Back
2010 Supreme(Kar) 1140
IN THE HIGH COURT OF KARNATAKA AT BANGALORE
K.L. Manjunath and H.S. Kempanna, JJ.
Commissioner of Income Tax and The Joint Commissioner of Income Tax (Asst), Special Range-3 —Appellant
Vs.
Agrosynth Chemicals —Respondent
Income Tax Appeal No. 2566 of 2005
Decided on : 17-03-2010
Advocate Appeared:
Mr. K.V. Aravind, M.V. Seshachala, for the Appellant
Mr. S. Parthasarathi, for the Respondent
The central legal point established in the judgment is the interpretation and application of Section 41(2) of the Income Tax Act in the context of a sale of assets and liabilities.
Headnote:
Section 41(2) - Taxation - Income Tax Act, Section 143(1)(a), Section 41(2), Section 50 - The court discussed the applicability of Section 41(2) of the Income Tax Act in the context of a sale of assets and liabilities. It considered the judgments of the Apex Court in Commissioner of Income Tax, Gujarat Vs. M/s. Artex Manufacturing Co. and Commissioner of Income Tax, Gujarat Vs. Electric Control Gear Mfg. Co. to determine the applicability of the provisions and concluded that the facts of the case aligned more with the latter judgment, leading to the dismissal of the appeal.
Fact of the Case:
The Revenue appealed the order passed by the Commissioner of Income Tax (Appeals) and affirmed by the Income Tax Appellate Tribunal, challenging the assessment of a sum accrued to the assessee and the application of Section 41(2) of the Income Tax Act.
Finding of the Court:
The court analyzed the agreements between the assessee and the purchaser, and compared the facts of the case with the judgments of the Apex Court to determine the applicability of Section 41(2). It found that the facts aligned more with the judgment in Electric Control Gear Manufacturing Company, leading to the dismissal of the appeal.
Issues: The issues revolved around the correctness of the assessment under Section 41(2) and the applicability of the judgments of the Apex Court in the context of the present case.
Ratio Decidendi: The court's decision was influenced by the interpretation of the agreements and the comparison with relevant judgments to determine the applicability of Section 41(2) in the case.
Final Decision: The court answered the questions of law against the Revenue and dismissed the appeal.
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?
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 tak
