CASES WHEREIN IT HAS BEEN HELD THAT TRANSACTIONS FELL WITHIN THE

AMBIT OF SECTION 50B OF THE ACT

30.9 CASES WHEREIN IT HAS BEEN HELD THAT TRANSACTIONS FELL WITHIN THE AMBIT
OF SECTION 50B OF THE ACT
30.9-1 The ITAT Delhi Bench in the case of Asstt CIT v. Smt. Sangeeta Wij [2012] 24 taxmann.com 128/54
SOT 1 (URO) (Delhi-Trib.) held that where under agreement what was transferred was right to carry on
business, application of main section 28(va)(a) of the Act was foreclosed and forbidden and the amount was
taxable as capital gain under section 50B of the Act.
It is to be stated that the provisions of section 28(va)(a) deal with taxability under the head "Profits and gains
of business or profession of "any sum whether received or receivable, in cash or kind, under an agreement for
not carrying out any activity in relation to any business or profession."
The assessee was a specialist in designing of structures, public health and fire protection services and her
proprietary concern was taken over as going concern by a company and she received lump sum consideration.
The Assessing Officer opined that maximum of lump-sum was for Goodwill in view of meagre net worth of
proprietary concern at time of take-over and considered lump-sum receipt as business receipt being
compensation paid to the assessee for 'not carrying out any activity in relation to business of company' as
contemplated under section 28(va)(a) of the Act and not capital receipt as claimed by the assessee. The
Tribunal held as under-
(i) The amount arrived at by the Assessing Officer as representing value of goodwill, in fact, represented
long term capital gains within meaning of section 50B of the Act.
(ii) As per agreement what was transferred was right to carry on business and hence, application of main
section 28(va)(a) of the Act was foreclosed and forbidden by proviso (i) thereof.
The proviso(i) referred to above reads as under-
"Provided that sub-clause (a) shall not apply to—(i) any sum, whether received or receivable, in cash or
kind, on account of transfer of the right to manufacture, produce or process any article or thing or right to
carry on or profession, which is chargeable under the head 'Capital gains'"
This order of the Tribunal was affirmed by the Delhi High Court in CIT v. Sangeeta Wig [2014] 42
taxmann.com 146/221 Taxman 159 (Mag.)(Delhi) wherein it was held that "where the assessee parted with
controlling interest in business of her proprietary concern and as consideration, along with money, she
received shares in new company and assessee had not carried on the said business or received consideration
as a non-compete fee, total consideration received was capital gain."
The High Court at para. 3 of its judgment approved the approach of the Tribunal when it (the Tribunal) after a
detailed consideration of the law on the subject referred to the decision of the Supreme Court in the case of
CIT v. Motors & General Stores (P.) Ltd. [1967] 66 ITR 692 (SC) to the effect that "the real intention of the
parties has to be gathered on the appreciation of a background in its entirety instead of focusing either on the
nomenclature or concentrating on certain parts of it."
The High Court also approvingly noted that the Tribunal referred to Board Circular 779 dated 14th September,
1999 and after analysing the circular arrived at the right decision after taking into account the contents of this
circular.
30.9-2 The Supreme Court in the case of CIT v. Equinox Solution (P.) Ltd. [2017] 80 taxmann.com 277/247
Taxman 89/393 ITR 566 (SC) held that "whereas the provisions of section 50(2) of the Act apply to a case
where any block of assets is transferred by the assessee but where the entire running business with assets and
liabilities is sold by the assessee in one go, such sale cannot be considered as sale of 'short term capital assets'
as it was a slump sale of a 'long term capital asset' and be taxed accordingly."
30.9-3 The ITAT Cochin Bench in the case of Asstt. CIT v. Ooty Gate Hotel [2019] 101 taxmann.com 163/174
ITD 513 (Cochin-Trib.) held that "where assessee sold its hotel premises along with licences for boarding,
lodging, bar etc. as a going concern to a buyer who was also engaged in hotel business, it could be regarded as
a case of slump sale and, thus, Assessing Officer was justified in applying provisions of section 50B of the Act
to the assessee's case."
The following observations made by the Hon'ble Members at para 4.3 are worth noticing (and) which enabled
the Tribunal to decide in favour of the Revenue-
"4.3 In order to understand whether the sale was a slump sale or sale of independent items of assets,
necessarily 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 crores. 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 crores 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."
30.9-4 The ITAT Kolkata Bench in the case of Ambo Agro Products Ltd. v. Principal CIT [2017] 81
taxmann.com 305/165 ITD 20 (Kol.-Trib.) held that where the assessee claimed to sell its manufacturing unit
of edible oil as a going concern on slump sale basis, the mere fact that buyer was already in the same line of
business and thus, was not keen to buy intangible assets such as trade name/logos/trademarks/product name
etc. belonging to assessee, it would not take assessee's case out of purview of section 50B of the Act.
30.9-5 The Delhi High Court in the case of Triune Projects (P.) Ltd. v. Dy. CIT [2017] 77 taxmann.com 40
(Delhi) held that "In a case of slump sale if certain defunct assets or properties are left out because they would
cause inconvenience or lead to some kind of trouble for buyer, it is well within right of seller to exclude such
asset from list and such sale would qualify for treatment under section 50B of the Act."
The following pertinent observations made at paras 10 and 11 from this judgment are worth noticing-
"10........... To expect a purchaser to buy and pay value for defunct or superfluous assets flies in the face of
commercial sense. Unfortunately, the Revenue's understanding is that in a going concern the buyer is
bound to pay good money, transact and purchase bad and irrecoverable debts. Not only does it fly in the
face of common and commercial understanding, but it is not even a pre-condition, as is evident from the
definition of "undertaking", cited in Explanation (1) to Section 2(19) (A) of the Act.
11. This definition of "undertaking" is what has been engrafted into by reference, under section 2(42C) of
the Act. Therefore, if certain assets or properties are left out because they would cause inconvenience or
lead to some kind of a trouble for the purchasing party, it is well within its right to exclude it from the list
of assets."
30.9-6 The ITAT Mumbai Bench in the case of Mettler Toledo India (P.) Ltd. v. ITO [2013] 31 taxmann.com
175/56 SOT 498 (Mum.-Trib.) held that "where entire personal weighing scale business had been sold as a
going concern for a lump sum amount, it was a case of slump sale as defined in section 2(42C) of the Act and
profit arising from such slump sale was chargeable to tax as capital gain under provisions of section 50B of the
Act."
30.9-7 In the case which arose before ITAT Mumbai Bench in Mahindra Engg. & Chemical Products Ltd. v.
ITO [2012] 20 taxmann.com 568/51 SOT 496 (Mum.-Trib.) the assessee-company had sold trademarks,
copyrights, technical know-how, assets and goodwill pertaining to business being carried out by it by entering
with the same purchaser different deeds/agreements of assignment/transfer and though in the return the
assessee offered sale consideration received on account of goodwill and non-compete fee for taxation yet it did
not offer consideration received on sale of trademarks, know-how, copyrights for taxation on plea that the
same, being capital receipt, was not taxable. The Assessing Officer held that transaction in question was a
slump sale liable to be taxed as per provisions of section 50B of the Act. The question that arose before the
Tribunal was "Whether since trademarks, plant and machinery, technical know-how, copyrights, goodwill were
part and parcel of the same business and they were integral and indivisible components of a composite unit
sold by assessee, actually being a part of single transaction, what was sold by assessee was business as a whole
and not item wise sale of different assets?" The Tribunal answered in the affirmative in the sense that
transaction was liable to be taxed under section 50B of the Act. The Tribunal also held that transferring or non-
transferring of a plot of land was not the deciding factor in such a transaction.
30.9-8 The facts obtaining in the case which arose before the Delhi High Court in SREI Infrastructure Finance
Ltd. v. Income-tax Settlement Commission [2012] 20 taxmann.com 476/207 Taxman 74 (Delhi) were that the
Settlement Commission passed an order whereby it brought to tax certain amount received by the assessee on
'slump sale' under a scheme of arrangement from its subsidiary company. The assessee filed a writ petition
contending that scheme of arrangement was sanctioned by the High Court under sections 391 to 394 of
Companies Act, 1956 and was statutory in nature and character and in such a case, provisions of section 50B
of the Act would not apply.
The High Court held that "when a scheme under sections 391-394 of Companies Act, 1956 is sanctioned by
the Court, it is treated as a binding statutory scheme because scheme has to be implemented and enforced but
this cannot be a ground to escape tax on 'transfer' of a capital asset under section 50B of the Act."
The assessee's objection was thus set aside and the order passed by the Settlement Commission was upheld.
30.9-9 The Kerala High Court in the case of CIT v. Accelerated Freeze Drying Co. Ltd. [2011] 10
taxmann.com 6/198 Taxman 18 (Ker.) held as under-
"Section 50B of the Act is the only provision which provides for computation of capital gains in case of
slump sale, even though sale of business undertaking as a going concern involves sale of assets forming
block of assets on which depreciation is being allowed and therefore where the assessee-company had sold
one of its industrial units as a whole and as a continuing business concern with land, building, plant,
machinery and all equipments as a going business with assets and liabilities for a consolidated sum, sale of
undertaking was a slump sale within meaning of section 2(42C) of the Act assessable under section 50B of
the Act."
30.9-10 In the case which arose before the ITAT Hyderabad Bench in VST Industries Ltd. v. Asstt. CIT [2010]
41 SOT 415 (Hyd.-Trib.) the facts were that the assessee-company held 99.75 per cent of shares issued by its
subsidiary company and, hence, was holding controlling interest therein and it sold that subsidiary company to
GGCL for a consideration of Rs. 15.50 crore. In the course of assessment, the Assessing Officer rejected the
assessee's claim that long-term capital loss was incurred in course of aforesaid transaction. On appeal by the
assessee, the Commissioner of Income-tax (Appeals) held that the transaction entered into by the assessee was
nothing but a slump sale and capital gain was required to be computed under section 50B of the Act. The
Tribunal, on second appeal by the assessee, held that since the assessee had sold the entire undertaking with all
its assets and liabilities together with all licences, permits, approvals, registration, contracts, employees and
other contingent liabilities for a slump price, the provisions of section 50B of the Act stood attracted and,
therefore, direction given by the Commissioner of Income-tax (Appeals) to compute capital gain as per section
50B of the Act was correct and well in accordance with law.
30.9-11 The issue which arose before the ITAT Mumbai Bench in the case of Rohan Software (P.) Ltd. v. ITO
[2008] 115 ITD 302/21 SOT 258 (Mum.-Trib.) was not only interesting but also important. The assessment
year concerned was 2000-01 and the assessee-company was engaged in the business of software development
and related services. The assessee-company entered into a Memorandum of Understanding (MoU) with 'IISL'
whereby it transferred its business assets, viz., intellectual properties, code, formulae, design, etc., to IISL for a
consideration. The assessee claimed that the amount received by it from IISL was for sale of its business as a
going concern which had to be treated as a slump sale and accordingly computed capital gains under section
50B of the Act. But according to the revenue, the assessee had not transferred building, motor car and assets
and liabilities relating to income-tax matters which fell short of slump sale for slump consideration and,
therefore, held that consideration for transfer of business to IISL was not made on account of slump sale of
business as a going concern but a revenue receipt chargeable to tax under section 28(i) of the Act as business
income.
The Tribunal held that "since assessee's business assets, viz., intellectual properties, code, formulae, design,
computer, furniture, etc., were transferred for a consideration to IISL by aid of which IISL could very well
carry on its business without purchasing any independent items, non-transfer of items like motor car and
building would not make any difference to transaction as it had nothing to do with assessee's business and
therefore, consideration received by assessee on sale of its business to IISL was to be treated as sale of a going
concern for slump price and that the contention of the assessee was correct."
30.9-12 The Calcutta High Court in the case of CIT v. AKZO Noble India Ltd. [2020] 121 taxmann.com
216/[2021] 276 Taxman 259 (Cal.) held that where all assets and liabilities of assessee's business unit were
transferred as a going concern at a fixed slump price, it would be considered as slump sale of undertaking as a
going concern; merely because two assets were excluded on date of transfer, it could not be treated as sale of
depreciable assets
30.9-13 In the year 1994, the assessee purchased a factory shed at Silvassa for expansion of its manufacturing
activities and trial production was carried out with help of tools and dye from assessee's other factory.
Thereafter the assessee decided to expand factory shed and spent certain amount for further construction.
However, because of financial problems, commercial production could not be commenced at Silvassa and in
order to tide over financial difficulties, in March 1996, the assessee sold the said factory shed resulting in
certain profit. The assessee claimed that since factory shed at Silvassa formed part of block of assets along
with assessee's other factory sheds, under provisions of section 50 consideration received upon transfer of said
factory shed was required to be reduced from value of block of assets and depreciation was to be allowed
under section 32 on value of block of assets so reduced. The Assessing Officer recorded finding that the said
factory shed was never put to use and, therefore, section 50 was not applicable and he assessed profit arising
on sale of shed as capital gain. The Appellate Authorities upheld order of the Assessing Officer. The High
Court, on an appeal filed by the assessee, held that since finding of authorities below was based of
consideration of all materials on record, no interference was required therewith. [Modern Malleables Ltd. v.
CIT [2011] 11 taxmann.com 131/199 Taxman 331 (Mag.) (Cal).]
30.9-14 The Supreme Court in the case of CIT v. Equinox Solution (P.) Ltd. [2017] 80 taxmann.com 277/247
Taxman 89 (SC) held that where the assessee-company had sold its entire running business with all assets and
liabilities in one go, it was a slump sale of a 'long term capital asset' and be taxed accordingly; section 50(2)
not attracted.