THE issue before the Bench is - Whether when a running
division of the business is transferred to a Group company as per the
amalgamation plan approved by the High Court and no sale consideration is
involved, even then such a transfer gives rise to capital gains taxable u/s 50B.
And the verdict goes against the Revenue.
Facts of the
case
The
assessee-company, earlier known as M/s. GVK Novapan Industries Pvt. Ltd, filed
its return of income declaring NIL income. Initially, the return was processed
under section 143(1). Subsequently, action was initiated under section 147
calling upon the assessee to submit a return of income. In response to such
notice, the assessee filed a letter requesting the Assessing Officer to treat
the return filed originally as a return in response to the notice under section
148 of the Act. In the course of assessment proceedings, the Assessing Officer
noticed that during the year under dispute, the assessee had transferred its
manufacturing division to M/s. Novapan Industries Limited under a scheme of
amalgamation approved by the High Court of A.P. It was further noticed that as
on 31.03.2006 the assessee-company had total assets of Rs.3219.89 lakhs and
total liabilities of Rs.2538.67 lakhs. Hence, the net worth of the
assessee-company was Rs.681.22 lakhs. The Assessing Officer further noted that
as per the scheme of amalgamation both the assets and the liabilities were
transferred by the assessee company to M/s. Novapan Industries Limited. As a
consideration for the transfer of the division the amalgamated company M/s.
Novapan Industries Limited allotted 38 shares for every 100 shares of the
amalgamated company. Besides allotment of shares, the amalgamated company M/s.
Novapan Industries Limited also transferred certain investments held by it
amounting to Rs.25,24,05,000/- to the assessee company. The balance-sheet of the
assessee company as on 31.03.2007 showed share capital of Rs.6,28,07,500/- and
reserve amount of demerger at Rs.18,42,87,883/-.
The
Assessing Officer on examining the above facts felt that the transfer of the
manufacturing division to M/s. Novapan Industries Limited tantamount to a “slump
sale” within the meaning of section 50B of the Act attracting liability of
capital gains. The Assessing Officer referring to the definition of “Slump Sale”
under section 2(42C) and the definition of “Undertaking” as in Explanation to 1
to Section 2 (19AA) defining demerger, was of the view that the transfer of
manufacturing division by the assessee company amounted to “slump sale” and the
capital gain arising therefrom had to be brought to tax under the provisions of
section 50B of the Act. The Assessing Officer, accordingly, proceeded to
determine the capital gain by adopting the sale consideration for the purpose of
computing capital gain, the share capital allotted and the value of investment
transferred to the assessee by the amalgamated company M/s. Novapan Industries
Limited amounting to Rs.6,28,07,500/- and Rs.25,24,05,000/- respectively
totalling to Rs.31,52,12,500 /- and after reducing the cost of acquisition of
Rs.6,81,22,000/- determined long term capital gain at Rs.24,70,90,500/-.
On
appeal, the CIT(A) allowed the assessee's stand taken before the AO.
Having heard the parties,
the Tribunal held that:
++ on
perusal of the assessment order, it is very much clear that the entire
assessment is based on the fact that the Assessing Officer has treated the
transfer of assets to M/s. Novapan Industries Ltd. as a slump sale attracting
the provisions of section 50B of the Act. In this scenario, we have to confine
ourselves to the issue as to whether the transfer of the manufacturing division
M/s. Novapan Industries Ltd. is a ‘slump sale’ within the meaning ascribed under
section 2(42C) of the Act so as to attract the provisions of section 50B of the
Act. It is undisputed that under the scheme of amalgamation approved by the High
Court of A.P. under section 391 and 394 of the Companies Act, the manufacturing
division of the assessee company was transferred to M/s. Novapan Industries Ltd.
with all its assets and liabilities as per the terms of the scheme of
amalgamation approved by the High Court. The assessee in return for the transfer
of the assets received the investments of Rs.25,24,05,000/- besides 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. From the facts, it is very
much clear that as per the scheme of amalgamation, there is no monetary
consideration received by the assessee-company for transfer of the manufacturing
division.
++ a
plain reading of the provisions of Sec 50B makes it clear that to qualify as slump
sale, 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. In the case of the assessee it is not disputed that there is no
monetary consideration received for transfer of the assets and liabilities of
the manufacturing division to M/s. Novapan Industries Ltd. though there may be a
transfer of an undertaking. In that view of the matter, it has to be examined in
the light of ratio laid down by the various judicial precedents whether the
transaction would assume the character of sale ? The Hon’ble Supreme Court in
the case of CIT vs. Motors and General Stores Pvt. Ltd. held as under
:
“Sale is a transfer of property in goods or of the ownership in immovable property for a money consideration. But, in exchange there is a reciprocal transfer of interest in immovable property, a corresponding transfer of interest in movable property being denoted by the word ‘barter’. The difference between a sale and an exchange is this that in the former the price is paid in money, whilst in the latter it is paid in goods by way of barter.The presence of money consideration is an essential element to a transaction of sale. If the consideration is not money but some other valuable consideration it may be an exchange or barter but not a sale.”
++
therefore, considering the facts of the present case in the light of ratio laid
down as above by the Supreme Court and the Tribunal 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 High Court of A.P. it cannot be considered to be a
slump sale within the meaning ascribed under section 2(42C) of the Act so as to
attract the liability of the capital gain under section 50B of the Act. In the
aforesaid view of the matter, we do not find any reason to interfere with the
finding of the CIT(A) which is accordingly upheld.
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