Indian Kanoon - Search engine for Indian Law

This is an appeal filed by the assessee against the order of CIT(A), Mumbai, for the assessment year 2004-2005.

2. First grievance of the assessee relates to taxing of capital gains amounting to Rs.10,30,06,590/- u/s.50B r.w.s.2(42C) arising on the transfer of the BOPP films undertaking to Xpro India Ltd. (XIL).

3. Rival contentions have been heard and record perused. This ground relates to taxation of capital gains amounting to Rs.10,30,06,590/- u/s.50B read with section 2(42C) of the I.T. Act. The facts in brief relating to this addition are that during the previous relevant to the assessment year under appeal, the assessee entered into a Business Transfer Agreement (BTA) with Xpro India Ltd (XIL) for sale of its BOPP Films undertaking at Pithampur, Madhya Pradesh as a going-concern for a total lump-sum consideration of Rs.14 crores. In the return of income, the assessee offered a sum of Rs.10,30,06,590/- as short term capital gains in respect of the said transfer in accordance with the provisions of section 50B of the IT. Act. However, subsequently, the assessee filed a revised return withdrawing the aforesaid income by way of short term capital gains on the ground that the impugned transfer of the BOPP Films undertaking was not in the nature of slump sales within the meaning contained in section 2(42C) of the Act and therefore, capital gains u/s. 50B would not be leviable. It was contended before the AO that the impugned sale can be treated as slump sales only if no value is ascribed to any individual asset/liability. It was argued in course of assessment that as per the BTA, the current assets and liabilities were to be taken over by XIL at a mutually agreed amount for which value of individual assets was to be determined at the time of conveyance. The AR of the assessee referred to Article 2.3, 4.3 and 5.26 of the BTA in support of this contention that the net current asset were to be valued individually and payment for the same was to be made over and above the lump-sum consideration. The AR submitted before the AO the details of individual items of assets and liabilities which were taken over by the XIL at mutually agreed price and it was accordingly argued that since individual values had been assigned to assets and liabilities, the BTA agreement for sale of the BOPP undertaking should not be treated as slump sale and accordingly, no capital gains will arise in respect of such transaction.

5. By the impugned order the CIT(A) confirmed the action of AO after observing as under :-

"I have considered the submission of the ARs and the facts on record. I have also carefully perused the decisions relied upon by the ARs. The decisions of the Supreme Court in the case of CIT vs. Artex Manufacturing Co. 227 ITR 260 (SC) and CIT vs. Electric Control Gear Manufacturing Co. 227 ITR 278(SC) does not help the case of the appellant as these decisions were given prior to the introduction of section 50B in the IT. Act and were with reference to section 41(2) of the IT. Act. As regards the decisions in the case of Karnbli Co-operative Sugar Factory Ltd. vs. JCIT 83 ITD 460 (Bangalore), it is found that the facts of that case are not at all comparable to the facts of the present case. In the case of Karnbli Co-operative Sugar Factory Ltd. vs. JCIT 83 ITD 460 the assessee was running a sugar mill which came under liquidation, and the liquidator called for tender for sale of assets of the assessee. As per agreement between the liquidator and the purchaser, only machineries, details of which were entered in the agreement were sold whereas all liabilities were the responsibility of the liquidator. It was further found that as per agreement for sale in that case, while the liquidator agreed to transfer the entire assets of the factory, the deposits made by the assessee with banks, local authority, electricity board and domestic gas authorities and investment in the shares of the BDCC bank were retained by the erstwhile factory. It was in this background that the Hon'ble Tribunal held that the agreement for sale was not for the factory as a going concern and was therefore, not a slump sale. It is also pertinent to note that this decision was also related to a period prior to introduction of section 50B on the statute. I am therefore, of the opinion that the case laws relied upon by the AR does not in any way help the case of the appellant. There is no dispute that the BOPP undertaking has been sold for a lumpsum amount of Rs. 14 crores alongwith all its assets and liabilities including outstanding contracts, licenses, intellectual.properties rights etc. The services of all the employees of erstwhile BOPP undertaking have also been transferred to the buyer. The AO has rightly applied the ratio of the decision of the Bombay High Court in the case of Premier Automobiles Pvt. Ltd. vs. ITO 264 ITR 193 to the facts of the case for determining whether the impugned sale is slum sale or not. As discussed in para 3.8 of the assessment order, the facts of the present case fully satisfies the tests laid down by the jurisdictional high court for determining whether a transaction is a slum sale or not. As regards the objection of the appellant that the transfer of BOPP undertaking is not a slump sale as value of individual net current assets have been ascribed, I fully agree with the AO that issue is squarely covered by the decision of the ITAT, Hyderabad Bench in the case of Coromondal Fertilizer Pvt. Ltd. 90 ITD 344 (80AD(Hy). In that case also, value had been ascribed to net current assets and after considering this aspect of the transaction, the Hon'ble ITAT, Hyderabad Bench observed that when tangible asset situated at farflung areas are involved, , it would be nitpicking to say, on the basis of the valuation of few ancillary items, that the sale is not a slump sale. The Hon'ble ITAT Bench observed that what was to be examined was whether the cement unit as a functional unit had been transferred for a lumpsum price. The IT AT held that it was so transferred, and was therefore, a slump sale. There is no contrary decision on the issue. Therefore, following the decision of the IT AT, Hyderabad Bench mentioned above, there is no dispute that the impugned transfer of the BOPP undertaking shall not cease to be a slump sale just because value has been ascribed to a few items of current assets for the purpose of transfer.

7. On the other hand, ld. DR relied on the order of lower authorities.

8. We have considered rival contentions and deliberated on judicial pronouncements referred by lower authorities in their respective orders as well as judgments relied on by ld. AR and DR during the course of hearing before us. From the record we found that during the year under consideration assessee had entered into a Business Transfer Agreement (BTA) with Expro India Ltd.(XIL) for sale of BOPP Films undertaking at Pithampur, Madhya Pradesh at a lump sum consideration of Rs.14 crores. The AO treated the capital gains so earned as short term capital gains liable to tax u/s.50B r.w.s.2(42C) of the I.T. Act. We had gone through the terms of BTA, which clearly provides that sale of undertaking as a going concern for a lump sum consideration of Rs.14 crores. With regard to the contention of ld. AR that individual values has been ascribed to net current asset, we found that the AO has reproduced the individual items of assets/liabilities in para 3.6 and has held that most of the items have been taken over by the buyer at the book value with minor and negligible difference. Further the net current assets by nature are such that its value change from day-to-day, and, therefore, its exact value on the date of actual transfer cannot be determined at the time of entering into contract, which is usually much earlier than the date of conveyance. We found that even assignment of individual value to net current asset was only for the purpose of ascertaining the change in the value of such assets in the intervening period i.e. the date of agreement and the date of conveyance. The CIT(A) has also analysed the terms of BTA agreement and after applying the verdict of Hon'ble Supreme Court in the case of Artex Manufacturing Co. 227 ITR 260 and Electric Control Gear Manufacturing Co., 227 ITR 278, reached to the conclusion that these cases were pertaining to the period prior to introduction of Section 50B in the Income Tax Act and were with reference to section 41(2) of the Act. The decision relied on by the ld. AR in the case of Bharat Bijlee Limited (supra) is distinguishable on facts, insofar as assessee has transferred its one of its division of undertaking under scheme of arrangement without any monetary consideration. Transfer was in exchange for issue of preference share and bonus. The Hon'ble High Court held that it was an exchange and not a sale. Thus, this decision is of no help to the assessee. Similarly, the decision of Hon'ble Supreme Court in the case of PNB Finance Limited (supra), the case was related to assessment year 1970-1971, wherein provisions of Section 50C was not on the statute book, therefore of no help to the assessee. On the other hand, decision relied on by lower authorities are supporting their conclusions. Detailed analysis of the facts of the case was made with reference to the various judicial pronouncements as narrated at page 3 & 4 of the appellate order. The conclusion drawn by the AO and CIT(A) are as per material on record, therefore, did not require any interference on our part. Accordingly, we uphold the addition made by the AO u/s.50B on account of gain arising from transfer of BOPP Films Undertaking.