By C. N. Vaze, Shailesh Kamdar, Jagdish T. Punjabi, Bhadresh Doshi Chartered Accountants
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Sections 2(42C), 45, 48 and 50B — As per section 2(42C) of the Act, only a transfer as a result of sale can be construed as a slump sale transfer of an undertaking by way of ‘exchange’ will not qualify as a slump sale — When an undertaking is transferred as a going concern it is not possible to conceptualise the cost of acquisition of such a going concern as well as date of acquisition thereof — If the cost of acquisition and/or date of acquisition of the asset cannot be determined, then it cannot be brought within the purview of section 45 for levy and computation of capital gains.
Facts:
During the previous year relevant to the assessment year under consideration, the assessee, pursuant to a Court-approved scheme of arrangement u/s.391 r.w.s 394 of the Companies Act, 1956, transferred its Lift Field Operations Undertaking (‘the undertaking’), as a going concern, to Tiger Elevators Pvt. Ltd. As consideration for transfer the assessee was entitled to receive preference shares and bonds. The price for transfer was a lump sum consideration without assigning any value to any of the individual items. In the return of income filed the assessee did not return any capital gains on the ground that since the cost of undertaking is not ascertainable the machinery for computing capital gains fails. It was also pointed out that the transfer was an exchange and not a sale and therefore did not fall within the purview of the definition of slump sale u/s.2(42C) of the Act.
The Assessing Officer (AO) held the transaction of transfer of the undertaking to be a transaction of slump sale, taxable as per provisions of section 50B of the Act.
Aggrieved, the assessee preferred an appeal to the CIT(A) who upheld the action of the AO.
Aggrieved, the assessee preferred an appeal to the Tribunal.
Held:
The Tribunal having considered the definition of ‘slump sale’ u/s.2(42C) of the Act, held that it is only a transfer as a result of sale that can be construed as a slump sale. Therefore, any transfer of an undertaking otherwise than as a result of sale will not qualify as a slump sale. On perusal of the clauses of the scheme the Tribunal noted that the scheme of arrangement did not mention monetary consideration for the transfer. The parties were ad idem that the scheme of arrangement was that the assessee was to transfer the undertaking and take bonds/preference shares as consideration. Thus, it was held to be a case of exchange and not sale and consequently the provisions of section 2(42C) were held to be not applicable. Therefore, the provisions of section 50B were also held to be not applicable to the facts and circumstances of the assessee’s case.
Since individual items of capital assets were not being transferred and aggregate of individual assets in the form of an undertaking was a capital asset which was transferred, the transfer being one of going concern, it was held that it is not possible to ascertain the profit or gain from transfer of undertaking, since cost of acquisition and the cost of improvement of the undertaking cannot be ascertained and consequently, computation provisions cannot be applied and the charge of capital gain fails.
This ground of appeal filed by the assessee was allowed.
