Rs. 60,85,000 and Rs. 48,52,500 respectively, is added to the sum of Rs. 3,30,62,500 then the net amount will be at Rs. 4,40,00,000, which tallies with the net sum shown in the MOU as consideration for transfer of the units and its assets. Thus, it can be said that while working out. the net amount of sale consideration, the value of each asset was taken into account and, thereafter, the total cost of assets and liabilities, etc. was worked out. Thus, it cannot be said that the value of specific assets or items was not ascertainable or, in other words, that specific cost or value was not attributable to the assets included in the transfer of the unit. Thus, the contention of the department that the unit was transferred as a going concern in a slump sale cannot be accepted.
26. It may be pointed out that the letter dated 22-3-1993, debit note dated 5-11-1992 and 4-3-1993, and sale deeds dated 29-1-1994 and 20-2-1996 are part and parcel of the transaction. of sale effected through MOU. The, mere fact that these documents have been prepared or executed subsequently will not amount that these refer to subsequent and separate transactions. Even the subsequent deeds or conveyances are merely consequential documents which were prepared and executed to give effect to the first deed i.e., MOU dated 5-11-1992, through which the transaction of transfer of the Sugar Mill, at Kashipur unit took place. As mentioned in para 7 of MOU, the possession of the Sugar Mill was to be given to the second party on signing of the MOU and as mentioned in para 8 of this deed, parties were to execute deeds and to do other things necessary for carrying out the terms of the MOU.
27. In the case of Jayantilal Bhogilal Desai v. CIT (1981) 22 CTR (Guj) 186 (1980) 130 ITR 655 (Guj), the assessee firm which was carrying on the business of manufacture and selling pencils in Ahmedabad city, sold its machinery, goodwill, stock, furniture etc. and all the business to a firm for a sum of Rs. 4,61,111 on 30-6-1966. On 1-7-1966, a sale deed in respect of movable properties was executed. In this deed, it was mentioned that the price of stock, stores and ready goods was settled by mutual agreement on 30-6-1966. The possession of the goods was handed over to the purchaser on that date. A further deed dated A-12-1966, was executed in which it was stated that the consideration of Rs. 3,25,000 was paid for the machineries and the tools, etc., and the price of goodwill was at Rs. 25,000 and the cost of stock sold was at Rs. 1,11,111. The contention of the assessee before the department was that the second deed, which was executed after the end of the accounting year, which ended on 12-11-1966, could not be taken into consideration and only first deed should be considered for assessment of capital gains was not accepted and it was held by the Hon'ble High Court that a mere look at the recitals in both the documents made it clear that the second document was merely a consequential to the first and sought to explain the nature of the transaction between parties, which had taken place at the end of June, 1966, and that the two documents read together showed that the assessee had sold machinery and tools etc. on 30-6-1966. It was also observed that the consideration of various items, which the assessee sold to the purchaser has been explained in detail by both these deeds read together. In this regard, it will be proper to extract the relevant portion of the observation of the Hon'ble High Court, which is as under
"The first document merely records Rs. 3,26,000 as the sale price of certain movables like machineries and tools. So far as other movables which were also the subject-matter of transfer in favour of the purchasers are concerned, the second document, by way of recording the past transaction, mentions these details. Thus, the total consideration which the assessee received for various items of the assets which he sold to the partners was put at Rs. 4,61,111 out of which Rs. 3,25,000 were mentioned by the assessee as consideration for machineries and goods Rs. 25,000 for goodwill, and Rs. 1,11,111 by way of price of stock and ready made goods.
On reading both these documents together, it is found that what the assessee actually did was that he sold various items of his assets to the purchasers at different earmarked prices. The second document cannot be said to be a separate transaction by itself or in any way unconnected with the first. The recitals in the second document are merely explanatory of the real nature of the transaction which took place between the assessee and his purchasers by the end of June, 1966. Thus, transfer of various items as mentioned in both the documents referred to only one transaction between the assessee and the purchasers that took place by the end of June, 1966. Therefore, it cannot be said that by the later document, some new transaction was sought to be entered into between the assessee and the erstwhile purchasers. The second document merely gave more details regarding consideration of various items which were sold by the assessee to the purchasers in the past, that is, by the end of June, 1966. Under these circumstances, it is not possible to accept the submission of Mr. Divatia that the second document is to be read independently of the first and both cannot be read together. We find that both these documents are part and parcel of the same transaction and they have to be read together. The second document is in fact merely explanatory of the first and is complementary, to it. When both these documents are read together, it clearly emerges that the assessee sold the machineries, tools, goodwill and stock, etc. on 30-6-1966, and both these deeds read together merely recorded the terms of the said sale which took place on 30-6-1966.
If we consider the nature of the documents relating to the transfer of sugar mill in the present case, that is, the MOU, the letter dated 20-3-1993, the debit notes and the sale deeds and consider the details contained therein, then it shall be clear that all these documents pertained to the transaction of transfer and provide detailed working of cost of individual assets. Hence, from this viewpoint also, the transaction of sale of Kashipur unit cannot be treated to be that of a slump sale.
28. The assessee in its balance sheet of Kashipur unit as on 31-10-1992, had shown the value of fixed assets, the value of current assets, investment, loans and advances and liabilities, the details of which are given at pp. 3 and 4 of the order of the learned Commissioner (Appeals) which are as under Value of fixed assets As per books of account Sale consideration as per bills/debit notes
1. Furniture & Fittings block 1,72,858 6,00,000
2. Land & Bldg. Block 26,25,394 1,09,37,500
3. Plant & Machinery block 1,10,29,559 7,73,22,086 8,88,59,586 8,88,59,586 Value of current assets, investments, loansladvances :
1. Stock in trade 8,54,24,392 8,54,24,392
2. Investments & Interest thereon 22,479 22,479
3. Sundry Debtors, less bad debts 9,35,049 9,35,049
4. Cash and Bank balances 11,52,549 11,52,549.
5. Loans, Advances, less bad debts 28,42,923 28,42,923 9,03,77,392 9,03,77,392 c/f 17,92,36,978 B/f 17,92,36,978 Less: Liability
(i) Secured loans 4,90,23,154 4,90,23,154
(ii) Unsecured loans 1,64,09,000 1,64,09,000
(iii) Current liabilities
(a) Sundry creditors & bonus 6,62,24,899 6,62,24,899
(b) Molasses tank collections 10,29,925 10,29,925
(iv) Book liability on a/c of Central Investment subsidy 25,00,000 25,00,000
(v) Book liability for school building 50,000 50,000 13,52,36,978 13,52,36,978 On the basis of this balance sheet, excess of assets of Kashipur unit over the liabilities was shown by the assessee at Rs. 4,40,00,000
29. The assessee had filed computation of income with the return and gave details of assets including land and building, furniture and fixture, transfer to the purchase. In doing so, the WDV of different blocks of assets were also given. This computation is available at pp. 82 to 84 of the paper book. A perusal of the assessment order also goes to show that the assessing officer had also considered these details given by the assessee. The assessing officer has reproduced the details of fixed assets, current assets, and liabilities etc. in the assessment order itself.
30. An examination of the material furnished by the assessee during the assessment proceedings to the assessing officer including the balance sheet and computation chart, as mentioned above, will go to show that the assessee had furnished the details of assets and the cost or value attributable to different assets so transferred with the unit. It further shows that the entire information relating to the written down value of block of assets was also made available to the assessing officer. Even the assessing officer has taken note of these aspects as is evident from the following observations made by him "..... Further, although the assessee has not attributed in the MOU any specific value to any specific asset, but in its bills and lists of liabilities drawn up and letter dated 20-3-1993, addressed*to the purchaser of the Kashipur unit, it has attributed values to these assets. Depreciable assets have also been assigned specific costs in Schedule 5 to the balance sheet. Therefore, the assessee has to be held liable to capital gains on transfer of its capital assets pertaining to the Kashipur unit."
31. In the context of above stated factual position, we now proceed to consider the legal aspect of the matter to decide the issue as to whether it was the case of slump sale for transferring the going concern as a whole or otherwise. The issue relating to transfer of a business concern came before the Hon'ble Supreme Court of India in the case of CIT v. Mugneeram Bangur & Co. (supra). In that case, a firm which was carrying on the business of buying land, developing it and then selling it, pursuant to an agreement, sold the business as a going concern with its goodwill and all stocks -in-trades etc. to a company promoted by the partner of the firm. The company undertook to discharge all debts and liabilities, development expenses and liability in respect of deposits made by the intending purchasers. The consideration of Rs. 34,99,300 was paid by the allotment of shares of the face value of Rs. 34,99,300 to the partners or their nominees. The schedule of the agreement indicated that the sum of Rs. 34,99,300 was arrived at by pointing out the price of various assets. The appellate Tribunal held that the firm had no goodwill and that the sum of Rs. 2.50 lakhs although shown as the value of goodwill, was really the excess value of the land, which was its stock-in-trade and that although the sale was that of the business as a going concern, the value of its stock-in-trade could be traced, but that the transaction was the mere adjustment of business position of partners and the department was not entitled to take the book keeping entries as evidence of any profit.
32. The Tribunal made reference under section 266(1) of the Income Tax Act to the Hon'ble High Court and one of the questions referred by the Tribunal was as under
"Whether, on the facts and circumstances of the case, by the sale of whole business concern, it could be held that there was taxable profit in the sum of Rs. 2,50,000 ?
33. The Hon'ble High Court held that there was no profit in the transaction by which the entire stock-in-trade and the business of the firm was transferred to 11P the limited liability company. On further appeal, the Hon'ble Supreme Court observed as under
"It seems to us that in the case of concern carrying on the business of buying land, developing it and then selling it, it is easy to distinguish a realization sale from an ordinary sale, and it is very difficult to attribute part of the slump price to the cost of land sold in the realization sale. The mere fact that in the schedule the price of land is stated does not lead to the conclusion that part of the slump price in necessarily attributable to the land sold. 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 effort 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. In our view the sale was the sale of the whole concern and no part of the slump price is attributable to the cost of land. If this is so, it is clear from the decision of this court in CIT v. West Coast Chemicals & Industries Ltd. (1962) 46 ITR 135 (SC) and Doughty's case (1927) AC 327, that no part of the slump price is taxable. We, therefore, answer question No. 3 in the negative. As stated before, in view of this answer, it is not necessary to answer questions Nos. 2 and 4. "
34. In the case of CIT v. B.M. Kharwar (1969) 72 ITR 603 (SC) the Hon'ble Supreme Court of India held that even under the realization sale, the excess over the written down value not exceeding the difference between the original cost and written down value was liable to be brought to tax. In that case, since the Tribunal had not recorded clear finding that there was sale of the machinery by the firm to the company, which resulted in excess realization of Rs. 40,743 over the written down value, the Hon'ble court found it to be impossible to answer the question referred to it.
35. The issue again came before the Hon'ble Supreme Court of India in the case of CIT v. Artex Mfg. Co. (P) Ltd. (supra). In this case, the assessee was a partnership firm, which was carrying on the business of manufacturing of silk cloth. A private limited company by the name of Artex Mfg. Co. (P) Ltd. was formed with a view to take over the business of the assessee as a running concern on 31-3-1996, the assessee and the company entered into an agreement, whereunder the assessee agreed to sell to the company, the business hitherto carried on by the assessee as a whorle going concern. The consideration for the said sale was Rs. 11,50,400 which was paid and satisfied by allotment of 11,504 fully paid up equity shares of Rs. 100 each according to the original shares of the partners of the assessee. In pursuance to the said agreement, the assessee ceased to carry on the business with effect from 1-4-1966, and the said business stood transferred to the company. During the course of assessment proceedings, before the Income Tax Officer, for the purposes of determination of purchase consideration, the assets were shown at Rs. 41,73,973, out of which machinery and dead stocks was taken at Rs. 15,27,296, the liabilities were shown at Rs. 30,23,673 and the balance amount of Rs. 11,50,000 was shown as the purchase consideration. The question arose about the taxability of income under section 41(2) on the surplus amount. The Income Tax Officer held that the tax was payable under section 41(2) on the surplus amount on the income of Rs. 12,56,020. The Appellate Assistant Commissioner, on the other hand, held that the surplus was assessable under the head "capital gains" and not under the head "Business". On appeal, 'the Tribunal formulated three questions for its consideration, out of which following are relevant to the controversy before us
(i) Whether surplus is taxable at all ?
(ii) If the surplus is found to be taxable, whether it should be tax under section 41(2) or under the head "Capital gains" ?
36. The first question was rejected by the Tribunal on the basis of the decision of Hon'ble Supreme Court of India in the case of Pandit Laxmi Kant Jha v. CIT (1970) 75 ITR 790 (SC). On the second question, the Tribunal held that the surplus was taxable under section 41(2) of the Income Tax Act, 1961. At the instance of the assessee, the Tribunal referred six questions, out of ' which questions No. 3 and 6, which are relevant to the issue involved before us were as under :
(3) Whether, on the fact and in the circumstances of the case, the. Tribunal was right in holding that the surplus was not capital gains, but was business income?
(6) Whether the transfer of a going concern is liable to tax under section 45 of the Income Tax Act, or under section 41(2), or is to a realization sale, which is not liable to tax ?
37. The Hon'ble High Court answered question No. 3 in favour of the assessee. So far as question No. (6) is concerned, it was answered in affirmative and it was held that surplus was taxable under section 45 of the Income Tax Act, 1961. The Hon'ble Fligh court while holding so placed reliance on the decision of CIT v. Mugneeram Bangur & Co. (supra)
38. The revenue preferred appeal before the Hon'ble Supreme Court of India.
The Hon'ble apex court considered the decision in the case of CIT v. Mugneeram Bangur & Co. (supra) as well as the decision in the case of B.M Kharwar (supra) and other decisions and held as under :
"(ii) that 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 Income Tax Officer it became evident that the amount of Rs. 11,50,400 had been arrived at by taking into consideration the value of the plant, machinery and dead stock as assessed by the value at Rs. 16,87,296. Sec. 41(2) was applicable.
(iii) that the liability under section 41(2) was limited to the amount of surplus to the extent of the difference between the written down value and the actual cost. If the amount of surplus exceeded the difference between the written down value and the actual cost, then the surplus amount to the extent of such excess would have to be treated as capital gains for the purpose of taxation."
39. It may be pointed out that about the decision in the case of CIT v. Mugneeram Bangur & Co. (supra) the Hon'ble court pointed out in that case, the Hon'ble court had indicated that where there is a slump transaction and the business is sold as a outgoing concern, what is to be seen is whether-any portion of the slump price is attributable to the stock-in-trade and if on the basis of the fact, it may be found that a particular price is attributable to a particular item, then the excess amount would be chargeable to tax under section 10(2)(vii) proviso (ii) of the 1922 Act (s. 41(2) of the Act). It was also held that in the facts of that case, the Hon'ble court found that it was very difficult to attribute part of the slump price to the cost of land shown in the realization sale, as there was no evidence that any attempt was made to evaluate the land on the date of the sale.
40. So far as the facts of Artex's case (supra) are concerned, the Hon'ble Supreme court held that in this case, it was admitted case of the assessee before the Income Tax Officer that the plant and machinery and dead stock had been revalued by Har Govinddas Girdharilal at the time of the agreement for the sale and the amount of Rs. 11,50,400 was fixed after taking into account the value of the plant, machinery and dead stock at Rs. 15,87,296 as per valuation by Har Govinddas Girdharilal. According to the Hon'ble Court, this shows that at the time of execution of agreement on 31-3-1966, the value of the plant, machinery and dead stock that were transferred was Rs. 15,87,296. The Hon'ble court further observed as under :
"Shri Ganesh, learned counsel appearing for the assessee, has submitted that in the present case the value of the plant, machinery and dead stock is not mentioned in the agreement and the agreement does not indicate the value attributable to the said items. It is no doubt true that in the agreement there is no reference to the value of the plant, machinery and dead stock. But on the basis of the information that was furnished by the assessee before the Income Tax Officer, it became evident that the amount of Rs. 11,50,400 had been arrived at by taking into consideration the value at Rs. 15,87,296. 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. Question No. 2 referred to the High Court is, therefore, answered in the affirmative, i.e., in favour of the revenue and against the assessee."
41. In the case of CIT v. Electric Control Gear Mfg. Co. Ltd. (supra) the partners of the firm transferred the entire assets of the business together with the liabilities as a going concern, to a limited c6mpany fo r a consideration of Rs. 8 lakhs and in lieu of this consideration, shares were allotted to them. The Income Tax Officer held that the depreciation allowed to the firm amounting to Rs. 3,32,863 in respect of assets transferred by the firm to the company, was chargeable to tax under the provisions of section 41(2) of the Act. He also brought to tax capital gains of Rs. -8 lakhs being the purchase consideration received by the assessee and after excluding a sum of Rs. 5,000 as basic exemption, included the sum of Rs. 7,95,000 in the computation of total income of the assessee under the head "Capital gains". The matter went up to Hon'ble Supreme Court of India. It was held that there was nothing to indicate the price attributable to the assets like machinery, plant or building, out of the consideration amount of Rs. 8 lakhs. Merely because sum of Rs. 3,32,863 had been allowed as depreciation to the assessee-firm, it could not be said that the difference between the sale price and the written down value was the excess amount between the price and the written down value. The Hon'ble court held that the provisions of section 41(2) were not applicable. In this case also, the Hon'ble Supreme Court of India followed its earlier decision in the case of Artex (supra).
42. So far as the decision of Hon'ble Bombay High Court in the case of CIT v. Narkeshari Prakashan Ltd. (1992) 196 ITR 438 (Bom) is concerned, in that case, two branches of the assessee, a publishing house, were sold with their assets and liabilities to two different co-operative societies. After following decision of Hon'ble Supreme Court in the case of CIT v. Mugneeram Bangur & Co. (supra) and the decision of Allahabad High Court in the case of Rai Bahadur Laxrnandas Mohanlal & Sons v. CIT (1964) 54 ITR 315 (All) the Hon'ble court held that since even the branches of publishing house can have different goodwill, which depends upon a host of factors such as popularity, performance, circulation, peculiarities of the region, etc. and further since the liabilities were adjusted against the assets, it was held that it was transfer of a going concern. The Hon'ble court also held that the decision of the Hon'ble Gujarat High Court in the case of Jayantilal Bhogilal Desai v. CIT (supra) pertained to different backdrop and was not applicable.
It may be pointed out that in the case of Narkeshari Prakashan Ltd. (supra), the decision of Hon'ble Supreme Court of India in the case of Artex (supra) (which came subsequently) could not be considered, in which case, the Hon'ble Supreme Court has clarified the issue relating to slump sale. Further in the case before us, the MOU and debit notes clarify the position in relation to the specific assets and as held in the case of Artex, the cost to different assets was clearly attributable, which was not the position in the case of CIT v. Ellectric Control Gear (supra). Thus, the decision of Narkeshari Prakashan is also distinguishable on facts. Likewise, the case of CIT v. Mugneeram Bangur & Co. (supra) nor in the case of CIT v. Electiic Control Gear (supra.). Thus the decision of Narkesharf Prakashan is also distinguishable on facts. Likewise, the case of CIT v. F.K. Periera & Sons (supra) is also distinguishable, because in that case by virtue of written agreement, the State Government was competent to run the factory as absolute owners and without reference to the assessee- company and in terms of a compromise degree, a sale deed was executed through which the assesseecompany sold the property to the Government and in that sale, all the beneficial interests of the vendor including the goodwill was transferred to the purchaser absolutely.
43. After considering the abovementioned decisions and on applying the ratio of these decisions to the facts of this case before us, we are of the considered view that the ratio laid down by the Hon'ble Supreme Court in the case of Artex (supra) is applicable to the facts of the present case. It may be pointed out that the ratio laid down in the case of CIT v. Mugneeram Bangur & Co. (supra) is not applicable because in that case the value of land was not ascertained nor any effort was made to do so, whereas in the case before us, the value of each item was worked out in the debit notes, which were prepared for executing the MOU and in consonance with the same. As in the case of Artex (supra), the details relating to value of various assets, stock and liability, current assets and fixed assets were ascertained, determined and submitted before the assessing officer by the assessee during assessment proceedings and the value so determined, was not questioned by the department.
44. In view of the discussion made above, we are of the considered opinion that on the facts and circumstances of the matter, the principle laid down by the Supreme court of India in the case of CIT v. Artex Mfg. (P) Ltd. (supra) is applicable and not the decision in the case of CIT v. Mugneerarn Bangur & Co. (supra) and the learned Commissioner (Appeals) was not justified in holding that the decision in the case of CIT v. Mugneeram Bangur & Co. (supra) and Board's Circular No. 23-D/(LXXVII-6) of 1965 was applicable. We, therefore, reverse the findings of learned Commissioner (Appeals) on this point.
45. There is another aspect of the matter. It may be pointed out that so far as the transactions of slump sale are concerned, these were not specifically covered under section 48 and that appears to be the reason for introduction of section 50B with effect from I-4-2000. Sec. 69B as indicated in its heading is a special provision for computation of capital gains in case of 'slump sale'. This provisions are being reproduced as under :
"Sec. 50B(1) Any profits or gains arising from the slump sale effected in the previous year shall be chargeable to income-tax as capital gains arising from the transfer of long-term capital assets and shall be deemed to be the income of the previous year in which the transfer took place :
Provided any profits or gains arising from the transfer under the slump sale of any capital asset being one or more undertakings owned and held by an assessee for not more than thirty-six months immediately preceding the date of its transfer shall be deemed to be the capital gains arising from the transfer of short-term capital assets.
(2) In relation to capital assets being an undertaking or division transferred by way of such sale, the "net worth" of the undertaking or the division, as the case may be, shall be deemed to be the cost of acquisition and the cost of improvement for the purposes of sections 48 and 49 and no regard shall be given to the provisions contained in the second proviso to section 48.
(3) Every assessee, in the case of slump sale, shall furnish in the prescribed form alongwith the return of income, a report of an accountant as defined in the Explanation below sub-section (2) of section 288, indicating the computation of the net worth of the undertaking or division, as the case may be, has been correctly arrived at in accordance with the provisions of this section.
Explanation 1 : For the purposes of this section, "net worth" shall be the aggregate value of total assets of the undertaking or division as reduced by the value of liabilities of such undertaking or division as appearing in its books of account:
Provided that any change in the value of assets on account of revaluation of assets shall be ignored for the purposes of computing the net worth.
Explanation 2 : For computing the net worth, the aggregate value of total assets shall be
(a) in the case of depreciation assets, the written down value of the block of assets determined in accordance with the provisions contained in sub-item (c) of item (i) of sub-cl. (c) of clause (6) of section 43; and in the case of other assets, the book value of such assets."
46. Similar amendment has been made with effect from I-4-1988, in section 2(42C) for defining slump sale which is as under
"(42C) "slump sale" means the transfer of one or more undertakings as a result of the sale for a lump sum consideration without values being assigned to the individual assets and liabilities in such sales."
47. The fact that a special provision was to be enacted and introduced subsequently itself goes to show that there was lacuna in law or hardship on account of absence of a specific provision to deal with the cases of slump sale. According to the mischief rule of construction or rule in Heydon's case, which is also known as rule of purposive construction, following things are to be seen
(i) What was the law before making of the Act (Law) ?
(ii) What was the mischief or defect for which law did not provide ?
(iii) What is the remedy that the Act has provided ?
(iv) What is the reason for the remedy ?
48. If we examine the provisions contained under section 50B and section 2(42C) reproduced above, we will come to the conclusion that the earlier law or the existing law did not provide clear remedy relating to transactions of slump sales, which has now been provided by introducing specific provisions under section 2(42B) and section 50B reproduced above. The contention of the learned senior departmental Representative that section 50B is merely declaratory or clarificatory in nature is not acceptable in view of the fact that if the law was already there, there should have been no necessity to introduce a new provision.
49. It may also be pointed out that section 50B, which has become effective from I-4-2000, provides remedy and covers the cases of slump sale. However, this provision has not been made operative retrospectively and, therefore, it cannot apply to assessment year 1993-94, which is the assessment year before us.
50. In view of the above, we are of the considered opinion that the transaction of transfer in the present case was not the case of "slump sale" of a unit as a whole or that of business as a going concern. On facts also, it is found that the assessee had two units, one of which was transferred and the assessee continued to carry on its business by running the other mill. Thus, the business was not discontinued. It may be pointed out that the assessee had different accounting for the two units, but one consolidated trading and P&L a/c was prepared at the end of the year. The earlier assessments were made in the case of the company and not separate assessments in the case of the units. While claiming deprecation also, the assessee put the assets of both the units after consolidating the same together in one block assets and claimed depreciation. Even in the computation of income, profit and loss for the assessment year under consideration has been worked out after taking into consideration the profits of both the units by the assessee- company and the assessment has been made accordingly. As pointed out earlier, the assessee has attributed specific price or cost to each asset transferred by it and there was no question of transfer of goodwill, which was involved in the case of CIT v. Mugneeram Bangur & Co. (supia). ,
51. Thus, after considering the relevant facts and documents as mentioned above and also the relevant legal provision and the decisions which were referred before us by the learned Representatives of the parties, we are unable to agree with the argument of the learned senior departmental Representative that the transaction of transfer in this case was that of a slump sale or that the business was sold for a slump price without attributing any specific value or cost of the stock-in-trade or to the assets. We, therefore, decide ground No. 3 in favour of the assessee.
52. Ground Nos. 3 and 4 also involve another important issue, which relates to the applicability of sections 50(1) and 50(2) of the Income Tax Act. Whereas the submission of the learned counsel for the assessee in support of ground Nos. 3 and 4 of the appeal was that the provisions contained under sections 50(1) and (2) are applicable to work out the capital gains on account of depreciable assets, the contention of the learned senior departmental Representative was that in the present case there was no scope for the applicability of sections 50(1) and (2) of the Act and that the matter is governed by section 48 only.
53. For deciding this controversy, we consider it proper to refer to the provisions contained under section 50 as amended with effect from I-4-1988. These provisions are as under
"50. Special provision for comp utation of capital gains in case of depreciable assets. Notwithstanding anything contained in clause (42A) of section 2, where the capital asset is an asset forming part of a block of assets in respect of which depreciation has been allowed under this Act or under the Indian Income Tax Act, 1922 (11 of 1922), the provisions of sections 48 and 49 shall be subject to the following modifications (1) Where the full value of the consideration received or accruing as a result of the transfer of the asset together with the full value of such consideration received or accruing as a result of the transfer of any other capital asset falling within the block of the assets during the previous year, exceeds the aggregate of the following amounts, namely :
(i) expenditure incurred wholly and exclusively in connection with such transfer or transfers :
(ii) the written down value of the block of assets at the beginning of the previous year; and
(iii) the actual cost of any asset falling within the block of assets acquired during the previous year.
such excess shall be deemed to be the capital gains- arising from the transfer of short-term capital assets.
(2) where any block of assets ceases to exist as such, for the reason that all the assets in that block are transferred during the previous year, the cost of acquisition of the block of assets shall be the written down value of the block of assets at the beginning of the previous year, as increased by the actual cost of any asset falling within that block of assets, acquired by the assessee during the previous year and the income received or accruing as a result of such transfer or transfers shall be deemed to be the capital gains arising from the transfer of short-term assets.'
54. On analytical study of the provisions contained under sections 45, 48, 49, 50, 50B, 53 and 55, the legislative scheme appears to be that so far as capital gains in case of depreciable assets are concerned, provisions of section 50, which is a special provision will be applicable and for working out or ascertaining the capital gains on transfer of such assets, the written down value of the asset at the beginning of the previous year has to be determined and for this purpose, reference is also to be made to the provisions contained under sections 37 and 43(6)(c) of the Income Tax Act, which relates to depreciation and written down value of the block of assets. So far as the non-depreciable assets and capital gain on account of the transfer ol the same is concerned, the relevant provisions will be as contained under section 48 read with section 55 of the Act.
55. The issue regarding the scope and applicability of ss 50(1) and (2) came foi consideration before various Hon'ble High Courts including the following cases
(i) CIT v. Upper Doab Sugar Mills 1978 CTR (All) 88: (1979) 116 ITR 240 011)
(ii) Prime Products (P) Ltd. v. CIT (1979) 8 CTR (All) 203: (1979) 116 ITR 473 (All)
(iii) Indian Jute Co. Ltd. v. CIT (1981) 2-9 CTR (Cal) 11 : (1982) 136 ITR 597 (Cal)
(iv) CIT v. Commonwealth Trust Ltd. (1982) 28 CTR (Ker)(FB) 311 : (1982) 135 ITR 19 (Ker)(FB)
(v) CIT v. V. V. George (1997) 137 CTR (Ker) 1 0 997) 22 7 ITR 893 (Ker) In the above cases, it was held that the language used in section 50 makes it clear that it applies to the case of depreciable assets and that the provisions thereof are mandatory. It was also held that the provisions of section 50 of the Act prevailed over section 55(2). Firstly, because it expressly modifies the provisions of section 48 and in the second place, it is a special provision for depreciable assets. Sec. 55, on the other hand, is only a definition section.
56. The Hon'ble Kerala High Court in the case of CIT v. VV. George (supra) held that section 48(1)(a) speaks of ways of computation of capital gains and the first aspect is the process of computation, by deduction from the full value of consideration so received two items, namely, expenditure incurred wholly and exclusively in connection with the transfer and the cost of acquisition thereto. -
57. It may be pointed out that intention of inserting section 50 was to modify section 48 and section 49 to a certain exten", namely, the definition of "Short-term capital assets" as given in section 2(42A) is to be disregarded meaning thereby that if any capital gain arises on transfer of depreciable assets, the capital gains instead of being computed under sections 48(1) and (2) is to be computed under section 50. Thus, approach will support the logic that in case of capital gain arising out of transfer of depreciable assets, the option available under section 55(2) cannot be exercised because section 55(2) does not apply to section 50 and cannot prevail over it.
58. In the case of India Jute Co. Ltd. v. CIT (supra), the Hon'ble Calcutta High Court considered the scope of section 50 of the Income Tax Act and following the decisions of Hon'ble Allahabad and Gujarat High Courts held as under :
"If a special mode is provided, then the general meaning given by sub-section (2) of section 55 could not apply. Furthermore, this well-settled canon of construction that the definition in a section provided in a certain provision of an Act must be limited to the purposes indicated in that sub-section and it could not be extended by construction unless there is a clear implication to that effect. In this case, it is significant that sub-s, (2) of section 55 does not mention that for the purpose of 'this chapter' or 'this group of sections' the cost of acquisition in relation to the capital assets should be as indicated in the different clauses as indicated in subs. (2) of section 55 but limits the purposes of the different clauses only to sections 48 and 49 and thereby excluding the operation of 'the special provision of computing cost of acquisition of depreciable assets'. Where there is a special provision dealing with a particular provision, the special provision must prevail."
59. The issue came before the Full Bench of Kerala High Court in the case of CIT v. Commonwealth Trust Ltd. (supra). The Hon'ble court said that though section 55(2) gave an option to the assessee to choose one of the two values as the cost of acquisition for the purpose of section 48, in a case to which section 50 applied, section 48 had to be read subject to the modification and consequently, the opinion would not be available and that the cost of acquisition would have to be taken in such a case as written down value as defined in clause 6 of section 43. The relevant portion of the observations of the Hon'ble High Court are reproduced below "We are not impressed with the contention of the learned counsel for the assessee that since the definition of 'cost of acquisition' in section 55(2) win apply for the purpose of section 48 and this is a case to which section 48 would so apply, section 55(2) must govern despite section 50 of the Act. That would be to render section 60 inoperative. We do not see why we should resort to such a construction. While the option contemplated under section 55(2) of the Act will be available in every case where capital gains is determined in accordance with section 48, that would not be the case where what is applicable is not section 48 as such but section 48 as modified by section 50. The special provision must necessarily operate in such a case so as to render the option under section 55(2) unavailable and also to equate the cost of acquisition in such a case with the written down value as defined in clause (6) of section 43. "
60. In the, case of Commonwealth Trust Ltd. v. CIT (1997) 142 CTR (SC).214 (1997) 228 ITR 1 (SC), the Hon'ble Supreme Court of India uphold the views of Gujarat, Allahabad, Calcutta High Courts and of the Kerala High Court in the cases mentioned above by observing as under :
"Viewed from this angle, section 50(1) has no dependence on the provisions of section 55(2). There is no mention of "fair market value" in section 50(1) and besides that the adjustments stated there are with reference to the written down value only which has nothing to do with the fair market value. We conclude, therefore, that in the present case where the capital asset is depreciable and the assessee has availed of deduction on account of depreciation the cost of acquisition shall have to be determined in terms of the provisions of section 50 read with section 48. All the High Courts including Bombay High Court are of the view that section 50(2) does not apply to any capital asset other than that which has been acquired by any of the modes mentioned in section 49. It does not apply to the case of a person who has himself purchased the asset which has enjoyed the depreciation allowance. To us it appears section 50 is in absolute terms specially providing for fixing the cost of acquisition in the case of depreciable asset only.
61. In the case of Ace Builders (P) Ltd. v. Assistant Commissioner (2001) 71 TTJ (Mumbai) 188 : (2001) 76 ITD 389 (Mumbai), the Mumbai Bench of Tribunal, following the decision of the Hon'ble Supreme Court of India in the case of Commonwealth Trust Ltd. (supra), held that section 50 contains a special provision for computing capital gain in case of depreciable assets and, therefore, it has to override the general provision for computing the capital gains under section 48 of the Act. The Bench, however, further observed that it does not mean that section 50 overrides all other provisions of the Act and exemptions as contained under section 54.
62. In the case of Weikhdld Products Co. Ltd. v. Dy. CIT (2001) 71 TTJ (Pune) 518, the Pune Bench of Tribunal, while dealing with the issue relating to capital gains on the sale of chemical unit of the assessee and claim of the assessee for deduction under section 54E of the Act, observed as under
"There is no dispute in this case that the capital asset, namely, the chemicals unit held by the assessee was a depreciable asset within the meaning of section 50. This section provides, as aforesaid, for a special treatment for the depreciable asset and as the title of the section indicates, the speciality is only for computing the capital gains. The provisions of this section are made notwithstanding anything contained in clause (42A) of section 2. This means that irrespective of the period of holding the asset, the provisions of this section would apply, i.e., whether the asset is a long-term capital asset or a short-term capital asset. On a further reading of this section, it becomes evident that by this section, the provisions of sections 48 and 49 are to be read with some modification stated therein. One such modification is regarding determination of the cost of acquisition of the asset and the second is of the deductions to be allowed in computing capital gain. The income received or accruing as a result of such transfers is deemed to be the capital gains arising from the transfer of short-term capital asset irrespective of the period of holding of a particular asset or assets.
63. In view of the provisions contained under section 50 read with section 32(2) and section 43(6)(c), the written down value of the depreciable asset is to be worked out in the following manner :
"The written down value of any asset in relation to the assessment year 1989-90, and any subsequent assessment year shall be worked out as under in accordance with the newly inserted section 43(6)(c) in the following manner : I
(i) The written down value of the block of assets in the immediately preceding previous year, shall be reduced by the depreciation actually allowed in respect of the block of assets in relation of the said preceding previous year.
(ii) The sum arrived at, as above, shall be increased by the actual cost of any asset falling within that bfock which is acquired by the assessee during the previous year.
(iii) The sum so arrived at shall be reduced by the sale proceeds and other amounts receivable by the assessee in regard to any asset falling within that block which is sold, discarded, demolished or destroyed during that- previous year.
Under the new system, the written down value of any block of assets may be reduced to nil for any of the following reasons i (A) The moneys receivable by the assessee in regard to thel,,assets sold or otherwise transferred during the previous year together with the amount of scrap value may exceed the written down value at the beginning of the year as increased by the actual cost of any new asset acquired, or (B) All the assets in the relevant block may be transferred during the year.'
64. In view of the legal position as stated above, there remains no doubt that the provisions contained under sections 50(1) and (2), which are special provisions have to prevail over the provisions contained under sections 48 and 55 of the Income Tax Act, 1961, meaning thereby that in the case of depreciable assets computation of capital gains is to be made by adopting the formula as given under sections 50(1) and (2) as teproduced above, It may also be pointed out that section 60 does not make any distinction on transfer of depreciable assets in a going concern or otherwise. Hence, so far as transfer of depreciable assets is concerned, the specific provision as laid down in section 50 will have to be applied. Thus, we are unable to agree with the contention of the leaned senior departmental Representative that the provisions contained under sections 50(1) and (2) are not applicable in the present case.
65. Adverting to the facts of the case before us, it may be pointed out that the assessee had worked out the position of depreciable assets by showing the opening W.D.V. of the block of assets. Reference, in this regard, may be made to the statement of the case, copy available at pp. 13 to 24 of the paper book of the assessee. It is not the case of the department that depreciation was not allowed to the assessee on depreciable assets in earlier years or that no transfer of depreciable assets was involved in the transfer of sale of Kashipur unit.
66. Thus, in view of the above legal and factual position in the case of the assessee on the sale of depreciable assets, Which are identified by the assessee and have been included in the block of assets under different blocks, the shortterm capital gain is to be worked out in conformity with the provisions of section 43(6)(c) read with section 60 of the Income Tax Act, 1961, in the manner as laid down in para 62 above and in the case of land which is a non-depreciable asset, the long-term capital gain is to be computed as per the provisions contained under section 48 read with section 56 of the Act. The assessing officer is, therefore, directed to work out capital gains accordingly.
Ground No. 2:
67. Through ground No. 2, the assessee has pleaded that the learned Commissioner (Appeals) was not justified in treating the amount of Rs. 4,40,00,000 as long-term capital gain without deducting the cost of acquisition of the Kashipur sugar unit.
In support of this ground, the submission of the learned counsel for the assessee was that in view of the mode of computation laid down in section 48 of.the Act, the income chargeable under the head "Capital gains" is to be computed by deducting from the value of consideration the cost of acquisition of the asset and the cost of improvement made thereto.
68. The learned Commissioner (Appeals) held that the whole Kashipur unit was sold as a going concern for lump sum amount of Rs. 4,40,00,000 and directed the assessing officer to treat this amount of short-term capital gain arising out of transfer of Kashipur unit.
69. The approach, in our view, is not legally justifiable. As pointed out above, s. 45 of the Act provides the charge of capital gains. Mode of computation and deduction is provided in section 48 under section 48(1)(a), the income chargeable under the head "Capital gains" is to be computed by deducting from the full value of consideration received or accruing as a result of transfer of the capital asset :
(1) the expenditure incurred wholly and exclusively in connection with such transfer; and (2) the cost of acquisition of the asset and the cost of improvement thereto.
Clause (b) of section 48 provides for the deductions to be allowed where the capital gain arises from the transfer of a long-term capital asset by making further deduction as specified in sub-section (2).
70. In view of these provisions, the deduction on account of cost of acquisition has to be allowed.
In the case of CIT v. V.V. George (supra) on the interpretation of section 48 of the Income Tax Act, the Hon'ble Kerala High Court has observed that deduction from the full value of consideration has to be allowed in terms of sections 48(1)(a) and section 48(2).
A similar view was taken by the Mumbai Bench of Tribunal in the case of ACE Buflders (P) Ltd. v. Assistant Commissioner (supra), wherein it was held that section 55(2) shall be applicable to all assets for purposes of computation of capital gains under sections 48 and 49 of the Act and section 50 carves out an exception in relation to depreciable assets.
71. In view of the above, the entire sale consideration or value of capital asset, a transfer of which is taxable under section 45 cannot be taken as profits or gain rather from the value of such a capital asset or from the sale consideration thereof, the deductions as permitted under section 48 of the Act are to be allowed before determining the amount of capital gains. Since the learned Commissioner (Appeals) has taken the whole amount of Rs. 4,40,00,000 as capital gain, without deducting the cost of acquisition and cost of improvement of the capital asset or assets from the amount of sale consideration, his view cannot be legally sustained. Hence, the plea taken in ground No. 2 deserves to be allowed.
72. The assessee has taken an alternative plea, which is that if the cost of acquisition of any &sset cannot be determined, then no capital gain can be levied. In support of this plea, Shri Gupta, learned counsel, also placed reliance on the decision of Hon'ble Supreme Court of India in the case of CIT v. Shnivasa Setty (supra), and on the decision of the Hon'ble Karnataka High Court in the case of Syndicate Bank Ltd. vs, CIT (1985) 45 CTR (Kar) 68: (1985) 155 ITR 681 (Kar). The specific submission of learned counsel on the basis of these cases was that since the cost of acquisition of the Kashipur unit, which was purchased long back and was in process of its growth several factors contributed during several past years, no cost of acquisition and improvements can be detennined and, therefore, in view of these decisions, no capital gains should be levied.
73. We have considered this argument also. In the case of Shnivasa Setty, the Hon'ble Supreme Court of India has made following observations "All transactions encompassed by section 45 must fall under the governance of its computation provisions. A transaction to which those provisions cannot be applied must be regarded as never intended by section 45 to be the subject of the charge. What is contemplated by section 48(ii) is an asset in the acquisition of which it is possible to envisage a cost; it must be an asset which possesses the inherent quality of being available on the expenditure of money to a person seeking to acquire it. None of the provisions pertaining to the head "Capital gains" suggests that they include an asset in the acquisition of which no cost at all can be conceived. When goodwill generated in a new business is sold and the consideration brought to tax, what is charged is the capital value of the asset and not any profit or gain. Further, the date of acquisition of the asset is a material factor in applying the computation provisions pertaining to capital gain; but in the case of goodwill generated in a new business it is not possible to determine the date when it comes into existence."
74. In the case of Syndicate Bank (supra), the business undertaking of the assessee-company was nationalized by Government of India by promulgating the Banking Companies Acquisition and Transfer of Undertaking Ordinance (8 of 196 9), which was replaced by B.C.A.T.U. Act 22 of 1969 and compensation of 3.6 crores was given for the entire business undertaking taken over by the Government of India. Against levy of capital gains, the plea of the assessee was that the amount of Rs. 3.6 crores given as compensation for compulsory acquisition of the business undertaking of the assessee is incapable of apportionment among various assets constituting the undertaking of the assessee. In that case, the Hon'ble High Court observed as under :
"The term capital asset as defined in section 2(14) of the Income Tax Act, 1961, has a wide meaning and includes every kind of property as generally understood except those that are expressly excluded in the definition. A business undertaking as a whole would constitute a capital asset within the meaning of section 2(14). However, in deciding whether income-tax can be levied on capital gains, the following points have to be taken into account (i) There are assets of different nature, those involving cost in acquisition and those which would be acquired by way of production in which the cost element cannot be identified. But none of the provisions pertaining to "capital gains" suggest that they include an asset in the acquisition of which no cost at all can be conceived, (ii) the gost of acquisition mentioned in section 48 implies a date of acquisition; and (iii) if the cost of acquisition and/or the date of acquisition of the asset cannot be determined, then, it cannot be described as an "asset" within -the meaning of section 45 and, therefore, its transfer is not subject to income-tax under the head "capital gains".
75. However, a perusal of these cases will show that in these cases the intangible assets like "Goodwill" were also transferred and it was not possible to work out any cost of acquisition of such assets. However, so far as the present case is concerned, no transfer of goodwill was involved. Further, in view of our findings in relation to ground Nos. 3 and 4, we have found that cost of assets transferred by the assessee was attributed and was attributable and, therefore, there cannot be any difficulty in working out the cost of depreciable assets, which can be done in the present case by applying the provisions of section 48 read with section 55 and section 50 of the Act.
76. Thus, we are unable to accept the alternative plea of the assessee, which is rejected by us, but the main plea taken in ground No. 2 is accepted. Ground No. 2 is, therefore, allowed in favour of the assessee.
Ground No. : 177. This ground runs as under
"The learned officers below erred in law and on facts in considering and including in the income of the previous year the surplus on transfer of portion of land and buildings of Kashipur sugar unit (SC)ld) as long-term capital gain even though they were aware that the sale deed and registration of said portion was made in the financial year 1995-96 and fell in assessment year 1996-97."
78. The assessee transferred its land by two separate registered sale deed dated 29-1-1994 and 20-2-1996. The claim of the assessee before the assessing officer was that so far as the sale consideration of land is concerned, the portion of land transferred in subsequent years should not be included while working out the capital gain. This claim of the assessee was not accepted by the assessing officer.
79. In appeal, the learned Commissioner (Appeals) didnot adjudicate this issue, because he had taken the transfer of Kashipur unit of the assessee as a slump sale. Before us, it was submitted by the learned counsel for the assessee that transfer of the land through sale deed dated 20-2-1996, did not take place in the accounting year involved in the assessment year under consideration and, therefore, capital gains arising out of transfer of land and building cannot be assessed so far as this portion of the land is concerned in assessment year 1993-94. In support of this contention, reliance was placed on the following decisions (1) CIT v. Bhurangaiya Coal Co. (1958) 34 ITR 803 (SC) (2) Alapati Venkata Ramiaya v. CIT (1965) 57 ITR 185 (SC) (3) Addl. CIT v. Mercury Gen. Cozpn. (P) Ltd. (1982) 26 CTR (Del) 171 : (1982) 133 ITR 525 (Del) (4) Aurundhati Balkiishna v. CIT (1982) 29 CTR (Gui) 85 : (1982) 138 ITR 245 (Guj) (5) CIT v. Minerva Talldes (1996) 133 CTR (AP) 10 : (1996) 217 ITR 591 (AP)
80. On the other hand, the contention of the learned senior departmental Representative on this issue was that in view of the amended provision as contained under section 2(47) of the Act, the entire sale shall be deemed to have been taken place in the assesmsent year under conideration, because the possession was transferred to the assessee during this assessment year.
81. The assessee had also submitted its valuation report of Kharbanda. According to him, the fair market value of the land and building was at Rs. 1,41,63,150. Since the assessee had sold the land and building at a consideration of Rs. 60,85,000, the learned Assistant Commissioner added the difference of Rs. 80,78,160 to the profit on the sale of Kashipur fixed assets shown by the assessee. The fair market value of the land in financial yr. 1981-82 was estimated by the assessee at Rs. 1,28,000 and the index cost of acquisition was then calculated by processing at Rs. 1,28,000 by 223/100 and by this method, the cost was worked out at Rs. 2,85,440. This cost of acquisiton was deducted from Rs. 6,40,000 and capital gain was returned at a sum of Rs. 3,54,560. It may be pointed out that the assessee, later on, did not place reliance on the report of the registered valuer. The assessing officer also did not dispute it, nor made reference to the valuation officer, in view of the specific provisions contained under section 56B. We have to consider this issue in the light of the relevant provisions of law. So far as long-term capital assets are concerned, the capital gain is to be worked out in view of the provisions contained under section 48 read with s, 56 of the Income Tax Act, 1961, as mentioned above. The cost of acquisiton of the land transferred by the assessee is to be first worked out and for this purpose, in view of the provisions contained under sections 55 and 48 of the Act, the fair maket value of the land as on I-4-1981, has to be first dptermined. Assessee has shown the fair market value at 1,28,000 as on I-4-1981, but it is not ascertainable as to what is the basis for showing this fair market value. In our view, this issue has not been properly consideed and decided by the assessing officer in the light of relevant provisions as mentioned above. The learned Commissioner (Appeals) has also not considered this issue. Hence, in the interest of justice, we Consider it proper to restore this issue to the file of the assessing officer for deciding the same afresh in accordance with the relevant provisions of law. For doing so, the assessee shall be given proper opportunity. However, we make it clear that in view of specific provisions as contained under section 2(47)(v) and in view of the fact that possesison of the entire unit was transferred at the time of signing of the MOU and with the transfer of other asests irrespctive of the fact that the land was transferred through two different sale deeds, the transfer of land shall be- deemed to have been completed at the time of signing of MOU.
In the case of CIT v. F.K. Periera & Sons (Travancore) (P) Ltd. (1991) 94 CTR (Ker) 176. (1990) 184 ITR 461 (Ker) also a similar view was taken by the Hon'ble Kerala High Court by making following obsrevations :
"(ii) That the intention of the parties to the sale deed was to have the business sold as a going concern. A capital asset had thus been transferred by the sale deed dated 14-4-1971. There was, therefore, no sale of the building, plant, machinery and furniture separately. Only if the assets which were enjoying depreciation were sold separately, that the provisions of section 41(2) would be attracted. Therefore, the Tribunal was right in holding that the industrial undertaking as a whole had been taken over by the Government and the profit derived by the assessee would not be assessed under section 41(2) of the Act."
Thus, the plea of the assessee taken in ground No. I referred to above cannot be accepted and is rejected accordingly, but as observed, the issue relating to value of the entire land transferred as on 5-11-1992, is to be worked out and the cost of acquisition of the entire 'land is to be woked out as per relevant provisions of law for working out the capital gains on this non-depreciable asset. We, therefore, decide accordingly.
Ground No. 5:
82. Ground No. 5 runs as under :
"The learned officers below erred in law and on facts in disallowing the actual driage of sugarcane incurred by appellant in transportation of cane from various cane purchase centres which was debited to P&L a/c at Rs. 19,51,000, its cost, merely on the ground that it was quite higher than similar driage in earlier years. "
83. The assessee had claimed driage at 58,321 quintals. In absence of any justified reasons for the increased quantum of driage which stood at 29,120 qtls. In last year, the assessing officer made an addition of Rs. 19,51,000.
84. The learned Commissioner (Appeals) has also supported the view taken by the assessing officer by assigning the same reasons.
85. Before us, the learned counsel for the assessee submitted that the leanred Commissioner (Appeals) did not take into consideration the statement in para 6 of the statement of the fact filed alongwith the appeal. He also invited our attention to P. 99 of the paper book, which contains the statement regarding driage. A perusal of the statWent appearing at p. 99 of the paper book shows that in assessment year 1991-92, the claim of the assessee for driage was 0.35 per cent. In that year, the total cane crushed was 37,79,132 qtls. and driage was claimed at 18,279 qtIs. The assessee has given separate details of Kashipur unit and Pilibbit unit, so far as percentage of driage in Various years is concerned. However, from this chart, it is not clear, as to whether the claim of the assessee was accepted in ealier years by the IT department so far as Kashipur unit is concerned and if so, on what ground. Since the departmental authorities have not considered the comparative figures relating to this claim as submitted through the chart apearing on p. 99 of the paper book andfurther since the learned assessing officer as well as learned Commissioner (Appeals) have decided the issue without assigning any reasons in support of their findings, we consider it proper to set aside the order on this issue also to the assessing officer for fresh adjudication after considering the material available on record and after hearing the assessee and allow the same if it had been allowed in earlier years as shown by the assessee.
86. For statistical purposes, this ground is allowed in favour of the assessee.
87. Ground Nos. 6 and 7 are not pressed and have been withdrawn by the assessee. Hence, the same do not require any adjudication.
Ground No. 8 :
88. This ground challenges the disallowance of Rs. 6,92,683 in respect of interest on excess levy sugar price and Rs. 74,991 in respect of additional sugarcane price. Before the leanred Commissioner (Appeals), it was submitted that a similar disallownace/additions made in past years were directed to be deleted in those years by the learned Commissioner (Appeals)/Tribunal. Since the assessee did not file copies of orders of earlier years relating to this issue, in absence of the same, the leanred Commissioner (Appeals) upheld the disallownace.
89. Before us, the learned counsel for the assessee submitted that vide order dt. 6-1-1995, appearing on pp. 1 to 8 of the paper book, the learned Commissioner (Appeals) in the assessment year 1991-92, had deleted the disallowance/addition of Rs. 11,84,660 in view of the fact that the issue relating to additional sugar levy price was pending before the Hon'ble Supreme Court of India.
90. The learned senior departmental Representative could not inform us about the fate of the litigation pending before the Hon'ble Supreme Court of India. Since the department has deleted the disallowance in earlier years, we are of the view that a consistent approach should be adopted. However, we consider it proper. to restore this matter also to the assessing officer for deciding the same afresh after considering the actual position relating to the additional levy of sugar price and provision of interest thereon and also after ascertaining the fate of the decision of the Hon'ble Supreme Court of India in this matter. We decide accordingly.
91. This ground is, therefore, also allowed for statistical purposes, Ground No. 9:
92. This ground runs as unoer "Learned Commissioner (Appeals) and learned Assistant Commissioner were not right and justified in adding Rs. 74,991 aforesaid in the computation of income commenced with the figure of P&L a/c wherein it was not debited; thus, doubly disallowing same item."
93. It was submitted before us that the assessee did not claim the amount of Rs. 74,991 in its P&L a/c, but claimed the same in computation of income. In this regard, our attention was invited to p. 82 of the paper book. It was also submitted that since the amount was not deducted, there was no occasion for the assessing officer to make the addition of Rs. 74,991 and, thus, the action of the assessing officer tentamounts to double disallowance of the same amount. The learned Commissioner (Appeals) has not considered this issue also.
94. After going through the relevant material and after considering the submissions of the learned counsel for the assessee, we consider it proper to restore this issue also to the assessing officer for deciding the same afresh after verifying the facts from the relevant record and as per law. In case the double deduction has been made, then the proper relief should be given to the assessee.
Hence, this ground is also allowed for statistical purposes.
ITA No. 1694/All/1996: Asst. yT. 1993-94-department's Appeal: Ground No.95. In view of our findings recorded while deciding ground Nos. 2, 3 and 4 in the appeal of the assessee (ITA No. 1706/AU/1996), we have upheld the contention of the assessee and have allowed those grounds in its favour. Hence, this ground becomes infructuous and is dismissed accordingly.
Ground No. 2:
96. This ground challenges the finding and approach of learned Commissioner (Appeals) regarding value of land and building and plant and machinery. Since we have set aside the issue relating to valuation, cost of acquisition and working of capital gains in respect of land, while deciding ground No. 1 in the appeal of the assessee, this ground stands allowed for statistical purposes.
Ground No. 3:
97. Ground No. 3 runs as under
"That he has further erred in law and on facts in giving the above relief completely ignoring the fact that the assessee had claimed in his liabilities wrong deduction on account of doubtful debts, central subsidy and school building".
98. This ground does not arise out of the order of learned Commissioner (Appeals) and, therefore, rejected.
Ground No. 499. This ground is general in nature and does not require any specific adjudication.
100. In the result, whereas assessee's appeal (ITA No. 1706/AU/96) is partly allowed for statistical purposes, the appeal of the department (ITA No. 1694/AE/1996) is also partly allowed for statistical purposes.