M/s. Konkan Storage Systems Pvt. Ltd., Bangalore V. Assistant Commissioner of Income Tax, Circle - 4(1)(1), Bengaluru

ITA 1073/BANG/2017

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 0184 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 3 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-09-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2007-2008
• Appeal Filed On: 15-05-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR P V PRADEEP KUMAR
• Assessee Lawyers: V SRINIVASAN
• Keywords: Capital asset; Cost of acquisition; Wholly owned subsidiary; Valuation report

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER AND SHRI G. MANJUNATHA, ACCOUNTANT MEMBER ITA NO. 1073/BANG/2017 ASSESSMENT YEAR : 2007 - 08 M/S. KONKAN STORAGE SYSTEMS PVT. LTD., # 712, 5 TH A CROSS, 1 ST BLOCK, HRBR LAYOUT, KALYAN NAGAR, BANGALORE 560 043. PAN: AABCK 4244Q VS. THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 4(1)(1), BENGALURU. APP ELL ANT RESPONDENT APPELLANT BY : SHRI V. SRINIVASAN, ADVOCATE RESPONDENT BY : DR. P.V. PRADEEP KUMAR, ADDL. CIT(DR)(ITAT), BENGALURU. DATE OF HEARING : 1 2 .09. 201 8 DATE OF PRONOUNCEMENT : 12 .09 .201 8 O R D E R PER N.V. VASUDEVAN, JUDICIAL MEMBER THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE ORD ER DATED 24 TH MARCH, 2017 OF THE CIT(APPEALS)-4, BANGALORE RELAT ING TO ASSESSMENT YEAR 2007-08. 2. THE ASSESSEE OR KSSPL IS IN THE BUSINESS OF LETT ING OF LIQUID STORAGE FACILITY. IT OWNS TWO TERMINALS, ONE AT KARWAR POR T IN THE STATE OF KARNATAKA ITA NO.1073/BANG/2017 PAGE 2 OF 15 AND THE OTHER AT KOCHI, STATE OF KERALA. KONKAN ST ORAGE SYSTEMS (KOCHI) PRIVATE LIMITED, HEREINAFTER REFERRED TO AS KCPL, I S A 100% SUBSIDIARY OF THE ASSESSEE KSSPL. UNDER AN AGREEMENT DATED 16.3. 2007, THE ASSESSEE (KSSPL) AGREED TO SELL AND KCPL AGREED TO PURCHASE KOCHI TERMINAL OWNED BY KSSPL. IT IS NOT IN DISPUTE THAT THE SALE OF THE KOCHI TERMINAL WAS A SLUMP SALE U/S. 2(42C) OF THE INCOME TAX ACT, 1961 (ACT). SLUMP SALE IS NOTHING BUT TRANSFER OF A WHOLE OR PART OF BUSINESS CONCERN AS A GOING CONCERN; LOCK, STOCK AND BARREL. AS PER SECTION 2(42C) OF INCOME -TAX ACT 1961, SLUMP SALE MEANS THE TRANSFER OF O NE OR MORE UNDERTAKINGS AS A RESULT OF THE SALE FOR A LUMP SUM CONSIDERATIO N WITHOUT VALUES BEING ASSIGNED TO THE INDIVIDUAL ASSETS AND LIABILITIES I N SUCH SALES. UNDERTAKING HAS THE SAME MEANING AS IN EXPLANATION 1 TO SECTION 2(19AA) DEFINING DEMERGER. AS PER EXPLANATION 1 TO SECTION 2(19AA) , UNDERTAKING SHALL INCLUDE ANY PART OF AN UNDERTAKING OR A UNIT OR DIV ISION OF AN UNDERTAKING OR A BUSINESS ACTIVITY TAKEN AS A WHOLE, BUT DOES NOT INCLUDE INDIVIDUAL ASSETS OR LIABILITIES OR ANY COMBINATION THEREOF NOT CONST ITUTING A BUSINESS ACTIVITY. 3. SECTION 50B OF THE INCOME-TAX ACT, 1961 PROVIDES THE MECHANISM FOR COMPUTATION OF CAPITAL GAINS ARISING ON SLUMP S ALE: 1. CAPITAL GAINS ARISING ON TRANSFER OF AN UNDERTAK ING ARE DEEMED TO BE LONG-TERM CAPITAL GAINS. HOWEVER, IF THE UNDERTAKIN G IS OWNED AND HELD FOR NOT MORE THAN 36 MONTHS IMMEDIATELY BEFOR E THE DATE OF TRANSFER, GAINS SHALL BE TREATED AS SHORT-TERM CAPI TAL GAINS. IN THE PRESENT CASE THERE IS NO DISPUTE THAT THE UNDERTAKI NG THAT WAS SOLD WAS HELD FOR MORE THAN 36 MONTHS BY THE ASSESSEE. 2. CAPITAL GAINS ARISING ON SLUMP SALE ARE CALCULAT ED AS THE DIFFERENCE BETWEEN SALE CONSIDERATION AND THE NET WORTH OF THE UNDERTAKING. NET WORTH IS DEEMED TO BE THE COST OF ACQUISITION A ND COST OF ITA NO.1073/BANG/2017 PAGE 3 OF 15 IMPROVEMENT FOR SECTION 48 AND SECTION 49 OF THE AC T. THUS, THE MANNER OF COMPUTATION OF CAPITAL GAIN IS SAME AS PR OVIDED IN SEC.48 OF THE ACT, EXCEPT THE VARIATION THAT INSTEAD OF RE DUCING THE COST OF ACQUISITION AND COST OF IMPROVEMENT FROM THE FULL V ALUE OF CONSIDERATION THAT ARE RECEIVED OR THAT ACCRUES ON TRANSFER, THE NET WORTH OF THE UNDERTAKING IS TAKEN AS THE COST OF AC QUISITION AND COST OF IMPROVEMENT. THERE IS NO DISPUTE IN THE PRESENT CASE ABOUT THE NET WORTH OF THE UNDERTAKING THAT WAS SOLD AND IT I S A SUM OF RS.29,69,09,841. 4. SECTION 48 OF THE ACT LAYS DOWN THE MODE OF COMP UTATION OF CAPITAL GAIN AND THE RELEVANT PORTION OF THE SECTION FOR TH E PRESENT APPEAL, READS THUS:- 48. THE INCOME CHARGEABLE UNDER THE HEAD 'CAPITAL GAIN S' SHALL BE COMPUTED, BY DEDUCTING FROM THE FULL VALUE OF THE CONSIDERATION RECEIVED OR ACCRUING AS A RESULT OF T HE TRANSFER OF THE CAPITAL ASSET THE FOLLOWING AMOUNTS, NAMELY: (I ) EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY IN CONNECTION WITH SUCH TRANSFER; ( II ) THE COST OF ACQUISITION OF THE ASSET AND THE COS T OF ANY IMPROVEMENT THERETO: .. 5. AS PER CLAUSE 3.1 OF THE AGREEMENT DATED 16.3.20 07 BETWEEN THE ASSESSEE AND KCPL UNDER WHICH THE KOCHI TERMINAL WA S SOLD BY THE ASSESSEE ON A SLUM SALE BASIS, THE LUMP SUM CONSIDE RATION PAYABLE BY KCPL WAS A SUM OF RS.25,50,00,000. THE MANNER IN W HICH THE SAME WAS TO BE PAID IS SET OUT IN CLAUSE 3.2 OF THE SAID AGR EEMENT AS FOLLOWS:- THE PURCHASE CONSIDERATION SHALL BE DISCHARGED BY KCPL AS FOLLOWS: ITA NO.1073/BANG/2017 PAGE 4 OF 15 3.2.1 ON COMPLETION OF THE SLUMP SALE, KCPL SHALL PAY TO KSSPL A SUM NOT EXCEEDING RS. 19,90,00,000. OUT OF THIS AMOUNT, KCPL SHALL DIRECTLY PAY TO IDBI/PNB ( AFTER ENSURIN G SIMULTANEOUS PAYMENT OF INTEREST AS PER CLAUSE 3.6 BELOW ON OTS AMOUNT PAID BY KSSPL AS REQUIRED BY IDBI/PNB UNLESS IT IS WAIVED) WITHIN TIME SCHEDULE AS MAY BE NEGOTIATED W ITH THEM , THE PRINCIPLE AMOUNT WITHOUT INTEREST THEREON UPTO THE DATE OF COMPLETION, THE AMOUNTS MUTUALLY AGREED UPON BY BOT H KSSPL AND THE RESPECTIVE SECURED LENDER, AS ONE TIME SETT LEMENT ('OTS') OF THE TOTAL OUTSTANDING LIABILITY OF THE K OCHI TERMINAL UNDERTAKING OF KSSPL WITH RESPECT TO EACH SECURED L ENDER, IN ACCORDANCE WITH THE TERMS OF OTS. SIMILARLY, KCPL S HALL ALSO DISCHARGE THE UNSECURED LIABILITY OF KOCHI TERMINAL UNDERTAKING WHICH IS PAYABLE TO AEGIS LOGISTICS LIMITED, OF AN AMOUNT NOT EXCEEDING RS 75,00,000. IN RESPECT OF THESE DIRECT PAYMENTS, KCPL SHALL STAND DISCHARGED OF ITS OBLIGATIONS TO P AY THE PURCHASE CONSIDERATION OF RS 19,90,00,000 TO KSSPL. 3.2.2 OUT OF THE TOTAL CONSIDERATION OF 25,50,00,0 00, KCPL SHALL WITHHOLD / RETAIN A SUM OF RS 5,60,00,000 OR BALANC E PURCHASE CONSIDERATION, WHICHEVER IS HIGHER, PAYABLE TO KSSP L, WITHIN FIFTEEN DAYS AFTER SUCH TIME ALL THE FOLLOWING COND ITIONS ARE SATISFACTORILY FULFILLED AND ACCOMPLISHED: (I) KCPL RECEIVES FROM COCHIN PORT TRUST AN UNCOND ITIONAL WAIVER OF MINIMUM GUARANTEE THROUGHPUT CONDITION WI THOUT ANY FINANCIAL OBLIGATION ON KCPL; (II) UPON KSSPL ENSURING EMPTYING AND CLEANING UP OF THE STORAGE TANKS CONTAINING MOLASSES TO THE FULL SATIS FACTION OF THE THIRD PARTY QUALITY SURVEYOR; (III) KSSPL PAYING OFF ALL ITS PAST OUTSTANDING DUE S AS WELL AS THE DUES, IF ANY; DEMANDED BY COCHIN PORT TRUST OR ANY OTHER AUTHORITY INCLUDING BUT NOT LIMITED TOWARDS LEASE R ENT, WAY LEAVE CHARGES, INTEREST, PENAL INTEREST, PREMIUM, D ELAYED PAYMENT CHARGES OR ANY OTHER CHARGES, LEVIES ETC. F OR THE PERIOD UP TO THE COMPLETION DATE, THOUGH ARISEN BEF ORE, DURING OR AFTER EXECUTION OF THIS AGREEMENT AND KSS PL ITA NO.1073/BANG/2017 PAGE 5 OF 15 OBTAINING A NO DUE CERTIFICATE FROM COCHIN PORT TRU ST OR CONCERNED AUTHORITY IN THAT BEHALF. IV) VALID PERMISSIONS/LICENSES FROM THE FOLLOWING A UTHORITIES ARE TRANSFERRED IN FAVOUR OF KCPL IN A CLEAN MANNER WIT HOUT ANY STIPULATION AND ORIGINALS HANDED OVER TO KCPL BY KS SPL: A. PETROLEUM STORAGE LICENCE FROM CHIEF CONTROLLER O F EXPLOSIVES ALLOWING UTILIZATION OF FULL STORAGE CAP ACITY OF 32,220 KL CLASS A PETROLEUM PRODUCTS IN BULK, 18,720 KL CLASS C PETROLEUM PRODUCTS IN BULK, TOTAL CAPACITY BEING 50,940 KL. APPROVAL OF THE FACTORY SITE BY CHIEF INSPECTORATE OF FACTORIES AND BOILERS, KER ALA (THROUGH LOCAL OFFICE) FOR THE ENTIRE STORAGE CAPAC ITY OF THE STORAGE TERMINAL AS\ STATED IN THE FORESAID POI NT (A) ABOVE AND ANNULMENT OF INSPECTORATE OF FACTORIES AN D BOILERS' ORDER NO. B-1058/2005 DATED 18TH APRIL 200 5, WHICH SEVERELY RESTRICTS THE STORAGE CAPACITY OF TH E TANK TERMINAL. C. FACTORY LICENCE FROM THE CHIEF INSPECTORATE OF FAC TORIES AND BOILERS, KERALA FOR THE ENTIRE CAPACITY OF THE TERMINAL. D. CONSENT TO ESTABLISH AND CONSENT TO OPERATE FROM THE STATE POLLUTION CONTROL BOARD. E. ANY OTHER PERMISSION NECESSARY, NON AVAILABILITY OF WHICH CAN RESTRICT THE USE OF THE ENTIRE STORAGE CA PACITY FOR THE STORAGE TERMINAL FOR STORING PETROLEUM PROD UCTS, LIQUID CHEMICALS, EDIBLE OILS AND MOLASSES UTILIZIN G FULL CAPACITY OF THE TERMINAL IN ANY MANNER AS INDICATED UNDER POINT (A) ABOVE. (V) KSSPL OBTAINS FINAL CLEAN APPROVAL OF COCHIN P ORT TRUST PERMITTING ASSIGNMENT OF LEASE IN FAVOUR OF KCPL WI THOUT ANY FINANCIAL OBLIGATIONS ON KCPL AND ; (VI) KSSPL HAS DISCHARGED ITS LIABILITY TO IDBI AND PNB TOWARDS ADDITIONAL INTEREST ON THE OTS AMOUNT AS PE R CLAUSE 3.6 HEREUNDER. ITA NO.1073/BANG/2017 PAGE 6 OF 15 (VII) KSSPL SHALL GET A RELEASE LETTER OF CHARGES F ROM IDBI AND PNB RELEASING THE CHARGE ON THE ASSETS OF KSSPL ; 3.2.3 OUT OF THE WITHHELD/RETAINED AMOUNT OF RS 5, 60,00,000, KCPL SHALL RELEASE AN AMOUNT NOT EXCEEDING RS 60,00 ,000 (AFTER DEDUCTING EXPENSES/DUES AS PER CLAUSE 2.2 AB OVE AND ANY PAYMENT MADE DIRECTLY BY KCPL ON BEHALF OF KSSPL) TO KSSPL IN EVENT ALL THE CONDITIONS UNDER C LAUSE 3.2.2 EXCEPT CLAUSE 3.2.2(I) HAS BEEN SATISFACTORIL Y FULFILLED OR ACCOMPLISHED BY KSSPL. 3.3 KSSPL SHALL BE DEEMED TO HAVE WAIVED ITS RIGHT TO RECOVER THE BALANCE AMOUNT OF DEBT FROM KCPL TO THE EXTENT OF THE AMOUNT WITHHELD BY KCPL AND KCPL SHALL AUTOMATICALL Y STAND EXONERATED AND DISCHARGED FOR EVER FROM ITS L IABILITY FOR THE SAID AMOUNT WITHHELD IN PURSUANCE OF THIS AGREEMENT IN THE EVENT, KSSPL DOES NOT COMPLY WITH ANY OF THE CONDITIONS STATED IN CLAUSE 3.2.2 ON OR BEFO RE 3R DECEMBER OR THE APPLICATION OF KCPL FOR WAIVER OF M GT IS REJECTED BY CPT WHICHEVER EARLIER; 3.4 ANY OUTSTANDING LIABILITY OR ANY OTHER CLAIM OF KOCHI TERMINAL UNDERTAKING YARDS MGT PAYABLE, IF ANY, TO COCHIN PORT TRUST AS WELL AS ANY PAYMENT FOR THE WA IVER OF THE MGT CLAUSE BY COCHIN PORT TRUST AND/OR ANY ONE TIME PREMIUM PAYABLE TOWARDS THE WAIVER OF THE MGT SHALL BE BORNE AND PAID BY KSSPL ALONE. IN THE ALTERNATIVE, IF KCPL IS REQUIRED TO PAY SUCH AMOUNT TO COCHIN PORT TRUST, IT SHALL BE DEDUCTED FROM THE RETENTION AMO UNT WITHHELD BY KCPL PURSUANT TO CLAUSE 3.2 ABOVE AND K CPL SHALL CLAIM FROM KSSPL ANY AMOUNT PAID BY KCPL TO COCHIN PORT TRUST ON ACCOUNT OF MGT OR PREMIUM FOR WAIVER OF MGT CLAUSE LIMITED TO RS.5,00,000: 6. IT CAN BE SEEN FROM CLAUSE 3.2.2 AND 3.2.3 OF TH E AGREEMENT THAT OUT OF THE TOTAL CONSIDERATION OF RS.25,50,00,000 KCPL WOULD RETAIN A SUM OF RS.5,60,00,000 OUT OF THE SALE CONSIDERATION AND SH ALL RELEASE RS.60,00,000 WHEN THE CONDITIONS SET OUT IN CLAUSE 3.2.2 (II) TO (VII) ARE ITA NO.1073/BANG/2017 PAGE 7 OF 15 COMPLETED BY THE ASSESSEE. WITH REGARD TO THE REMA INING SUM OF RS.5,00,00,000, CLAUSE 3.4 OF THE AGREEMENT PROVIDE S THAT THE SAME WILL BE PAID ONLY ON THE ASSESSEE OBTAINING WAIVER OF MINIM UM GUARANTEE THROUGHPUT (MGT) PAYABLE BY THE ASSESSEE TO COCHIN PORT TRUST TILL THE TRANSFER OF THE KOCHI TERMINAL UNDERTAKING BY THE A SSESSEE TO KCPL OR IN THE ALTERNATIVE IT SHALL BE PAID DIRECTLY BY KCPL T O COCHIN PORT TRUST UPTO A SUM OF RS.5 CRORES. THE ASSESSEE CONSTRUCTED STORAG E TERMINAL AT KOCHI PORT ON THE LAND BELONGING TO COCHIN PORT TRUST, WH ICH WAS GIVEN ON LEASE BY COCHIN PORT TRUST SUBJECT TO THE CONDITION THAT THE ASSESSEE WILL HANDLE A MINIMUM QUANTITY IN THE STORAGE FACILITY. BY IMP OSING SUCH A CONDITION FOR LEASE OF LAND, COCHIN PORT TRUST WOULD GET REVENUE IN THE WHARFAGE CHARGES, LOADING CHARGES, BERTING CHARGES FOR THE S HIPS FROM THE CUSTOMERS/USERS OF THE FACILITIES. THE SUM PAYABLE FOR MINIMUM QUALITY HANDLING IN THE STORAGE FACILITY IS KNOWN AS MGT. 7. ACCORDING TO THE ASSESSEE THE SUM OF RS.5 CRORES RETAINED BY KCPL WAS NEVER PAID TO THE ASSESSEE BECAUSE THE ASS ESSEE COULD NOT GET WAIVER OF MGT FROM COCHIN PORT TRUST. THEREFORE, T HE SUM OF RS.5 CRORES SHOULD NOT BE TREATED AS PART OF THE FULL CONSIDERA TION RECEIVED ON TRANSFER. ACCORDINGLY, THE ASSESSEE COMPUTED LONG TERM CAPITA L LOSS (LTCL) ON SLUM SALE AT RS.9,19,09,841 AS FOLLOWS:- SALE CONSIDERATION RECEIVED OR ACCRUED : RS.20,50 ,00,000 LESS: NET WORTH OF THE KOCHI UNDERTAKING : RS. 29, 69,09,841 LTCL : (-) RS. 9,19,09,841 ITA NO.1073/BANG/2017 PAGE 8 OF 15 8. ACCORDING TO THE AO, THE SALE CONSIDERATION RECE IVED OR ACCRUED ON TRANSFER WAS RS.25,50,00,000 AND HE THEREFORE COMPU TED THE LTCL AT RS.4,19,09,841. THE DISPUTE THEREFORE IS AS TO WHA T IS THE FULL VALUE OF CONSIDERATION RECEIVED OR ACCRUED AS A RESULT OF TR ANSFER. THE CASE OF THE AO IS THAT AS PER THE AGREEMENT THE SALE CONSIDERAT ION AGREED BETWEEN THE PARTIES FOR SLUMP SALE OF THE KOCHI TERMINAL UNDERT AKING WAS RS.25,50,00,000 AND THAT CANNOT BE ALTERED. THE AO ACCORDINGLY COMPUTED LTCL AT RS.4,19,09,841. 9. BEFORE CIT(A) THE ASSESSEE REITERATED SUBMISSION THAT THE SALE CONSIDERATION AGREED UNDER THE AGREEMENT DATED 16.3 .2007 WAS PROVISIONAL SUBJECT TO PERFORMANCE OF CERTAIN CONDI TIONS AND SINCE THE CONDITION OF GETTING WAIVER FROM COCHIN PORT TRUST WAS NOT COMPLIED WITH BY THE ASSESSEE KCPL WAS OBLIGED TO PAY ONLY RS.20,50, 00,000 AND NOT RS.25,50,00,000. THE ASSESSEE IN SUPPORT OF ITS CO NTENTION THAT COCHIN PORT TRUST REFUSED TO WAIVE ACCUMULATED MGT UPTO DA TE OF TRANSFER BY IT TO KCPL FILED A LETTER DATED 20.4.2010 BY COCHIN PORT TRUST WHEREBY COCHIN PORT TRUST REFUSED REQUEST OF KCPL TO WAIVE ACCUMUL ATED MGT UPTO DATE OF TRANSFER BY ASSESSEE TO KSCL. IN THE COURSE OF HEARING BEFORE CIT(A) ON 17.3.2017, THE ASSESSEE WAS CALLED UPON BY THE C IT(A) TO PRODUCE A CONFIRMATION FROM KCPL THAT THEY HAVE NOT PAID AND ARE NOT OBLIGED TO PAY THE BALANCE SUM OF RS.5 CRORES TO THE ASSESSEE. IN REPLY TO THE SAME THE ASSESSEE FILED SUBMISSION DATED 23.3.2017 POINTING OUT THAT THE TRANSFER OF THE KOCHI TERMINAL UNDERTAKING BY THE ASSESSEE TO K CPL WHICH WAS ITS SUBSIDIARY WAS ULTIMATELY TO TRANSFER THE SAID UNDE RTAKING TO M/S. AEGIS LOGISTICS LTD. THE ASSESSEE EXPRESSED ITS INABILIT Y TO PRODUCE CONFIRMATION FROM M/S. AEGIS LOGISTICS LTD., AS HE WAS A THIRD P ARTY. THE ASSESSEE HOWEVER PRODUCED A MEMORANDUM OF AGREEMENT DATED 16 .2.2010 BETWEEN THE ASSESSEE, KCPL AND M/S. AEGIS LOGISTICS LTD., W HEREIN IN CLAUSE 5.3 ITA NO.1073/BANG/2017 PAGE 9 OF 15 THE FACTUM OF THE ASSESSEES INABILITY TO GET WAIVE R FROM COCHIN PORT TRUST AND CONSEQUENTLY THERE SHALL BE A REDUCTION OF THE SALE CONSIDERATION FOR SLUM SALE FROM RS.25.50 CRORES TO RS.20.50 CRORES. CLAUSE 5.3 OF THE AGREEMENT DATED 16.2.2010 READS THUS:- 5.3 KSSPL CONFIRMS THAT, DUE TO REASONS BEYOND THE IR CONTROL, IT WAS NOT ABLE TO FULFILL ITS OBLIGATION SET FORTH IN CLAUSE 3.3.3(I) OF THE SLUMP SALE AGREEMENT, IN GETTING TH E MGT WAIVED BEFORE THE COMMITTED DATE. KSSPL EXPRESSLY CONFIRMS AND AGREES THAT SUBJECT TO CLAUSE 6.1 ABOV E IT HAS DULY WAIVED ITS RIGHT TO RECOVER THE BALANCE AMOUNT OF RS.5,00,00,000 (RUPEES FIVE CRORES) FROM KCPL TO TH E EXTENT OF THE AMOUNT WITHHELD BY KCPL TO THE EXTENT OF AMOUNT WITHHELD AGAINST MGT WAIVER AND HEREBY CONFI RMS THAT THE PURCHASE CONSIDERATION FOR THE ACQUISITION OF THE KOCHI TERMINAL UNDERTAKING BY KCPL STANDS REDUCED T O THAT EXTENT. KSSPL CONFIRM AND AGREE THAT IT WILL NOT RAISE THIS ISSUE OR CLAIM THE WITHHELD AMOUNT AT ANY FUTU RE DATE. KSSPL ALSO SOLEMNLY UNDERTAKES THAT KCPL IS AT LIBE RTY TO PERUSE MGT ISSUE DIRECTLY WITH PORT AUTHORITIES AND THAT KSSPL SHALL NOT AT ANY TIME IN ANY MANNER INTERFERE WITH THE PROCESS. IT ASSURES TO EXTEND ALL COOPERATION T O KCPL IN RIGHTFULLY GETTING THE MGT ISSUE WAIVED WITH THE PO RT, AT NO COST CONSIDERATIONS. 5.4 KSSPL SHALL ACTIVELY PERUSE THE APPEAL WITH CUS TOMS FOR APPEAL ON THE EXCESS DUTY AND INTEREST APPROPRIATED BY THE CUSTOMS DEPARTMENT IN APPROPRIATE FORUMS AND IF AND WHEN THE AMOUNT IS DEPOSITED BY THE CUSTOMS DEPARTMENT I N THE DISTRICT COURT, THE SAME SHALL BE WITHDRAWN AND SHA RED BY AND BETWEEN KSSPL AND KCPL IN SAME PROPORTION I.E. 23:33 AND KSSPL OR KCPL WILL NOT RAISE ANY DISPUTE ON THE FORMULA, INCLUDING ON PROCEEDS THAT MAY BE RECO VERED AND DEPOSITED IN COURT AGAINST DISPOSAL OF LEFT OVE R QUANTITY OF MOLASSES, AS AND WHEN DISPOSED OFF. ITA NO.1073/BANG/2017 PAGE 10 OF 15 10. THE CIT(APPEALS) HOWEVER REFUSED TO ACCEPT THE PLEA OF THE ASSESSEE. THE CIT(A) FOUND THAT THERE WAS VALUATIO N OF THE KOCHI TERMINAL UNDERTAKING BY A VALUER AT RS.24,44,00,000 /- AND THE AGREEMENT BETWEEN THE PARTIES WAS TO FIX THE SLUM SALE CONSID ERATION AT RS.25,50,00,000/-. THEREFORE, THE CIT(A) WAS OF TH E VIEW THAT NON- PERFORMANCE OF THE CONDITIONS IN THE AGREEMENT WOUL D RESULT IN REDUCTION OF SALE CONSIDERATION RECEIVABLE OR ACCRUING TO THE AS SESSEE. THE CIT(A) ALSO HELD THAT THE NON-FILING OF CONFIRMATION BY THE ASS ESSEE FROM KCPL OR M/S. AEGIS LOGISTICS LTD., SHOWED THAT THE ACTUAL SALE C ONSIDERATION FOR THE SLUMP SALE WAS ONLY RS.25.50 CRORES AND NOT RS.20.5 0 CRORES. HE ALSO REFERRED TO THE FACT THAT THERE WAS NOTHING BROUGHT ON RECORD BY THE ASSESSEE TO SHOW THAT THERE WAS REJECTION OF REQUES T FOR WAIVER OF MGT MADE BY THE ASSESSEE BY COCHIN PORT TRUST. HE THER EFORE CONFIRMED THE ORDER OF THE AO. 11. AGGRIEVED BY THE ORDER OF THE CIT(A), THE ASSES SEE IS IN APPEAL BEFORE THE TRIBUNAL. WE HAVE HEARD THE RIVAL SUBMI SSIONS. THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED SUBMISSIONS MAD E BEFORE THE CIT(A). IT WAS FURTHER SUBMITTED BY HIM THAT M/S. AEGIS LOG ISTICS LTD., WHO IS NOW THE OWNER OF THE KOCHI TERMINAL UNDERTAKING WHICH W AS SUBJECT MATTER OF SLUM SALE, WOULD BE IN A POSITION TO EXPLAIN THE CO RRECT FACTS. SINCE THE ASSESSEE DOES NOT HAVE POWER TO COMPEL THEM TO DIVU LGE INFORMATION ON THE POSITION WITH REGARD TO ASSESSEES LIABILITY TO WARDS MGT, THE AO WHO HAS POWERS U/S.133(6) OF THE ACT TO CALL FOR INFORM ATION AND U/S.131 OF THE ACT TO EXAMINE ANY PERSON ON OATH, OUGHT TO HAVE EX ERCISED HIS POWERS TO GET THE CORRECT INFORMATION, RATHER THAN DRAW CONCL USIONS THAT THE ASSESSEE FAILED TO GIVE CONFIRMATION FROM KCPL, PREDECESSOR OF M/S. AEGIS LOGISTICS LTD. THE ASSESSEE MADE ATTEMPTS TO GET THE REQUIRE D INFORMATION AND INFORMED THE CIT(A) ABOUT HIS INABILITY TO GET CONF IRMATION FROM M/S. AEGIS ITA NO.1073/BANG/2017 PAGE 11 OF 15 LOGISTICS LTD. BESIDES THE ABOVE, THE LETTER DATED 20.4.2010 OF COCHIN PORT TRUST CLEARLY DEMONSTRATES THAT MGT UPTO DATE OF TR ANSFER TO KCPL PAYABLE BY THE ASSESSEE WAS NEVER WAIVED BY COCHIN PORT TRU ST. HIS ARGUMENT WAS THAT WHEN THE AGREEMENT READ AS A WHOLE CONTAIN S A BARGAIN BETWEEN THE ASSESSEE AND KCPL THAT IT IS ONLY ON GETTING NO C FROM COCHIN PORT TRUST, A SUM OF RS.5 CRORES WOULD BE PAID OR PAYABL E TO THE ASSESSEE BY KCPL, IT WOULD BE UNFAIR TO TREAT THE SUM OF RS.5 C RORES AS PART OF THE SALE CONSIDERATION FOR THE SLUM SALE. ACCORDING TO HIM THE TERMS OF THE AGREEMENT HAVE TO BE READ AS A WHOLE AND IF SO READ , THE ONLY CONCLUSION THAT ONE CAN REACH IS THAT THE CONSIDERATION PAYABL E BY THE PURCHASER IN THE SLUMP SALE WAS RS.20.50 CRORES IN THE ABSENCE OF GE TTING NOC OR WAIVER OF PAST MGT BY THE ASSESSEE FROM COCHIN PORT TRUST. HIS SUBMISSION WAS THAT U/S.48 OF THE ACT, CAPITAL GAIN IS COMPUTED BY REDUCING FROM THE FULL VALUE OF CONSIDERATION RECEIVED OR ACCRUING ON TRAN SFER. FULL VALUE OF CONSIDERATION ACCRUING OR RECEIVED ON TRANSFER, IN THE PRESENT CASE CANNOT BE RS.25.50 CRORES. ALTERNATIVELY, IF THERE REMAIN S ANY DOUBT ABOUT THE WAIVER OF MGT BY COCHIN PORT TRUST, THE AO SHOULD B E DIRECTED TO VERIFY FROM M/S. AEGIS LOGISTICS LTD., AND COCHIN PORT TRU ST, ABOUT THE FACTS WITH REGARD TO MGT PAYABLE BY THE ASSESSEE AND HOW MUCH IS THE LIABILITY OF THE ASSESSEE WHICH HAS NOT BEEN WAIVED. IF SUCH SUM IS IN EXCESS OF RS.5 CRORES THEN THE ASSESSEE CAN NEVER GET ANY SUM FROM KCPL OVER AND ABOVE RS.20.50 CRORES. IT WAS THEREFORE PLEADED BY HIM THAT THE ALTERNATIVE THE ISSUE SHOULD BE REMANDED TO THE AO FOR CONSIDERATION AFRESH WITH SUITABLE DIRECTIONS TO EXERCISE HIS POW ERS UNDER THE ACT, TO FIND OUT FACTS. 12. THE LEARNED DR RELIED ON THE ORDER OF THE CIT(A ). HE WOULD CONTEND THAT THE SALE CONSIDERATION AGREED BETWEEN THE PARTIES FOR THE SLUM SALE WAS RS.25.50 CRORES AND THAT FIGURE SHOULD BE ADOPTED AS FULL VALUE OF ITA NO.1073/BANG/2017 PAGE 12 OF 15 CONSIDERATION RECEIVED OR ACCRUING AS A RESULT OF T RANSFER. IN THIS REGARD HE ALSO POINTED OUT THAT AS PER THE VALUATION REPORT O F THE REGISTERED VALUER THE VALUE OF THE UNDERTAKING WAS RS.24.40 CRORES AND TH EREFORE THE ASSESSEE CANNOT PLEAD THAT THE SALE CONSIDERATION ON SLUM SA LE PAYABLE WAS ONLY RS.20.50 CRORES. WE MAY AT THIS STAGE REPEL THIS A RGUMENT BY POINTING OUT THE PROVISIONS OF SEC.50B OF THE ACT, READ WITH SEC .48 OF THE ACT, DOES NOT CONTEMPLATE ADOPTING VALUATION OF THE REGISTERED VA LUER AND THEREFORE THE METHODOLOGY OF COMPUTATION PRESCRIBED BY THE ACT OF CAPITAL GAIN ON SLUM SALE CANNOT BE ALTERED. HIS NEXT ARGUMENT WAS THAT THE AGREEMENT DATED 16.2.2010 BETWEEN THE ASSESSEE KCPL AND M/S. AEGIS LOGISTICS LTD., IS LATER IN POINT OF TIME TO THE ORDER OF THE AO AND T HOUGH THIS WAS FILED BEFORE CIT(A) AND RELIED UPON BEFORE CIT(A), THE SAME SHOU LD BE IGNORED AS IT COULD BE AN AFTERTHOUGHT TO FILL IN THE GAPS IN THE CASE OF THE ASSESSEE. 13. WE HAVE GIVEN A VERY CAREFUL CONSIDERATION TO T HE RIVAL SUBMISSIONS. AS WE HAVE ALREADY OBSERVED, SECTION 50B OF THE INC OME-TAX ACT, 1961 PROVIDES THE MECHANISM FOR COMPUTATION OF CAPITAL G AINS ARISING ON SLUMP SALE. CAPITAL GAINS ARISING ON SLUMP SALE ARE CALCU LATED AS THE DIFFERENCE BETWEEN SALE CONSIDERATION AND THE NET WORTH OF THE UNDERTAKING. NET WORTH IS DEEMED TO BE THE COST OF ACQUISITION AND COST OF IMPROVEMENT FOR SECTION 48 AND SECTION 49 OF THE ACT. THUS, THE MANNER OF COMPUTATION OF CAPITAL GAIN IS SAME AS PROVIDED IN SEC.48 OF THE ACT, EXCE PT THE VARIATION THAT INSTEAD OF REDUCING THE COST OF ACQUISITION AND COS T OF IMPROVEMENT FROM THE FULL VALUE OF CONSIDERATION THAT ARE RECEIVED O R THAT ACCRUES ON TRANSFER, THE NET WORTH OF THE UNDERTAKING IS TAKEN AS THE CO ST OF ACQUISITION AND COST OF IMPROVEMENT. THERE IS NO DISPUTE IN THE PRESENT CASE ABOUT THE NET WORTH OF THE UNDERTAKING THAT WAS SOLD AND IT IS A SUM OF RS.29,69,09,841. SECTION 48 OF THE ACT LAYS DOWN THE MODE OF COMPUTA TION OF CAPITAL GAIN AND THE RELEVANT PORTION OF THE SECTION FOR THE PRE SENT APPEAL, READS THUS:- ITA NO.1073/BANG/2017 PAGE 13 OF 15 48. THE INCOME CHARGEABLE UNDER THE HEAD 'CAPITAL GAINS' SHALL BE COMPUTED, BY DEDUCTING FROM THE FULL VALUE OF TH E CONSIDERATION RECEIVED OR ACCRUING AS A RESULT OF THE TRANSFER OF THE CAPITAL ASSET THE FOLLOWING AMOUNTS, NAMELY: (I) EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY I N CONNECTION WITH SUCH TRANSFER; (II) THE COST OF ACQUISITION OF THE ASSET AND THE COST OF ANY IMPROVEMENT THERETO: .. 14. THUS, THE STARTING POINT OF COMPUTATION IS FUL L VALUE OF CONSIDERATION RECEIVED OR ACCRUING AS A RESULT OF TRANSFER OF THE CAPITAL ASSET AND WHAT IS THE VALUE WHETHER IT IS RS.25.50 CRORES OR RS.20.50 CRORES, IS THE DISPUTE IN THE PRESENT CASE. THE ADMITTED CASE OF THE PARTIES IS THAT OVER AND ABOVE RS.20.50 CRORES NOTHING WAS RECEIVED BY THE ASSESSE E. THE DISPUTE IS WHETHER IT CAN BE SAID THAT RS.25.50 CRORES ACCRUED AS A RESULT OF THE TRANSFER OR WAS RECEIVED AT A LATER POINT OF TIME B Y THE ASSESSEE TOWARDS SLUMP SALE. 15. A READING OF CLAUSE 3.1 OF THE AGREEMENT DATED 16.3.2007 SHOWS THAT THE LUMP SUM CONSIDERATION FOR THE SLUM SALE A GREED BETWEEN THE PARTIES WAS RS.25.50 CRORES. THE CONDITION PRECEDE NT FOR TRANSFER OF THE KOCHI TERMINAL UNDERTAKING AS A GOING CONCERN BY TH E ASSESSEE TO KCPL IS SET OUT IN CLAUSE 2 OF THE AGREEMENT. CLAUSE 2. 1 LAYS DOWN THAT THE ASSESSEE SHALL PAY OFF ALL ITS OUTSTANDING DUES TO COCHIN PORT TRUST (CPT) AND OBTAIN NO DUE CERTIFICATE FROM CPT FOR SMOOTH OPERATION OF KOCHI TERMINAL UNDERTAKING BY KCPL. A READING OF CLAUSE 3 .2 OF THE AGREEMENT DATED 16.3.2007 IN PARTICULAR CLAUSE 3.4 WOULD SHOW THAT IF ON OR BEFORE 31 ST DECEMBER, 2007 IF THE ASSESSEE DOES NOT GET WAIVER OF MGT FROM CPT ITA NO.1073/BANG/2017 PAGE 14 OF 15 THEN THE ASSESSEE WILL NOT BE IN A POSITION TO CLAI M THE SUM EQUIVALENT TO THE AMOUNT DUE AS MGT TO CPT LIMITED TO A SUM OF RS .5 CRORES. THEREFORE, THERE IS AN OVERRIDING TITLE IN SO FAR A S THE RECEIPT OF RS.5 CRORES IS CONCERNED BY THE ASSESSEE FROM KCPL WHICH IS PAR T OF THE SALE CONSIDERATION RECEIVABLE OR ACCRUING ON SLUM SALE O F KOCHI TERMINAL UNDERTAKING. IN SUCH CIRCUMSTANCES IT WOULD NOT BE CORRECT TO SAY THAT THE SALE CONSIDERATION FOR THE SLUMP SALE IS A SUM OF R S.25.50 CRORES BY READING CLAUSE 3.1 OF THE AGREEMENT DATED 16.3.2007 IN ISOLATION. 16. WE HOWEVER ARE OF THE VIEW THAT THE EVIDENCE WI TH REGARD TO HOW MUCH WAS THE DUE TO CPT TOWARDS MGT PAYABLE BY THE ASSESSEE AND HOW MUCH WAS NOT WAIVED BY CPT HAVE NOT BEEN BROUGHT ON RECORD BY THE ASSESSEE. THE ASSESSEE PARTED WITH THE KOCHI TERMI NAL UNDERTAKING ON ITS SLUMP SALE AS EARLY AS 16.3.2007 AND THE TIME F OR COMPLETION OF CONDITION PRECEDENT FOR SLUMP SALE AS PER THE AGREE MENT, EXPIRED IN DECEMBER, 2007. KCPL REFUSED TO GIVE ANY FURTHER E XTENSION OF TIME FOR COMPLETION OF THE TERMS OF THE AGREEMENT BY THE ASS ESSEE. THEREFORE, THERE IS MERIT IN THE CONTENTION OF THE LEARNED COU NSEL FOR THE ASSESSEE THAT IT COULD NOT PROCURE THE REQUIRED DETAILS FROM CPT AND M/S. AEGIS LOGISTICS LTD., WHO WERE THE SUBSEQUENT TRANSFEREE OF THE KOC HI TERMINAL UNDERTAKING REFUSED TO CO-OPERATE. WE ARE THEREFOR E OF THE VIEW THAT THE ISSUE SHOULD BE REMANDED TO THE AO FOR CONSIDERATIO N AFRESH ON THESE ASPECTS WITH A DIRECTION TO THE AO TO EXERCISE HIS POWERS UNDER THE ACT, ON SPECIFIC REQUEST FROM THE ASSESSEE ON THE INFORMATI ON REQUIRED AND THE PARTY FROM WHOM IT IS REQUIRED, TO ESTABLISH ITS C ASE THAT A SUM OF RS.5 CRORES OR SUCH OTHER LESSER SUM WAS IN FACT NOT REC EIVABLE BY THE ASSESSEE AS PER THE TERMS OF THE AGREEMENT DATED 16.3.2007. WITH THE AFORESAID OBSERVATIONS, THE APPEAL OF THE ASSESSEE IS TREATED AS ALLOWED FOR STATISTICAL PURPOSE. ITA NO.1073/BANG/2017 PAGE 15 OF 15 17. IN THE RESULT, APPEAL BY THE ASSESSEE IS TREATE D AS ALLOWED FOR STATISTICAL PURPOSE. PRONOUNCED IN THE OPEN COURT ON THIS 12 TH DAY OF SEPTEMBER, 2018. SD/- SD/- ( G. MANJUNATHA ) ( N.V. VASUDEVAN ) ACCOUNTANT MEMBER JUDICIAL MEMBER BANGALORE, DATED, THE 12 TH SEPTEMBER, 2018. / D ESAI S MURTHY / COPY TO: 1. APP ELL ANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER SENIOR PRIVATE SECRETARY ITAT, BANGALORE.