COMMISSIONER OF INCOME TAX vs. GARDEN SILK WEAVING FACTORY

ITR/139/1993HC GujaratGJHC24021218199315 June 2005Author: HONOURABLE MR. JUSTICE D.A.MEHTA,HONOURABLE MS. JUSTICE HARSHA DEVANI15 pages
AI SummaryAllowed

What were the facts?

The assessee, Garden Silk Weaving Factory, a registered firm, sold its business as a going concern, including all assets and liabilities, to Garden Silk Mills Private Limited for Rs. 15,15,000. The assessment year was 1973-74. The Assessing Officer (AO) initially computed profit under Section 41(2) at Rs. 10,25,135. This order was challenged through various appeals and re-assessments. The CIT(Appeals) and the Income Tax Appellate Tribunal (Tribunal) consistently held that the transaction was a slump sale of a running business and Section 41(2) was not applicable. The Tribunal, in its final order dated 6/1/1992, upheld the CIT(Appeals)'s decision but restored the matter to determine liability under 'Capital Gains'. The Revenue appealed this order.

What did the High Court hold?

The Tribunal was right in law and on facts in holding that what was sold by the assessee firm to the limited company was its running business as a going concern, together with all assets and liabilities. Consequently, the provisions of Section 41(2) of the Act could not be invoked. The reasoning was that for Section 41(2) to apply, specific information regarding the actual cost, written down value, and sale consideration for each individual asset was necessary. In a slump sale of an entire business, such itemized information was generally unavailable, and the AO had not been able to provide it. The Tribunal's concurrent findings with the CIT(Appeals) that the transaction was a slump sale of the entire business as a going concern, based on the appreciation of various agreements, were upheld. The ratio is that Section 41(2) is not applicable to a slump sale of a business as a going concern where individual asset details are not ascertainable. The question referred to the High Court was answered in the affirmative, in favour of the assessee. The matter was disposed of, with no decision on the 'Capital Gains' aspect as it was not the subject of the reference.

What were the issues?

1. Whether, the Appellate Tribunal was right in law and on facts in holding that what was sold by the assessee firm to the limited company was its running business, as a going concern together with all the assets and liabilities and the provisions of Sec.41(2) of the Act cannot be invoked under the facts and circumstances of the assessee's case? Assessee's Contention: The assessee argued that the Tribunal's findings of fact were correct and no interference was called for, as the Tribunal had applied the settled legal position to the facts found. The transaction was a slump sale of the entire business as a going concern. Revenue's Contention: The Revenue contended that the Tribunal had wrongly interpreted the agreements and that the Assessing Officer had correctly computed the balancing charge under Section 41(2). The Revenue relied on the Supreme Court decision in CIT Vs. Artex Manufacturing Company and this Court's decision in CIT vs. Shahibaug Entrepreneurs Pvt.Ltd., arguing that Section 41(2) was applicable even in a slump sale based on available information.

Which sections of the Income-tax Act were involved?

Section 41(2),Section 256(1),Section 144,Section 154,Section 146

AI-generated summary — verify with the full judgment below

1 IN THE HIGH COURT OF GUJARAT AT AHMEDABAD INCOME TAX REFERENCE No. 139 of 1993 For Approval and Signature: THE HON'BLE MR.JUSTICE D.A.MEHTA MS.JUSTICE H.N.DEVANI ====================================================== ======== 1 Whether Reporters of Local Papers may be allowed to see the judgement ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgement ? 4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India, 1950 or any order made thereunder ? 5 Whether it is to be circulated to the civil judge ? ====================================================== COMMISSIONER OF INCOME TAX - Petitioner(s)

Versus GARDEN SILK WEAVING FACTORY - Respondent(s) ====================================================== Appearance : MR TANVISH U BHATT for Petitioner No(s).: 1. MR JP SHAH for Respondent No(s).: 1. 2 =================================================== =========== CORAM :THE HON'BLE MR.JUSTICE D.A.MEHTA MS.JUSTICE H.N.DEVANI Date : 15/06/2005 ORAL JUDGMENT (Per : THE HON'BLE MR.JUSTICE D.A.MEHTA) 1 The Income Tax Appellate Tribunal, Ahmedabad Bench 'B' ha

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