By TIOL News Service

KOLKATA, APR 13, 2016: THE issue is - Whether sale & transfer of some assets of undertaking for which prices were disclosed in agreement are to be treated as slump sale. NO is the answer.

Facts of the case

The assessee is engaged in the business of manufacturing and selling of chemicals, castings, steel wires, wagons etc. The AO during the course of assessment proceedings noticed that the assessee company is having various business units namely, Railway wagon manufacturing unit, jute processing unit and chemical units in Gujarat and West Bengal. According to AO, each of these units is independent profit centre for which separate books of account are maintained by assessee company. According to AO, the assessee during FY 2008-09 relevant to this AY 2009-10 sold its chemical unit and according to him, this transfer of chemical unit is actually slump sale u/s. 2(42C) of the Act. AO treated the transfer of the assessee unit's assets, except land as slump sale and profit arising out of this transfer was considered as short term capital gain. The transfer of land was treated as long term capital gain. CIT(A) confirmed the action of AO.

Having heard the parties, the ITAT held that,

++ from the agreement selling/assigning the asset of the assessee, it was found that purchaser will bear and pay all expenses for running of the said chemical unit from the date of sale but all liabilities incurred by him to the said date will be payable only by the seller. It is also provided in the agreement that in the event the seller is required to pay for or meet any liabilities pertaining to prior period to the said date of the agreement and remaining unpaid then purchaser shall pay the same on behalf of the seller and same shall be reimbursed to the purchaser by the seller. As per agreement wherein gratuity due to staff, employees etc. retired up to the date of sale and gratuity and other retirement benefits due to all management staff of the chemical unit up to the date of sale was to be borne and paid by the seller. Even all the rates, taxes, rents, cess on green leaves, sales tax, excise duty, impositions and all other outgoings arising up to the date of sale was the liability of the seller and which was to be paid for by the seller only.

++ the assessee explained that it owning different units/undertakings for Manufacturing and Selling of Chemicals, Casting Steel, Wires, Wagons, Points & Crossings, Jute, Petrochemicals etc. During previous year relevant to A.Y 2009-10, assessee entered into a Memorandum followed by Addendum to the Memorandum with M/s K, a Partnership Firm to sale some of the assets of this unit as under at a predetermined sale price as under to them or their nominee for selling some of the assets belonging to petrochemicals unit at Haldia. The assesse agreed to sell only some of the assets of this unit and for which prices of each individual assets were determined and fixed at an predetermined and agreed value and in this connection it may not be out of place to mention that it is such prices determined that had been received by different Account Payee Cheques during the previous relevant to A.Y 2009-10. The assessee produced copy of the Balance Sheet of this unit as on the date of transfer at and from a perusal of which it is clear that in addition to the assets sold & transferred this unit was having several other assets which were neither sold nor transferred to the purchaser. Similarly, along with sale & transfer of some of such assets none of the liabilities were transferred to the purchaser and such liabilities continued to be the liabilities of assessee and were discharged by assessee was also not transferred to the purchaser. Such sale of few assets of the unit at a predetermined and agreed price and retaining all other assets and all the liabilities by seller unit cannot be treated as slump sale because there could be no slump sale when prices of individual assets being sold and transferred had been determined by an Agreement and only sale prices of such individual assets had been received and when some of the liabilities had at all been transferred and all the liabilities had been retained by the seller. Further, it was on the basis of such individual item of assets sold and transferred that the capital gain had been determined and in respect of depreciable assets the realized value had been reduced from the block of assets in terms of sec. 43(6)(c) of the Act.

++ sale and transfer of some of the assets of the undertaking for which sale prices had been predetermined and agreed and disclosed in the agreement itself without transferring other assets and without transferring any of the liabilities cannot be treated as slump sale. (para 6)

++ the assessee has sold the chemical unit not as a going concern but itemized sale was made vide agreement and hence, the sale cannot be treated as slump sale. This issue of assessee is allowed.

(See 2016-TIOL-528-ITAT-KOL)