Sections 2(42C), 50B—Transfer of undertaking, with all its assets and liabilities under a scheme of amalgamation, where no monetary consideration is involved, cannot be considered to be a slump sale within the meaning of section 2(42C).
Facts:
The assessee filed return of income declaring nil income. In the course of assessment proceedings u/s. 147 of the Act, the Assessing Officer (AO) noticed that under the scheme of amalgamation approved by the Andhra Pradesh High Court u/s. 391 and 394 of the Companies Act the manufacturing division of the assessee company was transferred to M/s. Novopan Industries Ltd. with all its assets and liabilities as per the terms of scheme of amalgamation approved by the High Court. The assessee in return for the transfer of assets and liabilities received the investments of Rs. 25,24,05,000 besides the allotment of 38 equity shares of Rs. 10 each to the shareholders of the assessee company for every 100 equity shares held in the assessee company. The net worth of the assessee company as on 31-3-2006 was Rs. 681.22 lakh.
The AO held the transfer of manufacturing division to M/s. Novopan Industries Ltd to be a `slump sale’ within section 50B attracting liability of capital gains. He computed long-term capital gain by adopting full value of consideration to be Rs. 31,52,12,500 being aggregate of Rs. 6,28,07,500 (being shares issued to shareholders) and Rs. 25,24,05,000. He considered Rs. 6,81,22,000 to be the cost of acquisition. Accordingly, he determined long-term capital gain to be Rs. 24,70,90,500. He rejected the contention of the assessee that there was no monetary consideration and therefore the transfer under consideration was not a slump sale.
Aggrieved, the assessee preferred an appeal to CIT(A) who allowed the assessee’s appeal.
Aggrieved, the revenue preferred an appeal to the Tribunal.
Held: The Tribunal, having noted the facts, observed that there is no monetary consideration received by the assessee company for transfer of manufacturing division. To qualify as a slump sale u/s. 2(42C), two conditions have to be satisfied viz., (1) there must be transfer of one or more undertaking as a result of sale and (2) the sale should be for a lumpsum consideration without values being assigned to the individual assets and liabilities. The Tribunal noted the ratio of the decisions of the Supreme Court in the case of CIT vs. Motors & General Stores Pvt. Ltd. 66 ITR 692 (SC) and also CIT vs. R. R. Ramakrishna Pillai 66 ITR 725 (SC) wherein it was held that where a person carrying on business transfers assets to a company in consideration of allotment of shares, it would be a case of exchange, but not sale.
The Tribunal held that since there is no monetary consideration involved in transferring the manufacturing division with all its assets and liabilities to M/s. Novapan Industries Ltd. under scheme of amalgamation approved by the Andhra Pradesh High Court, it cannot be considered to be a slump sale within the meaning ascribed u/s. 2(42C) of the Act so as to attract the liability of capital gains u/s. 50B of the Act. The Tribunal did not find any reason to interfere with the finding of CIT(A).
The appeal filed by the revenue was dismissed.
