ASST CIT CIR 1(2), MUMBAI V. POLYCHEM LTD, MUMBAI

ITA 1805/MUM/2011

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 5865 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-03-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 1999-2000
• Appeal Filed On: 04-03-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M L PERUMAL
• Assessee Lawyers: D J SHUKLA

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH C, MUMBAI BEFORE SHRI R.C SHARMA, ACCOUNTANT MEMBER AND DR. S.T.M. PAVALAN, JUDICIAL MEMBER ITA NO. 1805/MUM/2011 ASSESSMENT YEAR: 1999-2000 DCIT 1(2), ROOM NO. 535, 5 TH FLOOR, AAYAKAR BHAVAN, M.K. ROAD MUMBAI- 400 020 VS. M/S. POLYCHEM LTD. ORIENTAL HOUSE, 7, JAMSHEDJI TATA ROAD, CHURCHGATE RECLAMATION MUMBAI- 400 020 (APPELLANT) (RESPONDENT) PERMANENT ACCOUNT NO. :- AAACP 7184 M ASSESSEE BY : SHRI D.J. SHUKLA REVENUE BY : SHRI M.L. PERUMAL DATE OF HEARING : 11.03.2014 DATE OF PRONOUNCEMENT : 26.03.2014 O R D E R PER DR. S.T.M. PAVALAN, JM: THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAIN ST THE ORDER OF THE LD.CIT(A)-2, MUMBAI DATED 16.12.2010 FOR THE ASSESS MENT YEAR 1999-2000. 2. IN THIS APPEAL, THE REVENUE HAS AGITATED THE DEC ISION OF THE LD.CIT(A) DELETING THE SURPLUS AMOUNT RS.1,08,70,035/- RECEIV ED ON SALE OF UNITS TAXED AS CAPITAL GAINS BY THE AO. 3. BRIEFLY STATED, THE RELEVANT FACTS ARE THAT THE ASSESSEE, A COMPANY ENGAGED IN THE BUSINESS OF MANUFACTURING OF INDUSTRIAL ALCOHOL , ACETIC ACID, VINYL, DURING THE YEAR CONSIDERATION, HAD TRANSFERRED ALCOHOL PLANT, ACETIC ACID AND VAN UNITS AT LUMP SUM CONSIDERATION OF RS.2,92,33,098/- AND THE SAME WAS NOT OFFERED FOR TAXATION PLACING RELIANCE ON THE DECISION OF THE SUPREME COU RT IN THE CASE OF CIT VS. MUNGNEERAM BANGUR & CO. (57 ITR 299) . HOWEVER, IN THE ASSESSMENT FRAMED U/S 143(3), THE AO BROUGHT AN AMOUNT OF RS.1,08,70,035/ - TO TAX AS A CAPITAL GAINS BY ITA NO. 1805/MUM/2011 M/S. POLYCHEM LTD. ASSESSMENT YEAR: 1999-2000 2 RELYING ON THE DECISIONS OF THE HONBLE APEX COURT IN THE CASES OF CIT VS. ARTEX MANUFACTURING COMPANY LTD. 227 ITR 260(SC) AND CIT VS. ELECTRIC CONTROL GEAR 141 CTR (SC) 302 . ON APPEAL, THE LD.CIT(A) DELETED THE SAID AMOUNT ON THE REASON THAT SECTION 50B WAS NOT APPLICABLE FOR THE ASSESSMENT Y EAR UNDER CONSIDERATION AFTER CONSIDERING THE IMPUGNED TRANSACTION AS A SLUMP SAL E ON THE SALE OF UNITS AS A GOING CONCERN, WHICH CANNOT BE BROUGHT TO TAX. AGGRIEVED BY THE IMPUGNED ORDER, THE REVENUE IS IN APPEAL BEFORE US. 4. HAVING HEARD BOTH THE SIDES AND PERUSED THE MATE RIAL ON RECORD, A READING OF THE COPY OF THE BUSINESS TRANSFER AGREEMENT BETWEEN POLYCHEM LTD. AND VAM ORGANIC CHEMICALS LTD. (VOCL) DATED 23 RD NOVEMBER 1998 REVEALS THAT VOCL HAS AGREED TO BUY AND ACQUIRE FROM POLYCHEM ITS MANUFAC TURING FACILITIES AT NIRA AS A RUNNING BUSINESS/GOING CONCERN ON AS IS WHERE IS BASIS TOGETHER WITH ITS ASSETS AND LIABILITIES ON THE TERMS AND CONDITION CONTAINED IN THE SAID AGREEMENT. THE SAID AGREEMENT PROVIDES FOR THE PURCHASE OF THE UNDERTAK ING/MANUFACTURING FACILITIES OF POLYCHEM AT NIRA TOGETHER WITH ALL PROPERTIES, ASSE TS, RESOURCES, PRIVILEGES, LICENCES AND ALL ASSUMED LIABILITIES FORMING PART OF THE SAI D UNDERTAKING AS A RUNNING BUSINESS/GOING CONCERN BASIS INCLUDING ALL IMMOVABL E ASSETS AND PROPERTIES ALL MOVABLE ASSETS, RESOURCES AND FACILITIES INCLUDING PLANT, EQUIPMENT, MACHINERY ETC. ALL CURRENT ASSETS FULL BENEFITS OF ALL CURRENT CON TRACTS ENGAGEMENTS AND ORDERS, ALL LICENCES, PERMISSIONS, APPROVALS REQUIRED FROM THE CENTRAL OR STATE GOVERNMENT ETC FOR CARRYING ON BUSINESS, ALL INTANGIBLE ASSETS OF THE BUSINESS INCLUDING TECHNICAL KNOW HOW, PROCESS KNOW HOW, PROCESSING, CONFIDENTIA L INFORMATION, OPERATIONAL AND MAINTENANCE MANUALS, CURRENT LIABILITIES, SALE TAX LOANS OUTSTANDING ETC. THE SAID AGREEMENT FURTHER PROVIDES FOR TRANSFER OF ALL THE EMPLOYEES EMPLOYED IN THE UNDERTAKING AND THE BENEFIT OF OXYGEN SUPPLY AGREEM ENT (WITH BOMBAY OXYGEN CHEMICALS LTD.), ETHYLENE SUPPLY AGREEMENT WITH THE IPCL AND OTHER CURRENT CONTRACTS ENGAGEMENTS AND ORDERS RELATED TO OR IN C ONNECTION WITH OR FORMING PART OF THE BUSINESS OF THE UNDERTAKING. THE PERUSAL OF THE AGREEMENT FURTHER SUGGESTS THAT THE ASSESSEE HAS TRANSFERRED THE UNDERTAKING F OR A SLUMP PRICE AND THE TOTAL CONSIDERATION RECEIVED ON SALE CANNOT BE BROKEN UP AND ALLOCATED AMONG VARIOUS ITA NO. 1805/MUM/2011 M/S. POLYCHEM LTD. ASSESSMENT YEAR: 1999-2000 3 ASSETS IN SPECIE. FURTHER IN THE CASE OF THE SAID T RANSACTION, NO PART OF THE SALE CAN BE ATTRIBUTED TO A PARTICULAR ASSET. 4.1 AFTER CONSIDERING THE AFOREMENTIONED FACTS, IT IS PERTINENT TO MENTION THAT THE HONBLE BOMBAY HIGH COURT IN THE ASSESSEES OWN CAS E, WHICH IS REPORTED IN 343 ITR 115(BOM), ON AN IDENTICAL TRANSFER OF SIMILAR UNDER TAKING FOR THE ASSESSMENT YEAR 1994-95, HAS HELD THAT SINCE THE AGREEMENT DOES NOT CONTAIN AN ITEMIZED VALUATION IN RESPECT OF LAND BUILDING AND FIXED ASSETS TRANSF ERRED, THE TRANSACTION INVOLVED IS A SLUMP SALE AND THEREFORE, SUCH PROCEEDS CANNOT BE B ROUGHT TO TAX. IN THE SAID CASE, THE HONBLE BOMBAY HIGH COURT HAS CONSIDERED THE DE CISION OF THE HONBLE SUPREME COURT IN THE CASE OF ARTEX MANUFACTURING COMPANY (SUPRA) AND OBSERVED THAT THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF ARTEX MANUFACTURING COMPANY IS NOT APPLICABLE IN THE CASE OF THE ASSESSEE AS THE S AID DECISION DEALS WITH THE PROVISIONS OF SECTION 41(2) AND THEREFORE, THE SAME IS NOT APPLICABLE TO THE CASE AT HAND WHICH DEALS WITH THE ISSUE OF CAPITAL GAINS. T HE HONBLE BOMBAY HIGH COURT IN THE ASSESSEES OWN CASE, IN FACT, HAS RELIED ON THE DECISION OF THE SUPREME COURT IN THE CASE OF P.N.B FINANCE LTD. VS. CIT 307 ITR 75 (SC) WHEREIN THE HONBLE APEX COURT HAS HELD THAT AS REGARDS THE APPLICABILITY OF SECTION 45, THREE TEST ARE REQUIRED TO BE APPLIED NAMELY, (I) BOTH THE CHARGING SECTION AND COMPUTATION PROVISION ARE INEXTRICABLE LINKED TO EACH OTHER, (III) THE TEST O F ALLOCATION/ATTRIBUTATION MUST BE APPLIED, THE OBJECT BEING TO DETERMINE WHETHER THE SLUMP PRICE IS CAPITAL OF BEING ATTRIBUTABLE TO INDIVIDUAL ASSETS AND (III) THERE I S A CONCEPTUAL DIFFERENCE BETWEEN THE UNDERTAKING AND ITS COMPONENTS. IT IS ALSO RELEVANT TO STATE THAT THE TRIBUNAL IN THE CASE OF COROMANDAL FERTILIZERS VS. DCIT (2004) 90 ITD 344 ( HYD) HAS HELD THAT SECTION 50 OF THE INCOME-TAX ACT IS ATTRACTED ONLY WHEN THE ITEMIZED SALE OF ASSETS AND NOT IN THE CASE OF SLUMP SALE OF ENTIRE UNDERTA KING. IN THE SAID DECISION, THE TRIBUNAL HAS ALSO CONSIDERED THE DECISION OF THE HO NBLE HIGH COURT IN THE CASES OF ARTEX MANUFACTURING COMPANY AND ELECTRIC GEAR MANUFACTURING COMPANY (SUPRA) WHICH HAVE BEEN RELIED BY THE AO FOR BRINGING THE I MPUGNED RECEIPTS CHARGEABLE TO TAX UNDER THE HEAD CAPITAL GAINS. IT IS NEEDLESS TO FURTHER MENTION THAT SECTION 50B OF THE INCOME-TAX ACT HAS BEEN INTRODUCED IN THE ST ATUTE W.E.F. APRIL 1, 2000 AND ITA NO. 1805/MUM/2011 M/S. POLYCHEM LTD. ASSESSMENT YEAR: 1999-2000 4 THEREFORE, ARE NOT APPLICABLE TO THE ASSESSMENT YEA R UNDER CONSIDERATION BEING 1999-2000 AS HAS RIGHTLY BEEN OBSERVED BY THE LD.CI T(A). 4.2 CONSIDERING THE ENTIRETY OF THE FACTS AND THE L EGAL POSITION AS DISCUSSED ABOVE, WE DO NOT FIND ANY JUSTIFIABLE REASON TO INT ERFERE WITH THE ORDER OF THE LD.CIT(A) DELETING THE IMPUGNED ADDITION MADE BY TH E AO AND THUS THE SAME IS UPHELD. 5. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED . ORDER PRONOUNCED IN THE OPEN COURT ON THIS 26 TH DAY OF MARCH, 2014. SD/- SD/- (R.C. SHARMA) (DR. S.T.M. PAVALAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 26.03.2014. *SRIVASTAVA COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR C BENCH //TRUE COPY// BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.