Monday, April 24, 2017

The Commissioner of Income Tax, Ahmedabad V/s Equinox Solution Pvt. Ltd. April 18, 2017


                        IN THE SUPREME COURT OF INDIA

                        CIVIL APPELLATE JURISDICTION

                        CIVIL APPEAL No.4399 OF 2007

The Commissioner of Income Tax,
Ahmedabad                          ….Appellant(s)


Equinox Solution Pvt. Ltd.          …Respondent(s)

                               J U D G M E N T
Abhay Manohar Sapre, J.
1)    This appeal is filed by the Revenue (Income  Tax  Department)  against
the order dated 29.07.2003 passed by the High Court of Gujarat at  Ahmedabad
in I.T.A. No. 59 of 2003 whereby the  High  Court  dismissed  the  Revenue’s
appeal on the ground that  the  appeal  does  not  involve  any  substantial
question  of  law  under  Section  260-A  of  the  Income  Tax   Act,   1961
(hereinafter referred to as “the Act”).
2)    We herein set out the  facts,  in  brief,  to  appreciate  the  issues
involved in this appeal.
3)    The respondent-assessee was engaged in the business  of  manufacturing
sheet metal components out of CRPA & OP sheds at Ahmadabad.  The  respondent
decided to sell their entire running business in one go. With  this  aim  in
view, the respondent sold their entire running business in one go  with  all
its assets and  liabilities  on  31.12.1990  to  a  Company  called  "Amtrex
Appliances Ltd" for Rs.58,53,682/-.
4)    The respondent filed their income tax return for the  Assessment  Year
1991-1992. In the return, the respondent claimed deduction under Section  48
(2) of the Act as it stood then by treating the sale to be in the nature  of
"slump sale" of the going concern being in the nature of long  term  capital
gain in the hands of the assessee.
(5)   The Assessing Officer by his order dated  04.03.1994  did  not  accept
the contention of the assessee in  claiming  deduction.   According  to  the
Assessing Officer, the case of the assessee was  covered  under  Section  50
(2) of the Act because it was in the nature of short term  capital  gain  as
specified in Section 50 (2) of the Act and hence did not fall under  Section
48 (2) of the  Act  as  claimed  by  the  assessee.  The  Assessing  Officer
accordingly reworked the claim of the deduction  treating  the  same  to  be
falling under Section 50 (2) of the Act and framed the assessment order.
(6)   The assessee, felt aggrieved, filed appeal before the  CIT  (appeals).
By  order  dated  06.10.1995,  the  Commissioner  of  Appeals  allowed   the
assessee’s appeal in so far as it related to the  issue  of  deduction.   He
held that when it is an undisputed fact that the  assessee  has  sold  their
entire running business in one go with  its  assets  and  liabilities  at  a
slump price and, therefore, the provisions of Section  50  (2)  of  the  Act
could not be applied to such sale.  He held that it was not a case  of  sale
of any individual or one block asset which may  attract  the  provisions  of
Section 50 (2) of the Act. He then examined the case of the assessee in  the
context of definition of "long term capital gain" and  "short  term  capital
asset" and held that since the undertaking itself is a capital  asset  owned
by the assessee nearly for six years and being in the nature  of  long  term
capital asset and the  same  having  been  sold  in  one  go  as  a  running
concerned, it cannot be termed  a  “short  terms  capital  gain”  so  as  to
attract the provisions of Section 50 (2) of the  Act  as  was  held  by  the
Assessing Officer.  The CIT (appeals) accordingly allowed  the  assessee  to
claim the deduction as was claimed by them before the Assessing Officer.
7)    The Revenue, felt aggrieved of the order of the  CIT  (appeal),  filed
appeal before the Income Tax Appellate Tribunal. By order dated  27.06.2002,
the Tribunal concurred with the reasoning and the conclusion arrived  at  by
the Commissioner of Appeal and accordingly dismissed the Revenue's appeal.
8)    The Revenue, felt aggrieved of the order of the Tribunal, carried  the
matter to the High Court in further appeal under Section 260-A of  the  Act.
By impugned order, the High Court dismissed  the  appeal  holding  that  the
appeal does not involve any substantial question of law within  the  meaning
of Section 260-A of the Act. It is  against  this  order  the  Revenue  felt
aggrieved and carried the matter to this Court in appeal by way  of  special
9)    Heard Mr. K. Radhakrishnan, learned senior counsel for  the  appellant
and Mr. Inder Paul Bansal, learned counsel for the respondent-assessee.
10)   Having heard the learned Counsel for the parties  and  on  perusal  of
the record of the case, no fault can be  found  in  the  reasoning  and  the
conclusion arrived at by the CIT (appeal) in his order which, in  our  view,
was rightly upheld by the Tribunal and then by the  High  Court  calling  no
interference by this Court in this appeal.
11)   In our considered opinion, the case of the respondent (assessee)  does
not fall within the four corners of Section 50 (2) of the  Act.  Section  50
(2) applies to a case where any block  of  assets  are  transferred  by  the
assessee but where the entire running business with assets  and  liabilities
is sold by the assessee in one  go,  such  sale,  in  our  view,  cannot  be
considered as “short-term capital assets”. In other  words,  the  provisions
of Section 50 (2) of the Act would  apply  to  a  case  where  the  assessee
transfers one or more block of assets, which he was using in running of  his
business.  Such is not the case here because  in  this  case,  the  assessee
sold the entire business as a running concern.
12)   As rightly noticed  by  the  CIT  (appeal)  that  the  entire  running
business with all assets and liabilities having been sold in one go  by  the
respondent-assessee, it was a slump sale of  a  “long-term  capital  asset”.
It was, therefore, required to be taxed accordingly.
13)   Our view finds support with  the  law  laid  down  by  this  Court  in
Commissioner of Income Tax, Gujarat vs.  Artex  Manufacturing  Co.  [1997(6)
SCC 437 CIT].
14)   In Premier Automobiles Ltd. vs. Income Tax Officer  &  Anr.,  264  ITR
193 (Bombay) also, the Division Bench of  the  Bombay  High  Court  examined
this question in detail on somewhat similar facts and  has  taken  the  same
view. The Learned Judge S.H Kapadia - (as His Lordship then was as Judge  of
the Bombay High Court and later became CJI) speaking  for  the  Bench  aptly
explained the legal position to which we concur as it  correctly  summarized
the legal position applicable to such facts.
15)   Learned Counsel for the appellant (Revenue) was not able to  cite  any
decision taking a contrary view nor was he able to point out  any  error  in
the decisions cited at the Bar by the assesse’s counsel referred supra.
16)   In the light of foregoing discussion, we find no merit in  the  appeal
which fails and is accordingly dismissed.

                                  [R.K. AGRAWAL]

                                [ABHAY MANOHAR SAPRE]
      New Delhi;
April 18, 2017

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