THE COMMISSIONER OF INCOME TAX V. MAHABALESWARA ENTERPRISES

ITA/941/2006

AI Insights

The case involves two Income Tax Appeals (ITA Nos. 941/2006 and 948/2006) filed by the Commissioner of Income Tax and the Income Tax Officer against Mahabaleswara Enterprises concerning the assessment year 1996-97. The core issue was whether the sale of Hotel Pentagon and its appurtenant land constituted a 'slump sale' under the Income Tax Act, which would affect the computation of capital gains. The Income Tax Appellate Tribunal had previously ruled that it was a slump sale, leading to the current appeals by the Revenue. The High Court found that the Tribunal had erred in its conclusion due to insufficient material and remanded the case for further investigation.

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 702998 (HC-KARNATAKA)
• Appeal Type: Others
• Pronouncement Date: 01-04-2013
• Assessment Year: misc
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: HIGH COURT
• Department Lawyers: S PARTHASARATHI
• Assessee Lawyers: M THIRUMALESH
• Keywords: Capital Gain; Goodwill; Market value; Slump sale; Trade Name; Written down value; Self-generating assets
• Section: 260A; 50

Judgement Text

"1 IN THE HIGH COURT OF KARNATAKA AT BANGALORE DATED THIS THE 01ST DAY OF APRIL 2013 PRESENT THE HON'BLE MR. JUSTICE N.KUMAR AND THE HON'BLE MR. JUSTICE B.MANOHAR ITA Nos.941/2006 c/w 948/2006 ITA No.941/2006: BETWEEN : 1 THE COMMISSIONER OF INCOME TAX, C R BUILDING, I FLOOR, NANDIDURGA ROAD, ATTAVARA, MANGALORE 2 THE INCOME TAX OFFICER WARD 2(1), MANGALORE. APPELLANTS ( By Sri. M THIRUMALESH, ADV.) AND : MAHABALESWARA ENTERPRISES BALIKASHRAMA ROAD KANKANADI, MANGALORE. RESPONDENT ( By Sri. S PARTHASARATHI, ADV.) 2 This ITA is filed u/S.260A of I.T.Act, 1961 arising out of Order dated 06-01-2006 passed in ITA No. 895/Bang/2005 for the Assessment Year 1996-97. ITA No.948/2006 BETWEEN : 1 THE COMMISSIONER OF INCOME TAX, C.R. BUILDING I FLOOR, NANDIGUDDA ROAD, ATTAVARA, MANGALORE 575 001 2 THE INCOME TAX OFFICER WARD 2(1), MANGALORE. APPELLANTS ( By Sri. M THIRUMALESH, ADV.) AND : MAHABALESWARA ENTERPRISES BALIKASHRAMA ROAD, KANKANADI, MANGALORE. RESPONDENT ( By Sri. S PARTHASARATHI, ADV.) This ITA is filed u/S.260A of I.T.Act, 1961 arising out of Order dated 06-01-2006 passed in ITA No. 959/Bang/2005 for the Assessment Year 1996-97. These ITAs coming on for hearing this day, N KUMAR J, delivered the following: 3 JUDGMENT These two appeals are arising out of the order passed by the Income Tax Appellate Tribunal, Bangalore Bench 'B' holding the sale in question is a slump sale and therefore, the Assessing Officer is to compute capital gain by treating the sale as slump sale and provisions of Section 50 is not attracted. Aggrieved by the same, the Revenue is in appeals. 2. The assessee – firm sold its Hotel Pentagon and land appurtenant thereto under a sale deed dated 24.7.1995 for a sum of Rs.4 crore. In the said deed, the separate price for each of the asset like building, plant and machinery, furniture and fittings and land had not been given. The assessee at the time of filing the return of income obtained a certificate from a registered valuer regarding the cost of each asset i.e. building, plant and machinery, furniture and fittings. From the cost price of these assets, the valuer has 4 reduced the depreciation at the rate of 10 to 15% depending upon the asset and worked out the written down value (w.d.v.) from the total sale consideration of Rs.4 crores to arrive at the sale price of land. 3. The Assessing Authority did not accept the said w.d.v. The Assessing Authority also did not accept the case of the assessee that the sale consideration received by the assessee over and above the market value of assets is towards goodwill, trade name or other self-generating assets. He proceeded to estimate the market price of the land sold at Rs.40,000/- per cent taking into account the appreciation in value of land during the period of 10 years. However, it is also worked out the sale consideration of other assets such as building, plant and machinery and furniture and fittings. Thus he raised a demand for Rs4,43,680/- Aggrieved by the said order, the Assessee preferred an appeal. The Appellate Authority partly 5 allowed the appeal and partly granted the relief and directed the Assessing Authority to allow set-off in respect of the brought forward unabsorbed business loss for various assessment years in accordance with law. Aggrieved by the said order, both the Revenue as well as the Assessee preferred appeals to the Tribunal. The Tribunal held that Undertaking sold is an asset. It is a case of slump sale. Therefore, the Assessing Officer has to compute capital gain by treating the sale as slum sale and the appeal filed by the Revenue came to be dismissed as it has become infructuous. Aggrieved by the said order, these two appeals are filed by the Revenue. 4. The learned counsel appearing for the Revenue, assailing the impugned order contended that the Assessee did not contend about the slump sale before the Assessing Authority as well as before the First Appellate Authority. It was only before the Tribunal, such a case was made out. 6 The Tribunal relying on its earlier judgment and without properly appreciating the contents of the sale deed and other materials on record has recorded a finding that the sale in question is a slump sale, which is erroneous and therefore, he submits that the order requires to be set-aside. 5. Per contra, the learned counsel appearing for the Assessee supported the impugned order. 6. We have gone through the impugned orders. We have also gone through the sale deed in question. The mere execution of a conveyance of immovable property by itself, do not constitute sale of itemized assets. If the assets transferred constitute running business, then it would be a case of slump sale. Mere conveyance of land and building would not take away the case from a case of slump sale. If the land and building, plant and machinery and other accessories are sold, it would constitute a slump sale. In the instant case, the recitals in the sale deed make it clear 7 that what is sold is land and Hotel Pentagon Commercial Building and other appurtenances thereto with all easement appurtenances to the said property. The valuation report prepared, after the sale also gives description of the particulars of the properties, which are sold and the value thereof. Still from the aforesaid materials, it is not possible to make out whether any other movable assets, which were used by the transferor or the assessee was also the subject matter of sale. The said material could not be produced because such a contention was not taken before the Assessing Authority as well as the First Appellate Authority. Though the Tribunal was justified in considering the case from that angle, it committed an error in recording a finding of fact without there being sufficient material to arrive at such conclusion. Under those circumstances, the finding recorded by the Tribunal, that it is a slump sale is not supported by legal evidence on record. In that view of the matter, we deem it proper to set- 8 aside the matter and remand the matter back to the Assessing Authority to enable the assessee to produce such material in support of his contention that it is a slump sale. On receipt of such material, it is for the Assessing Authority after hearing the Revenue to record a finding of fact whether it is a slump sale or not and thereafter, to proceed to assess in accordance with law. That would meet the ends of justice. In that view of the matter, we pass the following order: (a) Appeals are partly allowed. (b) The finding of the Tribunal that the sale in question is slump sale and Section 50 of the Act is not attracted is hereby set-aside. (c) The entire matter is remitted back to the Assessing Authority to enable the Assessee to produce such materials, which are in his possession to substantiate his contention that the sale in question is a slump sale. 9 (d) On such material being produced, the Assessing Authority shall determine the disputed issues in accordance with law and then pass appropriate orders. (e) No costs. Sd/- JUDGE Sd/- JUDGE bkm/SPS. "