The ACIT Vs M/s. Ooty Gate Hotel (ITAT Cochin)
In order to understand whether the sale was a slump sale or sale of independent items of assets, necessary we have to examine the intention of the parties to the sale agreement. If the business of the vendor is sold as such as a going concern, it will tantamount to a slump sale. If the sale is a slump sale, then provisions of section 50B of the I.T.Act will have application. The impugned sale deed executed on 18.01.2013, mentions only the sale of land and building for a total consideration of Rs.20 crore. However, we notice from page 9 of the sale deed, what was sold by vendor includes also license for boarding, lodging, bar etc. The assessee was running a hotel business in Ooty. On sale of the property, the business of the assessee was closed down and the assets of the assessee as whole was transferred to the purchaser, viz., M/s.BKR Hotels and Resorts Private Limited. It is an admitted fact that the purchaser is in hotel business. It is also admitted fact that purchaser, after substantial investment on the property carried on the hotel business in the said premises. It is clear from reading of the entire clause of the sale deed that the assets of the assessee, including the license for boarding, lodging, bar etc. were also transferred to the purchaser along with land and building as a going concern. The entire business was sold for a total consideration of Rs.20 crore consisting of land and building which includes furniture, equipments, kitchen equipments, telephone instruments, television, computer, etc. The building and other amenities are valued as a whole, without assigning value to any item of the assets. As mentioned earlier, consequent to the sale of the hotel premises, the business of assessee was closed down. Therefore, it is clear from the sale deed executed, the intention of the parties was to sell the hotel business as a going concern and the same is nothing but a slump sale.
The learned AR had contended that it is not a slump sale going by the definition of section 2(42C) of the I.T.Act for the reason that there is no liability transferred to the purchaser as on the date of sale. Admittedly, the assessee was having huge liability prior to the date of sale with M/s. South Indian Bank, Banerji Road. The impugned property was mortgaged to South Indian Bank. The liability incurred by the assessee’s firm in normal circumstance had to be cleared by the assessee itself prior to sale as banks are reluctant to transfer the mortgage to the purchaser. Therefore, utilizing advance received from the purchaser, the assessee closed the loan and thereafter the property was sold. As on the date of sale of property, it is evident from the balance sheet that there was liability of only Rs.25,000. The liability of Rs.25,000 was current account liability. In the instant case, as mentioned earlier, it is not merely the land and building alone that was sold, but also the license for lodging, boarding, bar etc. and the entire price of Rs.20 crore was subsumed by mentioning only land and building. On the facts of the given case, it is clear the business of the assessee of running of the hotel has been sold as such by selling the hotel premises to a private limited company, who is also in the business of running of hotel. Therefore, we have no hesitation to hold that the provisions of section 50B of the I.T.Act has application to the facts of the case.
FULL TEXT OF THE ITAT JUDGMENT
This appeal at the instance of the Revenue is directed against the CIT(A)’s order dated 25.05.2017. The relevant assessment year is 2013-2014.
2. The grounds raised read as follows:-
“1. The order of the Commissioner of Income tax (Appeals-II), Kochi, in ITA No.1014NC/Cir-1(1)/CIT(A)-II/15-16 dated 25.05.2017, is opposed to law, facts and circumstances of the case.
2. Whether the learned Commissioner of Income Tax (Appeals) was right in allowing the assessee’s appeal holding that the assessee only sold the land and building of the hotel. Separate considerations were assigned and received for the same. Other assets and liabilities were not sold at all.
3. CIT(A) ought to have upheld the fact that the plant & machinery, good will etc have not been valued and the entire business is transferred as a going concern.
4. For these and other grounds that may be urged at the time of hearing, it is requested that the order of the Commissioner of Income Tax (Appeals) may be set aside and that of the Assessing Officer restored.”
3. Briefly stated the facts of the case are as follows:
3.1 The assessee is a firm, engaged in the business of running a hotel at Ooty. During the relevant assessment year, it had sold its hotel premises at Ooty of land and building together as a whole to one M/s.BKR Hotels & Resorts Private Limited for a total consideration of Rs.20 crore, vide sale deed executed on 18.01.2013. The Assessing Officer vide order dated 19.02.2016 passed u/s 143(3) of the I.T.Act, considered the sale as a `slump sale’ and invoked the provisions of section 50B of the I.T.Act. The relevant observation of the Assessing Officer in doing so, reads as follows:-
“Slump Sale – Capital Gain
2.1 The assessee was engaged in hotel business under the name and style of M/s.Ooty Gate Hotel at Udhagamandalam (popularly known as Ooty), Tamil Nadu. The Assessee firm comprised of three partners namely (1) Shri Sheo Paul (2) Shri Davis Kuriakose and (3) Shri Thankachan. It is seen from records that the assessee had sold its only hotel premises at Ooty of both land & building together as a whole to one M/s.BKR Hotels & Resorts Pvt. Ltd. (PAN No.AADCB0450B] 9 Venkatesan Street, T.Nagar, Chennai 600 017 for a consideration of Rs.20,00,00,000/- vide sale executed on 18.01.2013 before the Sub-Registrar, Udhagamandalam Joint-1, Nilgiris, Tamil Nadu. On perusal of the sale deed, consideration paid for land found valued at Rs.13,86,52,000/- and Building valued for Rs.6,13,48,000/-. However, on perusal of statement of total income of the Assessee for the year under consideration, it is noticed that the Assessee admitted capital gain on of the hotel premises in the following manner:
