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I.T.A No.816/2018
IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 13TH DAY OF OCTOBER 2023 PRESENT THE HON’BLE MR. JUSTICE P.S. DINESH KUMAR AND THE HON’BLE MR. JUSTICE T.G. SHIVASHANKARE GOWDA
INCOME TAX APPEAL NO.816 OF 2018
BETWEEN :
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
…APPELLANTS
(BY SHRI. E.I. SANMATHI, STANDING COUNSEL)
AND :
M/S. MANIPAL HEALTH SYSTEMS PVT. LTD., NO.14, MANIPAL TOWERS OLD AIRPORT ROAD BENGALURU-560 008 PAN:AACCM 2872M …RESPONDENT
(BY SHRI. R.V. EASWAR, SENIOR ADVOCATE FOR SHRI. S. SHARATH, ADVOCATE)
THIS ITA IS FILED UNDER SEC.260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 27.06.2018 PASSED IN ITA
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NO.1552/BANG/2016, FOR THE ASSESSMENT YEAR 2011-2012, PRAYING TO FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN AND ALLOW THE APPEAL AND SET ASIDE THE ORDERS PASSED BY THE INCOME-TAX APPELLATE TRIBUNAL, BENGALURU IN ITA NO.1552/BANG/2016 DATED 27.06.2018 FOR ASSESSMENT YEAR 2011- 2012 ANNEXURE - C AND CONFIRM THE ORDER OF THE APPELLATE COMMISSIONER CONFIRMING THE ORDER PASSED BY THE ASST. COMMISSIONER OF INCOME TAX, CIRCLE - 2(3)(1), BENGALURU AND ETC.
THIS ITA, HAVING BEEN HEARD AND RESERVED FOR JUDGMENT ON 11.07.2023 COMING ON FOR PRONOUNCEMENT OF JUDGMENT THIS DAY, P.S.DINESH KUMAR J, PRONOUNCED THE FOLLOWING:-
JUDGMENT
This appeal by the Revenue, directed against the order dated June 27, 2018 in ITA No. 1552/Bang/2016 passed by the ITAT1 has been admitted to consider the following question of law: "Whether on the facts and in the circumstances of the case, the Tribunal is right in law in holding that the assessee has rightly transferred the hospital as a going concern and took net worth as 'nil' and, as such, the same is not a "Slump Sale" without appreciating that assets that were necessary for effective continuation of Hospital business were transferred in one go, individual assets / liabilities were not assigned any value and agreement itself mentions it as "Slump Sale"?
1 Income Tax Appellate Tribunal
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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
2 Assessment Year 3Assessing Officer 4‘the Act’ for short 5 Commissioner of Income Tax (Appeals) 6 Income Tax Appellate Tribunal
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capital gain under Section 50B of the Act. Hence, this appeal by the Revenue.
Shri. Sanmathi, for the Revenue, praying to allow the appeal, submitted that:
assessee has taken a new contention that the transfer was not a slump sale, which is contrary to the stand before the CIT(A) and the ITAT; the ITAT has held on merits that transfer was not as slump sale, without giving an opportunity to the AO to examine this aspect. Therefore, the matter should be remanded to the AO; assessee has sold the business as a going concern. Therefore, it falls within the definition of ‘slump sale’.
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.
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Therefore, it is not as ‘slump sale’ as per Section 2(42C) of the Act and capital gains cannot be computed under Section 50B of the Act holding that it is a long-term slump sale.
With the above submissions, Shri. Easwar prayed for dismissal of this appeal.
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:
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“2(42C) slump sale” means the transfer of one or more undertakings as a result of the sale for a lump sum consideration without values being assigned to the individual assets and liabilities in such sales”
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
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one of the essential conditions under Section 2(42C) of the Act. Therefore, the transfer cannot be considered as a ‘slump sale’.
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.
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(c) The order dated 27.06.2018 in ITA No.1552/Bang/2016 passed by the ITAT is confirmed. No costs.
Sd/- JUDGE
Sd/- JUDGE
SPS