Commissioner Of Income Tax-I, New Central Revenue Building, Statue Circle, Jaipur Raj v. M/S Shri Ganga Nagar, Bottling Co., Jaipuria Compound Jhotwara, Jaipur

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH ATJAIPUR D.B. Income Tax Appeal No. 6 / 2006 Commissioner of Income Tax-I, New Central Revenue Building, Statue Circle, Jaipur Raj. ----Appellant Versus M/s Shri Ganga Nagar, Bottling Co., Jaipuria Compound Jhotwara, Jaipur. ----Respondent _____________________________________________________ For Appellant(s) : Mr. Anuroop Singhi For Respondent(s) : Mr. N.M. Ranka, Senior Counsel with Mr. Siddharth Ranka _____________________________________________________ HON'BLE MR. JUSTICE K.S. JHAVERI HON'BLE MR. JUSTICE VIJAY KUMAR VYASJudgment Per Hon’ble Jhaveri, J. 24/04/2017 1.By way of this appeal, the appellant has challenged thejudgment and order of the Tribunal whereby the Tribunal hasreversed the finding of the Assessing Officer as well as the CIT(A)and has partly allowed the appeal of the assessee. 2.The facts of the case are that the assessee has disputes of the property in part of his company to M/s Hindustan Coca ColaBottling North West Pvt. Ltd., Gurgaon, Haryana and have agreedto sell its soft drink business assets for a consideration ofRs.12,27,43,000/-. This amount was subsequently reduced toRs.12,02,43,900/-. The assessee earned a surplus ofRs.9,28,96,979/-, the asset and liability wise details of which wasprovided by the assessee vide his letter dated 10.02.2004. The assessee along with the original return of income filed a letterdated 24.02.2000, wherein the assessee itself has admitted thatthe tax liability if any would only be on account of long termcapital gains. However, no working of this transaction was shownunder any head in the computation of income. 2.1Further, the assessee firm stopped production in itsundertaking with effect from 27.10.1998. Further the assesseeentered into a contract packing agreement on 15.11.1998 interms of which the assessee agreed to sale its business assetsrelating to bottling business at Gangangar to M/s. Hindustan CocaCola Bottling North West Pvt. Ltd., Gurgaon, Haryana and furtherthe Coca Cola Company allowed the assessee to work as aContract Packer for preparing and packaging the beverages. 3.This Court while admitting the appeal on 24.01.2006 hasframed the following substantial questions of law: “1.Whetheronthefactsandcircumstances of the case, the ITAT wasright and justified in deleting the addition ofRs.9,26,19,881/- by holding that the sale ofbusiness assets was not an itemised saleand thus is not exigible to tax? 2.Whether on the facts and in thecircumstances of the case, the ITAT wasjustified in holding that the transaction in aslump sale sand not an itemised sale? 3.Whether on the facts and in thecircumstances of the case, the ITAT wasjustified in holding that the assets such asgoodwill, know how, etc. were transferredand the cost of acquisition of these assetscannot be ascertained inspite of the specificprovisions of Section 55(2)(a) of the act of1961? 4.Whetheronthefactsandcircumstances of the case, the finding ofthe ITAT is perverse, contrary to the recordand untenable in the eye of law?” 4.Mr. Singhi appearing for the department has taken us to para 16 of the assessment order which reads as under: “16. The assessee was asked to furnish a list ofthe assets and liabilities transferred to M/sHindusthan Coca Cola Bottling NorthWest PvtLtd. Gurgaon. Vide its letter dated 19-08-03 theassessee has furnished a list of assets andliabilities transferred to M/s Hindusthan CocaCola Bottling on 25-03-99. List is reproducedbelow: List of liabilities transferred to HCC for 98-99(business undertaking) 1. Plastic crates deposits 2. Security received on bottles cooler 3. Security received on fridge 4. Woolen shell deposits Total (A) 35,75,720.00 24,000.0011,35,000.005,27,911.5052,62,631.50 1. Empty Bottles deposits Total (B) 4.Mr. Singhi appearing for the department has taken us to para 16 of the assessment order which reads as under: “16. The assessee was asked to furnish a list ofthe assets and liabilities transferred to M/sHindusthan Coca Cola Bottling NorthWest PvtLtd. Gurgaon. Vide its letter dated 19-08-03 theassessee has furnished a list of assets andliabilities transferred to M/s Hindusthan CocaCola Bottling on 25-03-99. List is reproducedbelow: List of liabilities transferred to HCC for 98-99(business undertaking) 1. Plastic crates deposits 2. Security received on bottles cooler 3. Security received on fridge 4. Woolen shell deposits Total (A) 35,75,720.00 24,000.0011,35,000.005,27,911.5052,62,631.50 1. Empty Bottles deposits Total (B) 5.He has also taken us to para 17.1 of the assessment order which reads as under: “17.1 In para No. 4 of its letter dated 10-02-2004 the assessee stated that the details ofworking of income of Rs.9,28,96,979/- isenclosed. The assessee enclosed a copy ofaccount of “Net amount of slump sales account”as appearing in its books of account. Theassessee opened ‘Net Amount of Slumps SalesAccount’ in its books of accounts which isreproduced as under: 6.He has also referred to Clause D of the agreement dated 15.11.1998 which reads as under: “Clause ‘D’ at page 1 of the agreement dated--15111998 “The Contract Packer has entered into amemorandum of agreement dated August 31,1998 with the Bottler (hereinafter the “MOA”) interms of which he has agreed to sell his businessassets relating to the bottling business atGanganagar including the bottling plant situatedat Chack 7-Z Mirzawala Road Sriganganagar335001, Rajasthan, India (hereinafter said“Plant”) to the Bottler”. There was absolutely no intention on the part ofthe assessee firm to close this business. Theobjection was to transfer the business assetsonly and the agreement dated 15-11-1998 wasreached to define the conditions under which thecompany authorized the bottler to contract withthe contract packer and the conditios underwhich the Contract packer undertakes to prepareand package the beverages.” 6.1Further, he has referred to para 25 of the assessment order which reads as under: 25. Schedule-6 (final) dated 22-05-2000received from M/s Hindusthan Coca ColaBeverages Pvt. Ltd. vide letter dated 18-08-2003 showing amount payable to SGBC andother individuals as agreed by Jaipuries ref.Meeting held on 24-12-99 is reproduced below: -SCHEDULE6(FINAL) Amount Payable to SGBC & other individuals (As agreed by Jaipurias, ref: meeting held on 24-12-99Assets as per deal structureAmount AmountRs. Rs.Land11,060,000Building2,23,20,000Plant & MachinerySGABottle casesOffice equipmentAdvertising MaterialValue of assets to be taken over1,28,500,000ADDGoodwillNon-CompeteInventoryAdditional assets (Assumed to48,73,627 5,85,46,607be 65 Lacs)Total payable 1,67,046,607Less: Deposit liablility as per (50,00,000) (50,00,000)Deal structureNet payable as per deal (Assumed to be 16.50 Crore)162046607Difference is no account of excess estimation of delivery of additional asses I.e Rs. 65 lacs to 40 lacs.Additions over & above Deal structureInventory over & above the estimatedPreoperative expenses7,75,000 Based on letter sent by Mr. Mukesh Bhawnani(Hindusthan Coca Cola Ltd March 2[nd] 2000 to Mr.Jaipuria. Sd. illegible 25-05-2000 This schedule also shows that only businessassets of the assessee firm were transferred toM/s Hindustan Coca Cola Bottling NorthWest Pvt.Ltd and certain known and definite liabilities. Italso fortifies my view that the sale considerationis ascertainable, apportionable and attributableto individual assets separately. 7.Therefore, he has contended that the view taken by the Tribunal is perverse and taking into consideration the law andmore particularly Section 502B and subsequently amendment with Based on letter sent by Mr. Mukesh Bhawnani(Hindusthan Coca Cola Ltd March 2[nd] 2000 to Mr.Jaipuria. Sd. illegible 25-05-2000 This schedule also shows that only businessassets of the assessee firm were transferred toM/s Hindustan Coca Cola Bottling NorthWest Pvt.Ltd and certain known and definite liabilities. Italso fortifies my view that the sale considerationis ascertainable, apportionable and attributableto individual assets separately. 7.Therefore, he has contended that the view taken by the Tribunal is perverse and taking into consideration the law andmore particularly Section 502B and subsequently amendment with effect from 01.04.2000, the judgment has been sought to bewrongly applicable. He has emphatically placed reliance on theSupreme Court decision in the case of Vatsala Shenoy vs. Joint Commissioner of Income Tax (Assessment), Mysore [2016] 389 ITR 519, wherein it has been held as under: 26. Section 2(42)Cdefines 'slump sale' and reads as under: "slump sale" means the transfer of one or moreundertakings as a result of the sale for a lumpsum consideration without values beingassigned to the individual assets and liabilitiesin such sales. Explanation 1.-For the purposes of this clause,"undertaking" shall have the meaning assignedto it in Explanation 1 to Clause (19AA). Explanation 2.-For the removal of doubts, it ishereby declared that the determination of thevalue of an asset or liability for the sole purposeof payment of stamp duty, registration fees orother similar taxes or fees shall not beregarded as assignment of values to individualassets or liabilities. As per the aforesaid definition, sale in questioncould be treated as slump sale only if there wasno value assigned to the individual assets andliabilities in such sale. This has obviously nothappened. It is stated at the cost of repetitionthat not only value was assigned to individualassets, even the liabilities were taken care ofwhen the amount of sale was apportionedamong the outgoing partners, i.e. the Assesseesherein. Once we hold that the sale in questionwas not slump sale, obviously Section 50B alsodoes not get attracted as this Section containsspecial provision for computation of capitalgains in case of slump sale. As a fortiori, thejudgment in the case of PNB Finance Limitedalso would not apply. 28. When we apply the said legal principle tothe facts of the instant case, we find that thepartnership firm had dissolved and thereafterwinding up proceedings were taken up in theHigh Court. The result of those proceedings wasto sell the assets of the firm and distribute theshare thereof to the erstwhile partners. Thus,the 'transfer' of the assets triggered theprovisions of Section 45of the Act and makingthe capital gain subject to the payment of taxunder the Act. 29. Insofar as argument of the Assessees thattax, if at all, should have been demanded fromthe partnership firm is concerned, we may onlystate that on the facts of this case that may notbe the situation where the firm had dissolvedmuch before the transfer of the assets of thefirm and this transfer took place few years after the dissolution, that too under the orders of theHigh Court with clear stipulation that proceedsthereof shall be distributed among the partners.Insofar as the firm is concerned, after thedissolution on December 06, 1987, it had notfiled any return as the same had ceased toexist. Even in the interregnum, it is the AOPwhich had been filing the return of incomeearned during the said period. The High Courthas touched upon this aspect in greater detail inpara 30 of its judgment. Since we agree withthe same, we reproduce below the discussion inthe said para: the dissolution, that too under the orders of theHigh Court with clear stipulation that proceedsthereof shall be distributed among the partners.Insofar as the firm is concerned, after thedissolution on December 06, 1987, it had notfiled any return as the same had ceased toexist. Even in the interregnum, it is the AOPwhich had been filing the return of incomeearned during the said period. The High Courthas touched upon this aspect in greater detail inpara 30 of its judgment. Since we agree withthe same, we reproduce below the discussion inthe said para: 30. In view of the provisions of Section 45 it isclear that in the present case, the effect of thesale conducted by this Court among partnersand under Clause 16 of the said PartnershipDeed, is that once the partnership is dissolved,the partners would become entitled to specificshare in the assets of the firm which isproportionate to their share in sharing theprofits of the firm and they are placed in thesame position as the tenants in common and forthe purpose of dissolution and Under Section 47of the Indian Partnership Act, 1932, it is clearthat even after the dissolution of the firm, theauthority of each partner to bind the firm andthe other mutual rights and obligations of thepartnerscontinuenotwithstandingthedissolution so far as may be necessary to windup the affair of the firm and to completetransactions begun but unfinished at the time ofthe dissolution. Therefore, for realisation of theassets, discharging the liability of the firm andsettling the accounts of the partners, etc., thefirm will continue to exist despite the dissolutionand not for any other purpose. The material onrecord in the instant case would clearly showthat after dissolution of the firm on 06.12.1987,the firm has never filed any return and in viewof the order of this Court permitting thepartners to carry on the business in the interestof employees, return was filed by AOP-13consisting of erstwhile 13/12 partners foraccounting profits and seeking depreciation inthe assets of the firm and continued to dobusiness in view of the order of this Court thatthere was no agreement among the partners tocontinue the business during the pendency ofthe winding up proceedings. Further havingregard to Clause 16 of the Partnership Deed ofthe dissolved firm, it is clear that the partnersintended that the assets of the firm should not be sold to an outsider. It is well settled thatevery act of the partner would be binding onthe firm and also the partners inter-se andClause 16 of the Partnership Deed which hasbeen culled out supra clearly shows that ifPartnership is dissolved, the going concerncarried on under the name of the FirmMANGALORE GANESH BEEDI WORKS and all thetrade marks used in course of the said businessby the said firm and under which the businessof the Partnership is carried on shall vest in andbelong to the Partner who offers and pays ortwo or more Partners who jointly offer and paythe highest price therefor as a single group at asale to be then held as among the Partners shallbe entitled to bid. The other Partners shallexecute and complete in favour of thepurchasing Partner or Partners at his/her ortheir expense all such deed, instruments andapplications and otherwise aid him/her or themfor the registration his/her name or their namesof all the said trade marks and do all such deed,acts and transactions as are incidental ornecessary to the said transferee or assigneePartner or Partners. The final order passed bythis Court to wind up the affairs of the firmwould clearly show that the property of the firmis purchased by the association of 3 partnerswho submitted their highest bid and that otherpartners had to given an undertaking that theymay not interfere with the carrying on businesswhich is vested in the name of MGBW and allthe trademarks used in the course of saidbusiness and therefore it is clear that theAppellants who are erstwhile partners were notsuccessful bidders for continuation of businessin the individual capacity of the MGBW and inview of Clause 16, all tangible and intangibleassets vested with Association of 3 partnerswhose highest bid of Rs. 92 crores wasaccepted and admittedly after the passing ofthe order of this Court on 20.11.1994, all theAppellants herein and other out-going partnershave given requisite undertaking as per theorder of this Court and the MGBW as a goingconcern under the name and style MGBW andall trademarks used in the course of saidbusiness by the said firm and all tangible andintangible assets of the firm vested with thepurchasers erstwhile 3 partners who paid thehighest bid and the Appellants have receivedconsideration of the conveyance and theirrespective share in the sale of net assets of thefirm after their undertaking that they cannot interfere with the business of MGBW which isvested with all assets in favour of 3 partnershave received the value of their net asset whichhas been distributed by the Official Liquidatorand AOP 3 who have purchased the business ofthe old firm, succeeded to it and constituted anew firm in the same name (vide orderDefendant (sic-dated) 14.06.1991 in theCompany Petition) and therefore it is clear thatthe order passed by the Assessing Authorityconfirmed in the first appeal and by theIncomeTax Appellate Tribunal (Special Bench)holding that the Appellants as erstwhilepartners are liable to pay capital gain on theamount received by them towards the value oftheir share in the net assets of the firm areliable for payment of capital gains UnderSection 45of the Act. The said finding isjustified and accordingly we answer thesubstantial question of law in favour of theRevenue and against the Assessee. 34. The upshot of the aforesaid discussionwould be to allow the appeals partly only to theextent that business income/revenue incomein the Assessment Year in question is to beassessed at the hands of AOP-3, in terms of theorders of the High Court, as AOP-3 retained thetax amount from the consideration which waspayable to the Assessees herein and it is AOP-3which was supposed to file the return in thatbehalf and pay tax on the said revenueincome. 34. The upshot of the aforesaid discussionwould be to allow the appeals partly only to theextent that business income/revenue incomein the Assessment Year in question is to beassessed at the hands of AOP-3, in terms of theorders of the High Court, as AOP-3 retained thetax amount from the consideration which waspayable to the Assessees herein and it is AOP-3which was supposed to file the return in thatbehalf and pay tax on the said revenueincome. 8.He has also taken us to the judgment of CIT(A) andcontended that the issues which were framed by the CIT(A) haverightly been appreciated by the Tribunal which reads as under: “12. We have heard the arguments of both theparties’ orders of the lower authorities withreference to the case laws relied by them as wellas the written submissions placed on record. Inour considered opinion, the following issuesemerge out of the same. (i) Whether the sale of undertaking amounts totransfer of asset chargeable u/s 45. (ii) Whether such transfer is chargeable to tax under section 45 or the same is exempt in thelight of the principles laid down in CIT vs B.C.Srinivasa Setty 128 ITR 294(SC). (iii) Whether the transaction is a slump sale oritemized sale of assets of the undertaking.” 9.He has further contended that in view of the above decisionthe issues are required to be answered in favour of thedepartment. 10.Mr. Ranka counsel for the assessee has supported the findingarrived at by the Tribunal has contended that the view taken bythe Tribunal is in consonance. It is a matter of appreciation thatthe first variation which has been referred in the letter given to the Assessing Officer and second preferred by the purchaser forthe purpose of showing his variation, for the purpose ofdepreciation but it was never the agreement between the parties. 11.In that view of the matter, the appreciation of facts given bythe Tribunal is perverse and therefore, he has referred to thedecision of Supreme Court in the case of Commissioner ofIncome Tax, Bangalore vs. B.C. Srinivasa Setty [1981] 128 ITR 294 wherein it is observed as under: “The section operates if there is a transfer of acapital asset giving rise to a profit or gain. Theexpression "capital asset" is defined in Section2(14)to mean "property of any kind held by anassessee". It is of the widest amplitude, andapparently covers all kinds of property exceptthe property expressly excluded by Clauses (i)to (iv) of the sub-section which, it will be seen,do not include goodwill. But the definitions inSection 2are subject to an overall restrictiveclause. That is expressed in the opening wordsof the section : "unless the context otherwiserequires". We must therefore enquire whethercapital asset giving rise to a profit or gain. Theexpression "capital asset" is defined in Section2(14)to mean "property of any kind held by anassessee". It is of the widest amplitude, andapparently covers all kinds of property exceptthe property expressly excluded by Clauses (i)to (iv) of the sub-section which, it will be seen,do not include goodwill. But the definitions inSection 2are subject to an overall restrictiveclause. That is expressed in the opening wordsof the section : "unless the context otherwiserequires". We must therefore enquire whether contextually Section 45, in which the expression"capital asset" is used, excludes goodwill. contextually Section 45, in which the expression"capital asset" is used, excludes goodwill. Section 45 charges the profits or gains arisingfrom the transfer of a capital asset to income-tax. The asset must be one which falls within thecontemplation of the section. It must bear thatquality which brings Section 45into play. Todetermine whether the goodwill of a newbusiness is such an asset, it is permissible, aswe shall presently show, to refer to certain othersections of the head, "Capital gains". Section 45is a charging section. For the purpose ofimposing the charge, Parliament has enacteddetailed provisions in order to compute theprofits or gains under that head. No existingprinciple or provision at variance with them canbe applied for determining the chargeable profitsand gains. All transactions encompassed bySection 45must fall under the governance of itscomputation provisions. A transaction to whichthose provisions cannot be applied must beregarded as never intended by Section 45to bethe subject of the charge. This inference flowsfrom the general arrangement of the provisionsin the Income-tax Act, where under each headof income the charging provision is accompaniedby a set of provisions for computing the incomesubject to that charge. The character of thecomputation provisions in each case bears arelationship to the nature of the charge. Thusthe charging section and the computationprovisions together constitute an integratedcode. When there is a case to which thecomputation provisions cannot apply at all, it isevident that such a case was not intended to fallwithin the charging section. Otherwise onewould be driven to conclude that while a certainincome seems to fall within the charging sectionthere is no scheme of computation forquantifying it. The legislative pattern discerniblein the Act is against such a conclusion. It mustbe borne in mind that the legislative intent ispresumed to run uniformly through the entireconspectus of provisions pertaining to each headof income. No doubt there is a qualitativedifference between the charging provision and acomputation provision. And ordinarily theoperation of the charging provision cannot beaffected by the construction of a particularcomputation provision. But the question here iswhether it is possible to apply the computationprovision at all if a certain interpretation is pressed on the charging provision. That pertainsto the fundamental integrality of the statutoryscheme provided for each head. We are of opinion that the goodwill generated ina newly commenced business cannot bedescribed as an "asset" within the terms ofSection 45and therefore its transfer is notsubject to income-tax under the head "Capitalgains". “ 12.He has also taken us to the decision of Supreme Court in thecase of PNB Finance Ltd. vs. Commissioner of Income Tax[2008] 307 ITR 75 (SC) and more particularly the followingpara: “However, no such formula existed duringassessment year 1970-71. At that time, assesseehad to deduct either cost of acquisition or fairmarket value as on 1.1.1954 from the sale price(compensation) of Rs. 10.20 cr. [see Section55(2)(i)]. This option was conferred on theassessee solely for its benefit. However, Section55(2)only triggered if there existed the figures of"cost of acquisition" and "fair market value" as on1.1.1954 so that the choice could be exercised. Atthat time, it was open to the assessee to contendthat he would exercise the option only after boththe figures of original cost and fair market valueof the asset as on 1.1.1954 was available. Inshort, it is only after 1.4.2000 that computationmachinery came to be inserted in Section 48which deals with mode of computation. 12. The question which arises for determination inthis civil appeal is whether judgment of this Courtin Artex Manufacturing Co. (supra) is applicableto the present case. In that case, the assessee, apartnership firm, entered into an agreement withthe company to sell its business as a goingconcern for a consideration of Rs. 11,50,400.From the information supplied by the assessee tothe AO, it was evident that the sale considerationstood arrived at after taking into account thevalue of plant, machinery and dead stock ascomputed by the valuer. The Tribunal held that,the surplus arising on the sale was taxable underSection 41(2)of the Act and not as capital gains. The High Court reversed that finding of theTribunal and held that the surplus was taxable ascapital gains under Section 45and not underSection 41(2). At the instance of the Revenue,this Court on an appeal held that on the facts andin the circumstances of the case Section 41(2)was applicable as the amount of Rs. 11,50,400,being the consideration, stood arrived at bytaking into consideration the value of the plant,machinery and dead stock. It was further heldthat, the surplus resulting from transfer of plant,machinery and dead stock was either taxable asincome under Section 41(2)or as capital gainsunder Section 45. It was held that since incomewas chargeable to tax under Section 41(2), theimpugned decision of the High Court that suchincome was chargeable to tax as capital gainswas erroneous. 15. Section 41(2)and Section 45 operate indifferent fields. In the case ofCIT v.MugneeramBangur&Co.MANU/SC/0162/1965:reportedin[1965]57ITR299(SC) this Court held that wherethe entire business of the undertaking togetherwith its assets including the depreciable assetsand liabilities was sold for a composite pricewithout any item-wise earmarking, Section 41(2)was not attracted. But, where the transfer of theentire business as a going concern is involved andthe contract indicates item-wise consideration,Section 41(2)would stand attracted with regardto the amount of surplus to the extent of thedifference between the written down value of thedepreciable asset(s) so transferred and the actualcost thereof. 16. In the case of Artex Manufacturing Co.(supra) this Court found, that a valuer wasappointed, that valuer submitted his valuationreport in which itemized valuation was carried outand on that basis the consideration was fixed atRs.11,50,400.00.Therefore,thesaleconsideration had been 0 arrived at after takinginto account the value of plant, machinery anddead stock as computed by the valuer and,consequently, it was held that the surplus arisingon the sale was taxable under Section 41(2)ofthe Act and not as capital gains. In thecircumstances, the judgment of this Court in thecase of Artex Manufacturing Co. (supra) wasnot applicable to the present case. Further, thisCourt in the case of CIT v. Electric Control GearManufacturing Co. MANU/SC/1245/1997 :[1997]227ITR278(SC) has held that whether the business of the assessee stood transferred as agoing concern for slump sale price, in the absenceof evidence on record as to how the slump pricestood arrived at, Section41(2)had noapplication. It is interesting to note that thejudgment in the case of Electric Control GearManufacturing Co. (supra) is given by the sameBench which decided the case ofArtexManufacturing Co. In fact, both the judgmentsarereportedoneafterotherinMANU/SC/0773/1997 : [1997]227ITR260(SC)respectively. In the present case, as can be seenfrom the impugned judgment of the Delhi HighCourt, the judgment of this Court in ElectricControl Gear Manufacturing Co. (supra) ismissed out. That judgment has not beenconsidered by the High Court. As stated above,this Court has clarified its judgment in ArtexManufacturing Co. (supra) in its judgment inthe case ofElectricControlGearManufacturing Co.. Therefore, Section 41(2)has no application to the facts of the presentcase. 17. As regards applicability of Section 45isconcerned, three tests are required to be applied.In this case, Section 45 applies. There is nodispute on that point. The first test is that thecharging section and the computation provisionsare inextricably linked. The charging section andthe computation provisions together constitutedan integrated Code. Therefore, where thecomputation provisions cannot apply, it is evidentthat such a case was not intended to fall withinthe charging section, which, in the present case,is Section 45. That section contemplates that anysurplus accruing on transfer of capital assets ischargeable to tax in the previous year in whichtransfer took place. In this case, transfer tookplace on 18.7.1969. The second test which needsto be applied is the test of allocation/attribution.This test is spelt out in the judgment of this Courtin Mugneeram Bangur & Co. (supra). This testapplies to a slump transaction. The object behindthis test is to find out whether the slump pricewas capable of being attributable to individualassets, which is also known as item-wiseearmarking. The third test is that there is aconceptual difference between an undertakingand its components. Plant, machinery and deadstock are individual items of an Undertaking.Business Undertaking can consists of not onlytangible items but also intangible items like,goodwill, man power, tenancy rights and value of banking licence. However, the cost of such items(intangibles) is not determinable. In the case ofCITv.B.C.SrinivasaSettyMANU/SC/0285/1981:reportedin[1981]128ITR294(SC) , this Court held thatSection 45charges the profits or gains arising-from the transfer of a capital asset to incometax. In other words, it charges surplus whicharises on the transfer of a capital asset in termsof appreciation of capital value of that asset. Inthe said judgment, this Court held that the"asset" must be one which falls within thecontemplation of Section 45. It is further heldthat, the charging section and the computationprovisions together constitute an integrated Codeand when in a case the computation provisionscannot apply, such a case would not fall withinSection 45. In the present case, the BankingUndertaking, inter alia, included intangible assetslike, goodwill, tenancy rights, man power andvalue of banking licence. On facts, we find thatitem-wise earmarking was not possible. On facts,we find that the compensation (saleconsideration) of Rs. 10.20 cr. was not allocableitem- wise as was the case inArtexManufacturing Co. (supra). 18. For the aforestated reasons, we hold that onthe facts and circumstances of this case, whichconcerns assessment year 1970-71, it was notpossible to compute capital gains and, therefore,the said amount of Rs. 10.20 cr. was not taxableunder Section 45 of the 1961 Act. Accordingly, theimpugned judgment is set aside. 13.He has also taken us to the decision of Bombay High Court in 18. For the aforestated reasons, we hold that onthe facts and circumstances of this case, whichconcerns assessment year 1970-71, it was notpossible to compute capital gains and, therefore,the said amount of Rs. 10.20 cr. was not taxableunder Section 45 of the 1961 Act. Accordingly, theimpugned judgment is set aside. 13.He has also taken us to the decision of Bombay High Court in the case of Commissioner of Income Tax vs. Polychem Ltd.[2012] 343 ITR 115 (Bom) and more particularly to thefollowing paras: “6. In the present case, while we deal with thesubmissions which have been urged on behalf ofthe Revenue and the assessee it would, at theoutset, be necessary to advert to the salientprovisions of the agreement dated 24 March1994 in pursuance of which the IMFLundertaking came to be transferred by theassessee. The agreement makes it clear both inits recitals and in clause 1.1 of the contract thatthe assessee was transferring to the purchaser the undertaking / business as a running business/ going concern together with its assets andliabilities. The undertaking / business which wassought to be transferred was the business ofmanufacturing, blending, bottling, distribution,storing and sale of Indian Made Foreign Liquor.The undertaking / business consisted besidesimmovable property and movable property(including plant and machinery); current assetsincluding raw materials, stock in trade and bookdebts; the benefits of all pending contracts,engagements and orders; all licenses and otherpermissions and approvals required from theState and Central Government) to carry onliquor business; the distribution network,marketing strategies, plans, advertisinginformation and customer list; and the use ofintangible assets referable to the undertaking /business including trade marks. Schedule IV tothe agreements sets out the pending contracts,Schedule V the licenses which the assessee heldand Schedule VI the trade marks which theassessee was transferring to the buyer. TheAgreement does not contain an itemizedvaluation in respect of the land, building andfixed assets transferred. Under the agreementthe assessee transferred to the purchaser theentire undertaking / business at and for aconsideration of Rs.10.60 Crores. Under Clause5.2 the consideration as determined was subjectto a due diligence audit of the assets andliabilities as reflected in the Closing Accountsand was subject to adjustment to be made inthe following manner: (1) if any machinery was missing it was to bereplaced by the vendor; and (2) if there was any variance in the currentassets or liabilities it was liable to be adjustedfrom the price. Possession of the undertaking was to be handedover by the assessee to the purchaser on theClosing Date. Under Clause 6 the assessee transferred itsemployees involved in the undertaking /business as part of the undertaking / businessas a going concern to the purchaser. 7. Reading the agreement as it stands, it isevident that the subject matter of contractbetween the assessee and the purchaser wasthe transfer of the business of the undertakingof the IMFL unit as a going concern. The total (1) if any machinery was missing it was to bereplaced by the vendor; and (2) if there was any variance in the currentassets or liabilities it was liable to be adjustedfrom the price. Possession of the undertaking was to be handedover by the assessee to the purchaser on theClosing Date. Under Clause 6 the assessee transferred itsemployees involved in the undertaking /business as part of the undertaking / businessas a going concern to the purchaser. 7. Reading the agreement as it stands, it isevident that the subject matter of contractbetween the assessee and the purchaser wasthe transfer of the business of the undertakingof the IMFL unit as a going concern. The total consideration of Rs.10.6 crores that isdetermined under the agreement was for thetransfer of the business and undertaking as awhole comprising of but not limited to the land,building and fixed assets. Among the assets thatwere transferred included the benefit of theexisting contracts, licenses which the assesseeheld entitling it to manufacture and sell IndianMade Foreign Liquor, intangibles including theright to utilize trade marks and the labor forcewhich was being transferred to the purchaser.The transaction involved a slump sale. Therewas no itemized valuation of the fixed assetsand other assets which formed part of theundertaking. What was sold comprised of theundertaking and the business as a whole. 10. It must be emphasized that in the presentcase the Court is dealing with the position as itexisted prior to the insertion of the provisions ofSection 50B by the Finance Act of 1999. As aresult of the provisions of Section 50Bwhichhave been inserted with effect from 1 April 2000any profits or gains arising on a slump saleeffected in the previous year are to bechargeable to incometax as capital gainsarising from the transfer of long term capitalassets and are to be deemed to be the incomeof the previous year in which the transfer tookplace. Under the Proviso capital gains are to betreated as arising from a transfer of short termcapital assets in the case of an undertakingowned and held by an assessee for not morethan thirtysix months. Subsection (2) of Section50B provides that in such case the net worth ofthe undertaking or the division shall be deemedto be the cost of acquisition and the cost ofimprovements for the purposes of Sections 48and 49. Under subsection (3) every assessee inthe case of a slump sale has to furnish alongwith the return of income, a report of anaccountant indicating the computation of the networth of the undertaking or division. Explanation1 defines the expression net worth " " as theaggregate value of the total assets of theundertaking or division as reduced by the valueof liabilities as appearing in the books ofaccount. For the purpose of this appeal Section50B has no application. 11. In such a situation it would be necessary toadvert to the decision of the Supreme Court inPNB Finance Ltd. Vs. CommissionerIncomeTax (Supra). In that case Punjab National Bankwas nationalized under the Banking Companies 11. In such a situation it would be necessary toadvert to the decision of the Supreme Court inPNB Finance Ltd. Vs. CommissionerIncomeTax (Supra). In that case Punjab National Bankwas nationalized under the Banking Companies (Acquisition and Transfer of Undertakings) Act,1970. Upon nationalization a compensation ofRs.10.20 crores was paid, computed oncapitalization of the previous five years' profits.The issue which arose before the Supreme Courtwas whether the transfer of a bankingundertaking gave rise to taxable capital gainsunder Section 45. In that case the AssessingOfficer had held that since the assessee hadsubmitted its own computation of the fairmarket value of the undertaking the only issuerequired to be considered was the correctness ofthe figure of capital loss submitted by theassessee. The Assessing Officer computed thecapital gains and on an appeal by the assesseethe A.A.C. held that it was not possible toallocate the full value of the considerationreceived between the various assets of theundertaking. Consequently it would not bepossible to determine the cost of acquisition andof improvement under Section 48. The Tribunalin appeal took the view that since the assesseehad exercised its option for substitution of thefair market value as on 1/1/1954 it was notopen to the assessee to contend that the cost ofacquisition was not computable. The Tribunalconsequently affirmed the view of the AssessingOfficer. In appeal the Delhi High Court sustainedthe judgment of the Tribunal relying upon thedecision of the Supreme Court in CIT Vs. ArtexManufacturing Company. MANU/SC/0773/1997: (1997) 227 ITR 260 (SC) The Supreme Courtin appeal held that the decision in Artex dealtwith the provisions of Section 41(2)and was,therefore, not applicable to the case at handwhich dealt with the issue of capital gains. TheSupreme Court enunciated that as regards theapplicability of Section 45three tests arerequired to be applied. First, both the chargingSection and computation provisions areinextricably linked. Second, the test of allocation/ attribution must be applied, the object being todetermine whether the slump price was capableof being attributable to individual assets. Third,there is a conceptual difference between theundertaking and its components. In that contextthe Supreme Court held as follows: ...there is a conceptual difference " between anundertaking and its components. Plant,machinery and dead stock are individual items ofan Undertaking. Business Undertaking canconsist of not only tangible items but alsointangible items like, goodwill, man power, tenancy rights and value of banking licence.However, the cost of such items (intangibles) isnot determinable. In the case of CIT v. B.C.Srinivasa Setty reported in MANU/SC/0285/1981 : (1981) 128 ITR 294, this Court held thatSection 45 charges the profits or gains arisingfrom the transfer of a capital asset to incometax. In other words, it charges surplus whicharises on the transfer of a capital asset in termsof appreciation of capital value of that asset. Inthe said judgment, this Court held that the"asset" must be one which falls within thecontemplation of Section 45. It is further heldthat, the charging section and the computationprovisions together constitute an integratedCode and when in a case the computationprovisions cannot apply, such a case would notfall within Section 45. In the present case, theBanking Undertaking, inter alia, includedintangible assets like, goodwill, tenancy rights,man power and value of banking licence. Onfacts, we find that item wise earmarking was notpossible. On facts, we find that thecompensation (sale consideration) of Rs. 10.20cr. was not allocable item wise as was the casein Artex Manufacturing Co. (supra). 12. Bearing in mind the facts of the presentcase, we are of the view that law that has beenenunciated by the Supreme Court in PNBFinance (Supra) would govern this appeal. In thepresent case undoubtedly there has been noitemized sale of the assets of the undertaking.The subject matter of the transfer is thebusiness undertaking of the IMFL Unit as awhole. In a situation such as the present,itemized earmarking would not be possible. Thatis because the business of the undertakingconsists not only of tangible items but otherintangibles such as rights in intellectual property,licenses and manpower. The Cost of suchintangibles is not determinable. In PNB Finance(Supra) the Supreme Court followed the dictumin its earlier decision in CIT Vs. B.C. SrinivasaSetty MANU/SC/0285/1981 : 1981 128 ITR294 that the charging section and thecomputation provisions constitute an integratedcode and when in a case the computationprovisions cannot apply, such a case would notfall within Section 45. The facts of the presentcase are squarely within the principle which hasbeen laid down by the Supreme Court in PNBFinance.” 14.He has also placed reliance on the decision of KarnatakaHigh Court in the case of Commissioner of Income Tax vs. B.V.Reddy Marketing (P.) Ltd. [2014] 42 taxmann.com 311(Karnatka), Commissioner of Income Tax vs. NutrineConfectionery Co. (P.) Ltd. [2014] 45 taxmann.com 11, andthe decision of Calcutta High Court in the case of Commissionerof Income Tax vs. Coats of India Ltd. [2009] 176 Taxman438 (CAL.). He has also referred to the decision of the SupremeCourt in the case ofCommissioner of Income Tax,Ahmedabad vs. Equinox Solution Pvt. Ltd., wherein para 13 &14 has observed as under: “13. Our view finds support with the law laiddown by this Court in Commissioner ofIncomeTax, Gujarat v. Artex ManufacturingCo. [MANU/SC/0773/1997: 1997(6) SCC 437CIT]. 14. In Premier Automobiles Ltd. v. IncomeTaxOfficer and Anr., MANU/MH/0314/2003: 264 ITR193 (Bombay) also, the Division Bench of theBombay High Court examined this question indetail on somewhat similar facts and has takenthe same view. The Learned Judge S.H. Kapadia- (as His Lordship then was as Judge of theBombay High Court and later became CJI)speaking for the Bench aptly explained the legalposition to which we concur as it correctlysummarized the legal position applicable to suchfacts.” 15.However, Mr. Singhi has referred to para 11 of the samejudgment which reads as under: “11. In our considered opinion, the case of theRespo