ORDER
T.N. Chopra, Accountant Member
1. These cross appeals, filed by the assessee and the revenue are directed against the order of the CIT(A),
dated 12-8-1993 for A.Y. 1990-91. Since both the appeals are heard together these are being disposed of by a single order for the sake of convenience.
2. First we take up the assessee’s appeal ITA No. 4112/Ahd./1993. Brief facts relevant for the points in issue may be set out at the outset. The assessee company has been engaged during the assessment year under reference in the business of manufacture of computer diskettes and chemicals as also lease and hire income. During the year the computer diskettes manufacturing unit viz. Pinsel has been sold to M/s. Vidarbha Iron & Steel Corpn. Ltd, (VISCO for short). The question which arises for our consideration is the computation of capital gains under section 50 of the Income-tax Act, 1961.
Agreement dated 17-4-1989 as well as supplementary agreement dated 5-12-1989 containing the particulars of various assets and liabilities transferred by the assessee to VISCO and the consideration in respect thereof have been placed on record. In the agreement dated 17-4-1989 there are 10 articles in the preamble, the first nine articles enumerate the various assets of the computer diskettes unit which are being sold. Article 10 in the preamble reads as under :
“PCL have agreed to sell and transfer and VISCO have agreed to purchase and accept transfer of the said properties as also the said movables, the said inventories (as on the date of taking over of operations hereinafter defined) as also transfer to VISCO such of the security deposits as are transferable and also the transfer of the said advances, the said book debts, the said trade mark and the said technological documents on the terms and conditions hereinafter contained.”
Now we may refer to main clauses in the aforesaid agreement. Under clause (2) of the agreement prices of various assets, movable and immovable, being sold to VISCO are enumerated aggregating to Rs. 224 lakhs. Clause (2) contains the following recital:
“a. PCL shall sell and transfer to the said VISCO and the VISCO shall purchase and accept transfer of the said property at or for the price of Rs. 18 lakhs (Rupees Eighteen lakhs) after adjusting the liabilities excluding the company’s bank overdrafts aggregating to Rs. 29 lakhs on the date of take-over of operations.
b. PCL shall sell and transfer to the said VISCO and VISCO shall purchase and accept the transfer of the said movables at or at the price of Rs. 94 lakhs after adjusting the liabilities (excluding the company’s bank overdrafts and amount due to Noida authorities) aggregating to Rs. 180 lakhs on the date of takeover of the operations.
c. PCL shall transfer and sell and VISCO shall purchase and accept transfer of the said inventories at or for the price of Rs. 67 lakhs
(Rupees Sixty Seven Lakhs) (after adjusting the bank overdrafts of Rs. 5 lakh) on the date of takeover of operations.
d. PCL shall transfer to VISCO the entire book debts valued at Rs. 28 lakhs (Rupees Twenty-Eight Lakhs) on the date of takeover of operations. Deposit/advance and other assets including cash and bank balances valued at Rs. 17 lakhs (Rupees seventeen lakhs) on the date of takeover of operations.”
Clause (3) contains the terms of payment of the aforementioned consideration of Rs. 224 lakhs.
3. Clause (4) recites that on the date of takeover of operations, the exact value of the assets including cash and bank balances shall be determined and necessary adjustments will be made in the aforesaid amount of Rs. 224 lakhs.
4. Regarding transfer of trade mark and technical know-how, clause (5) specifically provides that these would be transferred without cost subject to the condition that if the licensor demands any consideration for giving their permission to transfer the technological documents to VISCO the same shall be borne and paid by VISCO. In the Schedules attached to the agreement, Schedule I enumerates the immovable properties of the computer diskettes unit and Second Schedule enumerates the plant, machinery equipments and other assets.
5. In the supplementary agreement dated 1-6-1990 it has been stated in the preamble that the properties including plant and machinery, inventories etc. of Pinsel unit have been taken over along with the liabilities in respect of borrowings from financial institutions and banks etc. on 1st June, 1989 which is described as the date of takeover of operations. Article 3 in the preamble refers to the determination of exact values of various assets determined at Rs. 2,10,08,445 as set out in Annexure A to the agreement. The article 3 reads as under:–
“By clause No. 4 of the said agreement dated 17th April, 1989, on the date of takeover of operations, the exact value of assets including cash and bank balances, were required to be determined and the necessary adjustments to be made in the sum of Rs. 2,24,00,000. The said purchase consideration in terms of the said agreement has now been determined at Rs. 2,10,08,445 as set out in Annexure ‘A’ to this agreement. As against this, a sum of Rs. 55,00,000 was paid by VISCO to PCL as advance which has been adjusted against this purchase consideration.”
Annexure to the supplementary agreement lists out the fixed assets, current assets and the values thereof. The liabilities like overdraft from State Bank of Patiala and institutional liabilities and outstanding liabilities for expenses etc. have also been indicated in the annexure to the agreement. These liabilities aggregate to Rs. 2,63,01,338. The assets taken over as listed out in the annexure are valued at Rs. 4,73,09,783. Thus the purchase consideration as per the supplementary agreement has been arrived at Rs. 2,10,08,445. The assessee had credited an amount of
Rs. 39,07,695 as profits on the sale of the Pinsel undertaking. However the assessee disclosed nil figure on account of short term capital gains on the ground that Pinsel undertaking has been sold as a going concern on 17-4-1989 and the sale consideration is equal to the cost of assets and no capital gains have been offered for taxation. The Assessing Officer however worked out the short term capital gains amounting to Rs. 1,74,26,035 as per page 6 of the assessment order by applying the provisions of section 50 of the Income-tax Act. The computation has been made by the Assessing Officer by working out the aggregate of the WDV increased by the additions on account of plant and machinery and other assets made during the year and the amount has been deducted from the aggregate sale proceeds of the assets as per the provisions of section 50(2) of the Income-tax Act.
6. Aggrieved, the assessee carried the matter in appeal before the CIT(A) and argued that since the entire Pinsel undertaking has been sold as a going concern, there is no occasion for invoking the provisions of section 50(2). The CIT(A) rejected the contentions and upheld the action of the Assessing Officer in including the short term capital gains under section 50(2).
7. Aggrieved, the assessee has come up in appeal before us.
8. During the course of hearing the Id. representatives of both sides made oral as well as written submissions. The Id. counsel, assailing the levy of capital gains under section 50, argued that the Pinsel Unit has been sold as a going concern and since no separate rate of depreciation has been prescribed for the industrial undertaking, section 50 would not apply and no short term capital gain would be liable to be assessed by invoking the provisions of section 50. The Id. counsel referred to the principles enunciated by the Hon’ble Supreme Court in the two judgments viz. CIT v. ‘Artex Mfg. Co.[1997] 227 ITR 260 and CIT v. Electric Control Gear Mfg. Co. [1997] 227 ITR 278 and argued that in the instant case since the unit has been sold as a going concern without indicating the value of different assets like machinery, building, etc., the ratio of Electric Control Gear Mfg. Co. (supra) would apply. According to the Id. counsel in the sale agreement dated 17-4-1989 no separate value of depreciated assets like plant and machinery building and furniture is exhibited in the Second Schedule and it was only at the time of takeover of operations that supplementary agreement dated 1-6-1990 indicates the itemised value of various assets of the Pinsel unit sold by the assessee-company. The Id. counsel further argued that section 50 is a deeming provision which envisages excess of sale consideration over WDV as deemed capital gain arising from the transfer of short term capital assets and the deeming provisions would not be applicable in the instant case. The Id. counsel further placed reliance on the following decisions :
1. CIT v. Mugneeram Bangur & Co. (Land Dept.) [1965] 57 ITR 299 (SC).
2. CIT v. West Coast Chemicals & Industries Ltd. [1962] 46 ITR 135, 142 (SC).
3. Delhi Tambaku & Udyog Ltd. v. MC[1987] 20 ITD 718 (Delhi).
4. CIT v. Srinivasa Setty [1981] 128 ITR 294′ (SC).
9. The Id. D.R., on the other hand placed reliance on the facts and reasoning indicated by the Id. CIT(A) in the impugned order and argued that the short term capital gain levied by the Assessing Officer amounting to Rs. 1,74,26,035 deserves to be sustained.
10. We have carefully considered the facts and circumstances of the case including the sale agreement dated 17-4-1989 as well as supplementary agreement dated 1-6-1990. The various judicial authorities cited before us have also been carefully perused by us. We have no hesitation in upholding the conclusion of the Id. CIT(A) regarding levy of short term capital gains under section 50 of the Income-tax Act, 1961. From the perusal of various clauses of sale agreement dated 17-4-1989, it is amply clear that the sale consideration for transfer of plant and machinery and stock-in-trade and furniture etc. has been worked out separately at Rs. 224 lakhs as per clause (2) of the agreement, which has been reproduced hereinbefore. Clause (4) of the agreement clearly stipulates that on the date of takeover of operations the exact value of the assets including cash and bank balances shall be determined and necessary adjustment will be made in the aforesaid amount of Rs. 224 lakhs. Thereafter at the time of takeover operations such adjustments were actually made as per article (III) of the preamble of the supplementary agreement, which has also been reproduced hereinbefore whereby purchase consideration after making item wise adjustment was worked out at Rs. 2,10,08,445. In the light of the aforesaid facts the conclusion is inescapable that the assessee has sold various items of immovable and movable property held in the Pinsel unit on the basis of itemised value of such property. The facts on record thus clearly indicate that it is not the case of transfer and sale of agoing concern for a lump sum consideration. The assessee has actually sold various items of assets belonging to Pinsel unit as per agreement dated 17-4-1989 and therefore provisions of section 50(2) are clearly applicable and the surplus of the sale consideration over the WDV in respect of block of assets like building, furniture and fittings, plant and machinery are liable to be assessed as short term capital gains. The contention of the Id. counsel that the sale consideration attributable to each block of assets has not been indicated in the sale agreement is factually incorrect. We have already reproduced various clauses of the sale agreement as well as the supplementary agreement which clearly indicate that the sale consider-
ation has been specifically attributed to various assets held by the Pinsel unit at the time of transfer. In the facts of the case the decision of Hon’ble Supreme Court in Artex Mfg. Co. Ltd.’s case (supra) would apply. In the said decision their Lordships held at page 276 of the report:
“It is no doubt true that in the agreement there is no reference to the value of the plant, machinery and dead stock. But on the basis of the information that was furnished by the assessee before the Income-tax Officer, it became evident that the amount of Rs. 11,50,400 had been arrived at by taking into consideration the value of the plant, machinery and dead stock as assessed by the valuer at Rs. 15,87,296. This is not a case in which it cannot be said that the price attributed to the items transferred is not indicated and, hence Section 41(2) of the 1961 Act cannot be applied. We are, therefore, unable to agree with the view of the High Court that section 41(2) of the 1961 Act is not applicable.”
The facts in the instant case stand on a stronger footing inasmuch as sale consideration with regard to various assets has been indicated in the sale agreement itself and again at the time of takeover, adjustments with regard to various items like cash and bank balances, stock inventories, etc. have been made. Since Artex Mfg. Co. Ltd.’s case (supra) is the direct authority in support of the view being taken by us we do not consider it necessary to discuss the various other decisions cited by the ld. counsel as above. We would accordingly uphold the order of the ld. CIT(A) on the issue.
11. With regard to the full value of the sale consideration taken by the Assessing Officer at Rs. 2,10,08,445 the Id. counsel raised the alternate contention that in view of the decision of Karnataka High Court in the case of CIT v. H.S. Shivarudrappa [l993] 200 ITR 1, the sale consideration of Rs. 55,00,000 should be adopted since this amount had become due and payable during the year. We see no merit in this contention which has been rightly rejected by the ld. CIT(A). Section 45 provides for levy of capital gains on any profits or gains “arising from the transfer of a capital assets” effected in the previous year. Section 50 has been introduced w.e.f. 1-4-1988 as a special provision for computation of capital gains in case of depreciable assets and provides for levy of short term capital gains in respect of full value of the consideration received or accruing as a result of the transfer of the asset. In the instant case by virtue of the inclusive definition of transfer contained under Section 2(47), transfer of capital assets has taken place during the year and the consideration accruing thereon is liable to be considered for the purposes of Section 50. Thus the consideration accruing on the transfer of various assets of Pinsel unit, which has taken place during the accounting year relevant for A.Y. 1990-91, has been rightly adopted by the Assessing Officer at Rs. 2,10,08,445. In view of the specific provision applicable in the instant case, the decision
cited by the Id. counsel would not apply. We would therefore reject the alternate contention of the assessce.
12 to 18. [These paras are not reproduced here, as they involve minor issues.]
