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2010 DIGILAW 332 (KAR)

Commissioner of Income Tax v. Agrosynth Chemicals

2010-03-17

H.S.KEMPANNA, K.L.MANJUNATH

body2010
JUDGMENT K.L. Manjunath, J.— The Revenue has come up in this appeal, challenging the correctness of the order passed by the Commissioner of Income Tax (Appeals), which has been affirmed by the Income Tax Appellate Tribunal, Bangalore Bench, in ITA. No. 31/Bang/2001 dated 28th December 2004. The facts leading to this case are as hereunder: 2. The assessee is in the status of a firm. For the assessment year 1995-96, the return was filed on 31st October 1995, declaring an income of Rs. 22,55,710/-. The return was processed under Section 143(1)(a) of the Act. During the course of assessment, it was noticed that a sum of Rs. 1,26,97,540/- had been accrued to the assessee towards the obligations performed which had been credited to the Partners' Current Account. Therefore, there was an order to re-open the assessment. Accordingly, notice was issued. 3. The Revenue found that the assessee had transferred its undertaking to M/s. Agrosynth Chemicals Private Limited for a sum Of Rs. 1,50,00,000 and the actual value of the assets sold was only Rs.23,02,460/-. Applying the provisions of Section 41(2) of the Act, the order of assessment was passed. Being aggrieved by the same, the assessee filed an appeal stating that the provisions of Section 41(2) do not apply to the facts of the case as the sale was an outright sale, as a going concern, with all the assets and liabilities. Therefore, it requested the Commissioner to allow the appeal. The Commissioner, after examining the agreement entered into between the assessee and M/s. Agrosynth Chemicals Private Limited, came to the conclusion that it is a slump sale. Accordingly, held that the capital gains are not attracted. 4. Aggrieved by the said order, the Revenue filed an appeal before the Tribunal. The Tribunal has also dismissed the appeal. Being aggrieved by the same, the present appeal is filed, raising the following two substantial questions of law. I] Whether the appellate authorities were correct in holding that the Assessing Officer was not correct in bringing to tax the various assets sold by the assessee for a sum of Rs. 1,50,00,000/- shown in its books as written down value of Rs.23,02,460/- and worked out the difference by a sum of Rs. 1,26,97,540/- as per Section 41(2) of the Act which was brought to tax under Section 50 of the Act? 1,50,00,000/- shown in its books as written down value of Rs.23,02,460/- and worked out the difference by a sum of Rs. 1,26,97,540/- as per Section 41(2) of the Act which was brought to tax under Section 50 of the Act? II] Whether the appellate authorities were correct in merely relying on the various judgments of the Apex court and other High Courts without examining the fact and circumstances of the present case and the provisions of Section i.e., 41(2) of the Act which clearly contemplated sale of building, plant and machinery, furniture etc., for more that the written down value and the difference would be liable to tax as business income of the previous year? 5. We have heard the learned Counsel for the parties. 6. Learned Counsel for the Revenue relied upon the judgment of the Apex Court in Commissioner of Income Tax, Gujarat Vs. M/s. Artex Manufacturing Co., AIR 1997 SC 2970 , contending that the value of the plant, machinery, stock-in-trade can be valued. Therefore, the excess amount received by the assessee under the agreement has to be treated as an income and is liable to tax, as capital gain. 7. Per contra, Mr. Parthasarathi, learned Counsel for the assessee contends that the facts involved in the present case are different from the facts involved in Artex Manufacturing Company. According to him, the judgment of the Apex Court in Commissioner of Income Tax, Gujarat Vs. Electric Control Gear Mfg. Co., (1997) 227 ITR 278 SC is relevant to the facts of the case. In this background, he requests the Court to dismiss the appeal. 8. Both the counsels have relied upon the judgment rendered by their lordships on the same day, viz. 8th July 1997. The judgment in Artex Manufacturing Company was delivered earlier and later on, the same day, the judgment in Electric Control Gear Manufacturing Company has been delivered. Based on the facts in each case, their lordships have taken a view that Section 41(2) is applicable in the case of Artex Manufacturing Company and similarly their lordships have held that the provisions of Section 41(2) of the Act is not applicable to the facts involved in Electric Control Gear Manufacturing Company. 9. Based on the facts in each case, their lordships have taken a view that Section 41(2) is applicable in the case of Artex Manufacturing Company and similarly their lordships have held that the provisions of Section 41(2) of the Act is not applicable to the facts involved in Electric Control Gear Manufacturing Company. 9. In view of these two judgments, we have to find out whether the facts in the present case is similar to the case in Artex Manufacturing Company or Electric Control Gear Manufacturing Company. If the case in hand is similar to that of Artex Manufacturing Company, we have to reverse the finding of the Tribunal as well as the Commissioner of Income Tax, and if the judgment in Electric Control Gear Manufacturing Company could be made applicable to the present case based on the fact of the case, then the appeal of the Revenue has to be dismissed, by answering the questions of law. In order to appreciate the facts of this case, the agreement entered into between the assessee and M/s. Agrosynth Chemicals Limited, we have to examine the nature of transactions. The learned Counsel for the parties have made available the copy of the agreement entered into between the assessee and the purchaser, dated 1st December 1994. Under the agreement, the entire land measuring 5 acres along with the factory buildings, plant and machinery and the assets and liabilities are sold for a total consideration of Rs. 1,50,00,000 and the Company which has purchased in had agreed to pay the consideration of Rs. 1,50,00,000 by allotting 15 lakhs equity shares of Rs. 10/- each in favour of the partners of the assessee. On going through the documents, the agreement does not reflect the actual value of the land building, plant and machinery. It also does not reflect the actual liability of the assessee payable to different persons. It is composite agreement, agreeing to sell the entire going concern of the factor), as it is. But, in the case of Artex Manufacturing Company, during the course of assessment, the assessee had produced the document to show the value of the articles sold by it. Therefore, the facts involved in Artex Manufacturing Company and the facts involved in the present case are different. But, in the case of Artex Manufacturing Company, during the course of assessment, the assessee had produced the document to show the value of the articles sold by it. Therefore, the facts involved in Artex Manufacturing Company and the facts involved in the present case are different. But in the case of Electric Control Gear Manufacturing Company, the agreement relied upon in the said judgment and the agreement relied upon in the present case are more or less same. Therefore, relying upon the judgment in Electric Control Gear Manufacturing Company (supra), we have to answer the questions of law against the Revenue and in favour of the assessee. 10. In the result, the questions of law are answered against the Revenue. Consequently, the appeal is dismissed.