THE PR. COMMISSIONER OF INCOME TAX, CIT (A) vs. M/S. MANIPAL HEALTH SYSTEMS PVT. LTD.,

THE PR. COMMISSIONER OF INCOME-TAX, CIT (A) 5TH FLOOR, BMTC BUILDING 80 FEET ROAD, KORMANGALA BENGALURU-560 095

THE ADDL. COMMISSIONER OF INCOME-TAX RANGE-5, PRESENT ADDRESS CIRCLE-2 (3) (1) 2ND FLOOR, BMTC BUILDING 80 FEET ROAD, KORMANGALA BENGALURU-560 095

Heard Shri. E.I. Sanmathi, learned Standing Counsel for the Revenue and Shri. R.V. Easwar, learned Senior Advocate for the Assessee.

Briefly stated the facts of the case are, assessee is a multi-specialty hospital. It had entered into a business agreement dated 20.08.2010 with M/s. Manipal Health Enterprises Private Limited (MHEPL) and transferred its business in ‘slump sale’ as a going concern basis. It transferred all its assets and liabilities except land and building for a lump sum consideration of Rs.10 Lakhs. Assessee filed its returns for A.Y.2 2011-12 declaring a loss of Rs.12,85,55,955/-. The AO3 disallowed Rs.66,46,75,195/- as long-term capital gain on the slump sale under Section 50B of the Income Tax Act, 19614. On appeal, the CIT(A)5 confirmed the disallowance. On further, the ITAT6 has allowed assessee's appeal holding that the lump sum sale cannot be computed as

Shri. Sanmathi, for the Revenue, praying to allow the appeal, submitted that:

Shri. Easwar, for the assessee, supporting the ITAT’s order, submitted that land and buildings were not transferred under the Agreement. Only individual assets were transferred but the ownership was retained by assessee.

We have carefully heard the rival contentions and perused the records.

Undisputed facts of the case are, assessee had entered into a business agreement dated 20.08.2010 with MHEPL and had transferred its business by way of ‘slump sale’. While computing the lump sum sale consideration for Rs.10 lakhs, assessee has taken the net worth at ‘Nil’, treating the same as capital gains. The AO rejected the same and computed capital gain of Rs. 66.46 Crores. The CIT(A) confirmed the same as capital gain under Section 50B of the Act. The ITAT has held in favour of the assessee.

The definition of ‘slump sale’ provided under Section 2(42C) of the Act, which reads as follows:

Clause 2.1(i) of the Business Agreement reads as follows: “(i) The Seller agrees to sell, transfer, assure, grant, release, assign and convey to the Buyer and the Buyer, subject to the terms hereof and in consideration of the representations, warranties, covenants and statements of the Seller as contained herein, agrees to acquire and purchase, on a “slump sale” (as defined under section 2 (42C) of the Income Tax Act, 1961) basis, the Hospital Business, on a going concern basis on the Closing Date in accordance with, subject to and upon the fulfillment of the terms and conditions contained herein. Further the Buyer shall with effect from 1st September 2010 (‘Transfer Date’) have the right to use the immovable properties of the seller in the manner specified in Lease Deed, the draft of which is attached hereto as Schedule 10 and which shall be entered into as of the Closing Date.” (emphasis supplied)

As per the above clause, it is clear that assessee has transferred the ‘right to use the immovable properties’. Assessee has not transferred the ‘whole’ undertaking which is

Section 50B of the Act provides a mechanism for assessment of capital gain on ‘transfer’ of an ‘undertaking’ in a ‘slump sale’. Admittedly, immovable assets of the assessee’s business were not transferred. Therefore, it does not satisfy the essential conditions under Section 2(42C) of the Act.

In view of the above discussion, we find no error in the order passed by the ITAT.

Hence, the following: ORDER (a) Appeal is dismissed. (b) The questions of law are answered in favour of the assessee and against the Revenue.