CIT Vs Spectra Shares And Scrips Limited (Telangana High Court)
Telangana High Court held that sale of undertaking as a going concern falls within the definition of a slump sale as set out in Section 2(42C) of the Income Tax Act hence section 41(2) dealing with taxation of gains on sale of certain depreciable assets doesn’t apply.
Facts-
The present appeal has been preferred by the revenue under Section 260A of the Income Tax Act, 1961. Vide the impugned order, the ITAT dismissed the appeal of the Revenue holding that the entire receipts of the assessee is a capital receipts for a sale of undertaking as a going concern and it is a slump sale.
Notably, the assessee contended that the entire transaction constituted a slump sale of the business as a going concern, wherein no individual values were assigned to separate assets and therefore the receipt should be treated as a capital receipt. However, the Assessing Officer did not accept this contention and proceeded to allocate specific portions of the sale consideration to different components including land, building, plant and machinery, goodwill and non-compete fees.
Conclusion-
Held that while the transaction in question falls within the definition of a slump sale as set out in Section 2(42C) of the Act, the definition and the capital gains arising on such transfer came to be taxed by Section 50B of the Act by insertion of these provisions only with effect from 01.04.2000 and therefore it is not applicable to the present case. Further, Section 41(2) of the Act deals with taxation of gains on sale of certain depreciable assets and is not applicable to the facts of the present case since the entire business together with all assets and liabilities were sold as a going concern on a lumpsum basis. Artificially or forcefully allotting values to certain assets with the sole objective of coaxing at least some of the consideration into the mould of a taxable transfer would amount to doing violence to the intent of the Act and is therefore impermissible.
