By K. B. Bhujle
Advocate
17. Areva T&D India Ltd. vs. CIT [2020] 428 ITR 1 (Mad.) Date of order: 8th September,
2020 A.Y.: 2006-07
Capital gains – Assessability – Slump sale
– Section 2(42C) – Assets transferred to subsidiary company in accordance with
scheme u/s 394 of the Companies Act – Assessee allotted shares – Scheme
approved by High Court – No slump sale for purposes of capital gains tax
The assessee filed
its return for the A.Y. 2006-07. During the course of scrutiny assessment, a
questionnaire was issued to the assessee calling for certain clarifications.
The assessee stated that it had transferred its non-transmission and
distribution business to its subsidiary company. The assessee further stated
that the transfer of the non-transmission and distribution business was by way
of a scheme of arrangement under sections 391 and 394 of the Companies Act,
1956 and could not be considered a ‘sale of business’ and that any transfer of
an undertaking otherwise than as a result of a sale would not qualify as a
slump sale and thus, the provisions of section 50B could not be applied to its
case. The A.O. held that the assessee had agreed that the transfer of the non-transmission
and distribution business to its subsidiary was a transfer in terms of the
provisions of section 50B and that the assessee had approached the relevant
bond-issuing authorities for the purpose of section 54EC in order to claim
deduction on it. Thus, the A.O. concluded that the assessee itself having
agreed that the transfer fell under the provisions of section 50B, the claim of
the assessee that it should not be regarded as transfer could not be accepted.
This was confirmed
by the Commissioner (Appeals) and the Tribunal.
The Madras High
Court allowed the appeal filed by the assessee and held as under:
‘i) The fundamental legal principle is that
there is no estoppel in taxation law. An alternative plea can be raised
and it can even be a plea which is contradictory to the earlier plea.
ii) Section 2(42C) defines the
expression “slump sale” to mean the transfer of one or more undertakings as a
result of sale for a lump sum consideration without values being assigned to
the individual assets and liabilities in such sale. Admittedly, the word “sale”
is not defined under the Act. Therefore, necessarily one has to rely upon the
definitions in the other statutes which define the word “sale”. Section 54 of
the Transfer of Property Act, 1882 defines the word “sale” to mean a transfer
of ownership in exchange for a price paid or promised or part paid and part
promised. The word “price” is not defined either under the Income-tax Act, 1961
or under the Transfer of Property Act, 1882, but is defined u/s 2(10) of the
Sale of Goods Act, 1930 to mean money consideration for the sale of goods.
Therefore, to bring the transaction within the definition of section 2(42C) as
a slump sale there should be a transfer of an undertaking as a result of the
sale for lump sum consideration. The sale should be by way of transfer of
ownership in exchange for a price paid or promised or part paid and part
promised and the price should be money consideration. If no monetary
consideration is involved in the transaction, it would not be possible for the
Revenue to bring the transaction done by the assessee within the definition of
the term “slump sale” as defined u/s 2(42C). Section 118 of the Transfer of
Property Act, 1882 defines the term “exchange” by stating that when two persons
mutually transfer the ownership of one thing for the ownership of another,
neither thing nor both things being money only, the transaction is called an
“exchange”.
iii) The assessee was non-suited primarily on the
ground that it had accepted the transfer to be a sale falling within the
provisions of section 50B and approached the bond-issuing authorities for
investment in certain bonds in terms of section 54EC to avoid payment of
capital gains tax. The A.O., the Commissioner (Appeals) and the Tribunal had committed
a fundamental error in shutting out the contention raised by the assessee
solely on the ground that the assessee approached the bond-issuing authorities
for availing of the benefit u/s 54EC. In the assessee’s case, all the relevant
facts were available even before the A.O. while the scrutiny assessment was in
progress. Therefore, there was no estoppel on the part of the assessee
to pursue its claim.
iv) The Tribunal had committed a factual mistake
in referring to a valuation report not concerning the transaction, which was
the subject matter of assessment. The explanation given by the assessee was
satisfactory because the net asset value of the non-transmission and
distribution business was determined at Rs. 31.30 crores as on 31st
December, 2005. But the parties agreed to have a joint valuation by using a
combination of three methods, namely, (a) price earnings capitalisation, (b)
net assets, and (c) market values reflected in actual dealings on the stock
exchanges during the relevant period. After following such a procedure, the
fair value was computed at Rs. 41.3 crores and this had been clearly set down
in the statement filed u/s 393 of the Companies Act before the High Court. In
the scheme of arrangement there was no monetary consideration, which was passed
on from the transferee-company to the assessee but there was only allotment of
shares. There was no suggestion on behalf of the Revenue of bad faith on the
part of the assessee-company nor was it alleged that a particular form of the
transaction was adopted as a cloak to conceal a different transaction. The mere
use of the expression “consideration for transfer” was not sufficient to
describe the transaction as a sale. The transfer, pursuant to approval of a
scheme of arrangement, was not a contractual transfer, but a statutorily
approved transfer and could not be brought within the definition of the word
“sale”.’
