Case Note & Summary
The case involves an appeal by the Revenue under Section 260A of the Income Tax Act, 1961 against an order of the Income Tax Appellate Tribunal (ITAT) dated 22 May 2007 for the Assessment Year 1994-1995. The respondent-assessee, M/s. Polychem Ltd., was engaged in the business of manufacture and sale of liquor. On 24 March 1994, the assessee entered into an agreement with International Distillers (India) Pvt. Ltd. to sell its Indian Made Foreign Liquor (IMFL) business as a going concern on an 'as is where is' basis for a total consideration of Rs.10.38 Crores. The assessee claimed that the profit arising on the transfer was not chargeable to tax as it was a slump sale. The Assessing Officer, however, deducted the written down value of fixed assets and value of stores, raw materials, and finished goods (Rs.3.48 Crores) from the sale price and held the difference of Rs.6.90 Crores as chargeable to capital gains. The Commissioner of Income Tax (Appeals) and the ITAT both held in favor of the assessee, concluding that the transfer was a slump sale and not subject to capital gains tax. The Revenue appealed to the High Court. The High Court framed the substantial question of law: whether the Tribunal was right in holding that capital gains are not applicable because the IMFL business was transferred as a going concern, i.e., a slump sale. The High Court, after hearing both sides, found that the Tribunal's decision was based on a correct appreciation of facts and law. The Court noted that the transfer of the entire business as a going concern for a lump sum consideration without any itemized valuation constitutes a slump sale, and the profit arising from such a sale is not chargeable to capital gains under the Income Tax Act. The Court dismissed the appeal, upholding the Tribunal's order.
Headnote
A) Income Tax - Slump Sale - Capital Gains - Transfer of business as a going concern constitutes a slump sale - The assessee transferred its IMFL business as a going concern for a lump sum consideration - The Assessing Officer treated the excess of sale price over written down value as capital gains - The Tribunal held that the transfer was a slump sale and not chargeable to capital gains - The High Court upheld the Tribunal's decision, finding no perversity or error of law (Paras 1-4).
Issue of Consideration
Whether the Tribunal is right in holding that capital gains are not applicable in view of the fact that the IMFL business has been transferred as a going concern and therefore a slump sale?
Final Decision
The High Court dismissed the appeal, upholding the ITAT order that the transfer of the IMFL business as a going concern constituted a slump sale and the profit arising therefrom was not chargeable to capital gains.
Law Points
- Slump sale
- capital gains
- transfer of business as going concern
- Section 260A Income Tax Act
- 1961
