1. These two appeals preferred by the Revenue against two separate orders of learned CIT(A)-III, New Delhi, dt. 24th Nov., 1999 and 30th Nov., 1999 for asst. yr. 1995-96 and 1996-97, respectivply involve some common issues and the same, therefore, are being disposed of by this single consolidated order along with cross-objection filed by the assessee.
2. The first common issue raised by the Revenue in ground Nos. 1 and 2 of its appeal for asst. yr. 1995-96 as well as by the assessee-company in its cross-objection relates to the computation of capital gain on sale of manufacturing division of the assessee.
3. The facts which are relevant and material to decide this issue are as follows : As per the agreement entered into with Kelvinator of India Ltd. on 30th Aug., 1994, the assessee-company agreed to sell its entire undertaking as a going concern which included immovable properties, plant and machinery, equipment, furniture, inventories of raw materials, finished products, work in progress, stores, all existing liabilities and obligations, rights, title, benefits, administrative staff, workers, etc. As per the said agreement the undertaking was agreed to be transferred by the assessee to Kelvinator of India Ltd. on 31st Jan., 1995 for a total consideration of Rs. 6.30 crores. In its return of income filed for the year under consideration, i.e., asst.
yr. 1995-96, the assessee declared a long-term capital gain of Rs. 4,29,38,582 arising from the said transfer. During the course of assessment proceedings before the AO, the contention of the assessee was that the said undertaking being a long-term capital asset under Section 2(14), capital gain on slump sale/transfer thereof was exigible under Section 45 and not as short-term capital gain under Section 50 as proposed to be held by the AO. In support of this contention, reliance was placed by the assessee on the decision of Hon'ble Supreme Court in the case of R.C. Cooper v. Union of India , CIT v.Electric Control Gear Mfg. Co. and CIT v. Mugneeram Bangur & Co. (Land Department) . The AO, however, was of the view that the ratio laid down by the Hon'ble Supreme Court in the said decisions relied upon by the assessee was in the context of Section 41(2) which was not applicable to the year under consideration having been omitted w.e.f. 1st April, 1988. According to him, the provisions of Section 50 inserted w.e.f. 1st April, 1988 were actually applicable to the facts of the assessee's case and the assessee-company having transferred depreciable assets forming part of block of assets, the profit on such transfer was exigible to tax as short-term capital gain. He also noted that the asset transferred by the assessee, i.e., undertaking as a going concern to Kelvinator of India Ltd. was not included in the definition of 'capital assets' given in Section 2(14).
The plea of the assessee that the capital gains should be worked out on lump sum sale of undertaking with reference to cost of its acquisition was also not found to be acceptable by the AO in view the introduction of Section 50B only w.e.f. 1st April, 2000. He, therefore, concluded that the profit on sale of its undertaking by the assessee-company to Kelvinator of India Ltd. which included depreciable and non-depreciable block of assets, was chargeable to tax as short-term capital gains under Section 50. Accordingly, he worked out such short-term capital gain exigible to tax at Rs. 5,81,11,261 by reducing the WDV of the block of assets amounting to Rs. 48,88,739 from the sale consideration of Rs. 6,30,00,000.
4. The matter was carried before the learned CIT(A) and after considering the detailed submissions made on behalf of the assessee-company before him. the learned CIT(A) held that since the assessee had transferred its entire business in a slump sale which was in existence for a period of more than 36 months, the profit on such transfer was a long-term capital gain exigible to tax under Section 45.
He, however, held that the benefit of indexation in respect of cost of acquisition claimed by the assessee was not allowable considering that Section 50B providing for such benefit was introduced in the statute only w.e.f. 1st April, 2000. He, therefore, allowed deduction from the sale consideration on account of acquisition only to the extent of Rs. 1,95,93.802 being the net worth of the assessee's business as on the date of transfer and directed the AO to tax the long-term capital gain in the hands of the assessee at Rs. 4,34,06.198. This relief allowed by the learned CIT(A) has been challenged by the Revenue in ground Nos. 1 and 2 which read as under: 1. On the facts and in the circumstances of the case, the learned CIT(A) has erred in holding that long-term capital gain is chargeable on the sale of entire block of assets instead of short-term capital gain as per provision of sub-s. 50(2) of IT Act.
2. On the facts and in the circumstances of the case, the learned CIT(A) has erred in directing the AO to adopt cost of acquisition of the assets as per provision of Section 50B which is applicable w.e.f. 1st April, 2000 subsequent to asst. yr. 1996-97.
5. The assessee, on the other hand, has filed a cross-objection raising the following grounds on the issue relating to the chargeability of capital gain to tax: 1. That on the facts and in law the gains arising from the slump sale of the manufacturing division of the appellant was not liable to tax under the Act.
2. That on the facts and in law, transfer of an undertaking was outside the purview of Section 45 of the Act in the absence of cost of acquisition, cost of improvement and date of acquisition of an undertaking.
6. We have heard the arguments of both the sides and also perused the relevant material on record. At the outset, we may note that there is a delay of about one year in filing the aforesaid cross-objection by the assessee and an application has been filed by it for condonation of the said delay. In the said application, it has been submitted that in the decision rendered in the case of Coiomandel Fertilisers Ltd. v. Dy. CIT (2004) 84 TTJ (Hyd) 370 : (2004) 90 LTD 344 (Hyd), it came to be held by the Hyderabad Bench of Tribunal that no capital gains could arise on sale of undertaking prior to the insertion of Section 50B in the statute by the Finance Act, 1999 w.e.f. 1st April, 2000 since it was not possible to ascertain capital gains on transfer of undertaking because of the impossibility to compute cost of arquisition or cost of improvement of the undertaking precisely. It is submitted that only after becoming aware of the said decision of the Tribunal clarifying the legal position on the issue involved in the assessee's case, this cross-objection was filed by the assessee which resulted in the delay.
Having regard to this reason given by the assessee for the delay in filing its cross-objection before the Tribunal and keeping in view the letter and spirit of the decision of Hon'ble Supreme Court in the case of Collector, Land Acquisition v. Mst. Katiji and Ors. (1987) 62 CTR (SC) 23 : (1987) 167 TTR 471 (SC) as well as in the case of Vedabai alias Vaijayanatabai Baburao Patil v. Shantaram Baburao Patil and Ors.
(2002) 173 CTR (SC) 300 : (2002) 253 ITR 798 (SC), we are satisfied that there was a sufficient cause for the delay on the part of the assessee in filing this cross-objection. We, therefore, condone the same and taking into consideration that a preliminary issue going to the root of the matter relating to the issue of chargeability of capital gain is raised by the assessee in the cross-objection, we now proceed to consider and decide the same on merits.
7. Before us, the learned Departmental Representative has raised a preliminary objection about the issue raised by the assessee-company in its cross-objection by submitting that the claim being sought to be made therein was not made by the assessee either before the AO or before the learned CIT(A). He has also submitted that even such claim was not made by the assessee-company in its return of income filed for the year under consideration and it is too late in a day to raise the same at this stage during the course of appellate proceedings before the Tribunal. The learned Counsel for the assessee, on the other hand, has submitted that there is no such estoppel in law and the assessee can stake the claim even during the course of appellate proceedings before the Tribunal if the same is in accordance with law. In support of this contention, he has relied on the decision of Hon'ble Delhi High Court in the case of CIT v. Bharat General Reinsurance Co. Ltd. and that of Delhi Special Bench of Tribunal in the 8. On merits, the learned Counsel for the assessee has submitted that the issue raised by the assessee-company in its cross-objection is directly covered by the decision of Hyderabad Bench of Tribunal in the case of Coromandal Fertilizers Ltd. v. CIT (2004) 84 TTJ (Hyd) 370 : (2004) 90 ITD 344 (Hyd) as well as that of Ahmedabad Bench of Tribunal in the case of Industrial Machinery Associates v. CIT (2003) 78 TTJ (Ahd) 434 : (2002) 81 ITD 482 (Ahd). The learned Departmental Representative, on the other hand, has relied on the decision of Hon'ble Supreme Court in the case of CIT v. Mugneeram Bangui & Co.
(Land Department) (supra), Hon'ble Bombay High Court in the case of Premier Automobile Ltd. v. CIT and that of Bangalore Bench of Tribunal in the case of Dy. CIT v. Mahalasa Gases & Chemicals (P) Ltd. 9. We have considered the rival submissions and also perused the relevant record including the case laws cited by the learned representatives of both the sides in support of their stand. As regards the objection raised by the learned Departmental Representative in the matter of this altogether new claim sought to be made by the assessee in the cross-objection, we agree with the contention of the learned Counsel for the assessee that there is no such estoppel in raising a claim just because the same was not originally raised either before the AO or before the learned CIT(A). As held by Hon'ble Delhi High Court in the case of Bharat General Reinsurance Co. Ltd. (supra), there is no estoppel in the IT Act in raising a claim in accordance with law and the assessee can even resile from a position wrongly taken while filing the return. Explaining further, Hon'ble Delhi High Court also observed that merely because the assessee wrongly included the income in its return for a particular year, it cannot confer jurisdiction on the Department to tax that income in that year even though legally such income did not pertain to that year. In the case of Indo Java & Co.
(supra), it was held by Delhi Special Bench of Tribunal that the Tribunal has the power to go into every point which has a bearing on the determination of the chargeable income and to permit the parties to take such points. It was also held that if the assessee is able to satisfy the Tribunal that the earlier admission made by him was the result of a mistake of law or fact or had been made due to ignorance or other factors, it might not come in his way of raising such claim.
10. On merits, it is observed that the decisions cited by the learned Departmental Representative are of hardly any help to support the case of the Revenue on the issue raised in the cross-objection filed by the assessee. For instance, in the case of Premier Automobiles Ltd. (supra), the issue before the Hon'ble Bombay High Court was whether there was a slump sale of business as a going concern or was it a case of an itemized sale of assets and their Lordships held, in the facts and circumstances of that case, that entire business was sold by the assessee as a going concern without any intention of sale of itemized assets. As regards the computation of capital gains arising from the sale of a going concern, Hon'ble Bombay High Court, however, did not render any verdict and sent back the matter to the AO with a direction to decide whether any capital gains tax liability arises from such sale and if so, to compute the quantum of capital gains under Sections 45 to 50. Thus, the issue relating to the chargeability of profit arising from slump sale of business as a going concern to tax as capital gains was not decided by the Hon'ble Bombay High Court in the case of Premier Automobiles Ltd. (supra) and the said decision cited by the learned Departmental Representative is, therefore, of no help to support the Revenue's case on the said issue. Similarly, in the case of Mahalasa Gases & Chemicals Ltd. (supra) cited by the learned Departmental Representative, it was held by the Bangalore Bench of Tribunal that the slump sale of business as a going concern being a capital asset, the question of liability relating to capital gains will have to be considered only as a transfer of an undertaking as a whole and it is not permissible to split the sale consideration amongst the individual assets for this purpose. The Tribunal, accordingly, upheld the order of the learned. CIT(A) insofar as it relates to slump sale and directed the AO to consider the liability to capital gains on the basis that this is a case of slump sale and not the sale of individual assets. It is thus clear that the issue relating to chargeability of profits arising from the sale of undertaking as a going concern to tax as capital gains was not decided by the Tribunal but the AO was directed to consider the same. This decision, therefore, also cannot be considered as an authority on the issue under consideration and the reliance on the same by the learned Departmental Representative is clearly misplaced. Even in the case of Mugneemm Bangui & Co. (Land Department) (supra) relied upon by the learned Departmental Representative, it was held by the Hon'ble Supreme Court that if the business is sold as a going concern and no portion of the slump sale is attributable to the stock-in-trade, no part of slump price is taxable.
This decision rendered by the Hon'ble Supreme Court again shows that the issue for consideration before their Lordships was entirely different from the issue involved before us in the present case and.
therefore, the decision rendered by the Hon'ble apex Court in the said case, being in the different context, cannot be applied in the present case.
11. On the other hand, the decision of Hyderabad Bench of Tribunal in the case of Coromandal Fertilizers Ltd. (supra) cited by the learned Counsel for the assessee is directly on the point in issue wherein it was held that the slump sale of an individual unit as a going concern does not attract capital gains tax as the computation provisions fail to compute the capital gain arising from such sale. It was also held that there was a lacuna in the statute to provide for such computation provisions which has been removed by insertion of Section 50B by the Finance Act, 1999 w.e.f. 1 April, 2000 and this provision being a substantive one is not retrospective in operation. To the similar effect is the decision of Ahmedabad Bench of Tribunal in the case of Industrial Machinery Associates (supra) wherein it was held that prior to insertion of Section 50B effective from asst. yr. 2000-01, it was not possible to conceptualize the cost of acquisition of a going concern as well as date of acquisition thereof and since the cost of acquisition and or the date of acquisition of the asset could not be determined, it could not be brought within the purview of Section 45 for levy and computation of capital gains. Since the assessment year involved in the present case is 1995-96, the issue raised in the cross-objection filed by the assessee is squarely covered by the aforesaid decisions of the Tribunal in favour of the assessee and respectfully following the same, we hold that the gain arising from the slump sale of its manufacturing division by the assessee-company was not liable to tax. Accordingly, we allow the cross-objection filed by the assessee.
12. In view of our aforesaid decision on the cross-objection of the assessee holding that the gains arising from the slump sale of the manufacturing division were not liable to tax, the issue raised by the Revenue in its appeal for asst. yr. 1995-96 in ground Nos. 1 and 2 has become infructuous. The same is accordingly dismissed.
13. In ground No. 3 of its appeal for asst. yr. 1995-96, the Revenue has challenged the action of learned CIT(A) in deleting the disallowance of Rs. 54,68,872 made by the AO on account of interest attributable to the interest-free loan given by the assessee to its sister-concern.
14. In its P&L a/c, the assessee-company had claimed expenditure of Rs. 54,68,872 being the interest paid on borrowed funds. During the course of assessment proceedings, it was noticed by the AO that the assessee-company had advanced interest-free loans amounting to Rs. 4,20,79,770 to its sister-concerns for non-business purpose. He, therefore, held that the funds borrowed by the assessee-company have been diverted by it for non-business purpose and since the interest attributable to the amount advanced by it to its sister-concerns worked out at the rate of 18 per cent was more than the interest expenditure of Rs. 54,68,872 claimed by the assessee, he disallowed this entire expenditure relying on the decision of Hon'ble Allahabad High Court in the case of CIT v. H.R. Sugar Alloys Factory (1990) 87 CTR (All) 132.
The matter was carried before the learned CIT(A) and it was pointed out on behalf of the assessee-company before him that major amount was advanced by it to the sister-concerns only after 31st Jan., 1995 from the proceeds of Rs. 6.30 crores received from the sale of manufacturing division. The relevant details supporting this position were also furnished by the assessee before the learned CIT(A) to establish that the money was advanced to the sister-concerns from the sale proceeds of manufacturing division and not from the funds borrowed on interest.
After verifying these details, the learned CIT(A) found that there was no diversion of borrowed funds by the assessee-company for its non-business purpose and the interest-free advances to the sister-concerns were given by it from the proceeds of sale of its manufacturing division realized on 31st Jan., 1995. He, therefore, deleted the disallowance on account of interest made by the AO.15. We have heard the arguments of both the sides and also perused the relevant material on record. Before us, the learned Departmental Representative has mainly relied on the decision of Hon'ble Delhi High Court in the case of Elmer Havell Electrics and Ors. v. CIT in support of the Revenue's case that disallowance of interest made by the AO was fully justified. A perusal of the said decision, however, shows that it was clearly established on record by the authorities below in the said case that the assessee had taken loans on interest and had advanced funds by diversion or otherwise to its sister-concern free of interest and having regard to this finding of fact given by the authorities below including the Tribunal, Hon'ble Delhi High Court held that the order of the Tribunal did not call for any interference. In the present case, the facts involved are entirely different inasmuch as the details of availability of funds and application thereof furnished by the assessee were sufficient to establish that the advances were given by the assessee to its sister-concerns mainly after 31st Jan., 1995 from the sale proceeds of its manufacturing division and not from the funds borrowed on interest as alleged by the AO. After verifying the said details, the learned CIT(A) also found that the advances to its sister-concerns had been given by the assessee-company out of such sale proceeds and there was no diversion of borrowed funds for non-business purpose. Before us. the learned Departmental Representative has not been able to show that these findings recorded by the learned CIT(A) are factually incorrect and this being so as well as considering the fund-flow position reflected in the details furnished by the assessee before the learned CIT(A) and reproduced by him in his impugned order, we hold that the disallowance of interest made by the AO was not justified. The impugned order of learned CIT(A) deleting the same is, therefore, upheld and ground No. 3 of the Revenue's appeal is dismissed.
16. The only issue raised by the Revenue in its appeal for asst. yr.
1996-97 being ITA No. 547/Del/2000 relating to the disallowance of interest is similar to the one raised in ground No. 2 of its appeal for asst. yr. 1995-96. Since the facts involved in asst. yr. 1996-97 as well as the arguments advanced by both the sides are similar to that of asst. yr. 1995-96, we follow our decision rendered in asst. yr. 1995-96 on a similar issue and uphold the impugned order of the learned CIT(A) deleting the disallowance made by the AO on account of interest.
17. In the result, both the appeals of the Revenue are dismissed whereas the cross-objection of the assessee is allowed.