IT APPEAL NO. 1233 (KOL) OF 2008

MAHAVIR SINGH, JUDICIAL MEMBER AND M. BALAGANESH, ACCOUNTANT MEMBER

For The Appellant : A.K. Bar, CIT
For The Respondent : R.P. Agarwal and D.S. Damle

ORDER

Mahavir Singh, Judicial Member - This appeal by revenue is arising out of order of CIT(A)-IV, Kolkata in Appeal No.127/CIT(A)-IV/07-08 dated 09.04.2008. Order giving effect to the ITAT's order dated 11.12.2006 i.e. assessment order framed by ACIT, Circle-4, Kolkata u/s. 143(3) r.w.s. 147 of the Income-tax Act, 1961 (hereinafter referred to as the "Act") for AY 2000-01 vide his order dated 28.12.2007.

2. The first issue in this appeal of revenue is against the order of CIT(A) in deleting the addition made by AO under the head capital gains in term of section 50B of the Act treating the sale of unit as slump sale. For this, revenue has raised following ground no.1:

"1. That the ld. CIT(A) had erred in holding that assessee did not conduct slump sales but conducted sale of fixed asset. An amount of Rs. 10,54,73,587/- was assessed by the AO under the head Capital Gain in terms of section 50B considering it as slump sales."

3. Briefly stated facts are that the assessee company carried business of growing and manufacture of tea, which owned two tea gardens by the names - Tongani Tea Estate and Nagrijuli Tea Estate. According to AO, out of these two tea estates, the assessee by an agreement dated 14.09.1999 sold Nagrijuli Tea Estate to Russel Tea Ltd. for a total value of Rs. 18 cr. According to AO, the said tea estate was sold as a going concern in view of the sale agreement dated 14.09.1999. Original assessment framed by AO u/s. 143(3) read with section 147 of the Act, assessed the excess profit on sale of fixed assets u/s. 50B of the Act at Rs. 10,54,73,587/-. Aggrieved, assessee preferred appeal before CIT(A) and during the pendency of appeal before CIT(A), CIT-2, Kolkata passed order u/s. 263 of the Act, revising the original assessment order vide dated 18.07.2006, setting aside the assessment directing the AO to assess the income on sale of Nagrijuli Tea Estate under the head capital gain after deducting net wealth of Nagrijuli Tea Estate as prescribed under explanation (1) to section 50B of the Act. The assessee challenged the revision order of CIT passed u/s. 263 of the Act before ITAT, wherein the Tribunal set aside the order of AO dated 27.12.2005 passed u/s. 143(3) read with section 147 of the Act vide order dated 11.12.2006 in ITA No. 1493/Kol/2006. The Tribunal directed the AO to examine the question of assessment of income arising out sale of Nagrijuli Tea Estate in accordance with law and not only with reference to the provisions of section 50B of the Act as directed by CIT u/s. 263 of the Act. Consequent to the order passed by CIT and ITAT, Kolkata in ITA No. 1493/K/2006 dated 11.12.2006, the CIT(A) Kolkata dismissed the assessee's appeal against the assessment order u/s. 143(3) read with section 147 of the Act dated 27.12.2005 as infructuous. Finally, the impugned assessment order was passed by the AO u/s. 251 read with section 263 of the Act giving effect to the order of ITAT dated 11.12.2006. The AO noted that the assessee company sold its entire tea estate known as Nagrijuli Tea Estate as a going concern basis and also as is where is basis. According to AO, it is not a piecemeal sale of asset or part of asset or part of tea estate but only on mutually agreed condition, the breakup of the consideration between the various categories of assets of the tea estate was given as under:

4. The assessee before the AO explained that vide sale agreement dated 14.09.1999 the sale was only of specified assets and this is not an agreement for sale of business undertaking as going concern. The AO discussed the facts as under:

"However, the assessee in its details filed with the return has shown sale price of land at Land Development at Nagrijuli at Rs. 12,20,08,000/-. The cost of the land and Land Development at Nagrijuli Tea Estate was shown at Rs. 2,81,414/- and Rs. 6,94,26,019/-respectively. The total of land and land development comes to Rs. 6,97,07,433/-. The excess (12,20,08,000 - 6,97,07,433) or Rs. 5,23,00,566/- has been shown as profit. But without offering the same for the taxation the assessee has directly taken this amount of Rs. 5,23,00,566/- to the Reserve & Surplus as agricultural development reserve at Sch.2 of the balance sheet. It also appears from the details filed with the return that the assessee had shown to have sold plant & machinery for Rs. 5,79,92,000/- against the Written Down Value of Rs. 48,18,979/-. From the details the excess amount appears to be Rs.(5,79,92,000 - 48,18,979) or Rs. 5,31,73,021/-. But the assessee has offered short term capital gain for only Rs. 2,25,99,606/-. The assessee arrived at this figure by taking the WDV of the entire plant & machinery, building etc. of the entire business consisting of two tea estates and head office of Rs. 3,53,92,394/- from the sale value of Rs. 5,79,92,000/-. The total sale value as per the details filed by the assessee comes to Rs. 18,28,00,000/- (For land & land development 12,20,08,000 + 5,97,92,000). Although as per the agreement the sale price was shown at Rs. 18 crore but the value of the sale is taken at Rs. 18,28,00,000/- on the basis of the assessees details considering that the assessee might have received 28,00,000/-over and above of the said agreement. Since the assessee has sold the entire Nagrijuli Tea Estates alongwith its land & plantation, plant & machinery and other accessories as a going concern as per the agreement page 3 at item E, the assessee was requested to explain why the entire profit arising out of the sale will not be considered u/s. 50B as slump sale."

5. Accordingly, the AO added a sum of Rs. 10,54,73,887/- u/s. 50B of the Act by observing as under:

"Similarly, the excess amount in respect of plant & machinery and the assessee's claim for deduction of the WDV of the entire business cannot be allowed since plant & machinery except of Nagrijuli Tea Estate are still being held by the assessee. Therefore, the excess amount of Rs. 5,31,73,021/- as stated hereinabove is added to the total income u/s. 50B. Hence, the total addition in respect of slump sale u/s. 50B comes to Rs. (5,23,00,566 + 5,31,73,021) or Rs. 10,54,73,587/- is added u/s. 50B and no apportionment under Rule 8 at 60:40 is made since there is no process of cultivation and manufacturing of tea is involved in such sale."

Aggrieved, assessee preferred appeal before CIT(A).

6. The CIT(A) held that sale of Nagrijuli Teas Estate was not a slump sale within the meaning of section 2(42C) read with section 50B of the Act and, therefore, capital gain was not assessable by observing in para 13 and 14 as under:

"13. In the assessee's case also the agreement dtd. 14.9.99 shows-that the intention of the parties was to transfer only the fixed assets situated and lying at Nagrijuli Tea Estate for the connsideration of Rs. 18 crores. No intangible assets like licenses, quotas, brand name etc. associated with the business was transferred. There was no continuity in the business or management of the tea gardens before and after the sale. The parties made their intention clear by apportioning sale consideration between different categories of the fixed assets first in the clause 3(b) of the agreement and then by obtaining valuation report for apportionment to the consideration amongst fixed assets. Apportionment of the consideration paid in the books of the respective parties was made with reference to the valuation report. The purchaser and seller passed accounting entries for purchase/sale of assets in their respective books as per the values estimated by the valuer. The tax computations were also made by the parties with reference to values apportioned amongst different fixed assets. On these facts therefore I have no hesitation in holding of the ratio laid down by the Bombay High Court in the case of Premier Automobiles Ltd v. ITO (264 ITR 193) had no application to the assessee's case. In my opinion therefore the A.O. was not justified in holding that the assessee had conducted slump sale of its undertaking & A.O. was therefore factually and legally wrong in invoking Sec 50B of the Act and assessing gain on transfer of assets u/s. 50B.

14. In the present case current assets except stock of stores and spares and liabilities of Nagrijuli Tea Estate were not subjected to transfer though they were integral of the business undertaking. Hence there was no sale of undertaking within the meaning of Sec. 50B. For this reason "net worth" of the undertaking could not have been computed in the manner statutorily provided in Explanation 1 to Sec 50B. Sec. 50B is a code by itself and contains complete computation mechanism for assessment of capital gain on "transfer" of an "undertaking" in a "slump sale". In working out the "net worth" which is "actual cost" of the "capital asset" for the purposes of Sec 48 of the Act; one needs to include values of all assets and liabilities appearing in the books of the transferred undertaking. In the present case all assets and liabilities of the business undertaking were not transferred & therefore "net worth" could not have been computed in the manner specifically required by Explanation 1 to S.50B. The Hon'ble Supreme Court in the case of B.C. Srinivasa Shetty v. CIT (128 ITR 294) has held that if computation provisions of I.T. Act fail and capital gain cannot be computed in the manner statutorily provided in law then there cannot be assessment of income under the head capital gain. In my opinion therefore on the facts of the case; computation of capital gain was not possible u/s 50B because "net worth" of the undertaking could not be computed in the manner provided in Explanation 1 to Sec 50B. Viewed from any angle therefore the A.O. was not justified in assessing Rs. 10,54,73,S87/- as appellant's income from long term capital gain u/s 50B of the Act. I therefore hold that sale of Nagirjuli Tea Estate was not a "slump sale" within the meaning of Sec 2(42C) and therefore capital gain was not assessable u/s 50B of the Act."

Aggrieved, now revenue is in second appeal before Tribunal.
7. Before us, Ld. Counsel Sh. R P Agarwalla Senior Advocate along with Sh. D S Damle CA, argued on behalf of assessee and on the other hand Ld. CIT-DR Dr. A K Bar argued on behalf of revenue.

8. We have heard rival submissions and gone through facts and circumstances of the case and also case records including paper books filed by the assessee. The facts of the case are that the assessee company carried on business of growing and manufacture of tea, which owned two tea gardens by the names - Tongani Tea Estate and Nagrijuli Tea Estate. According to AO, out of these two tea estates, the assessee by an agreement dated 14.09.1999 sold Nagrijuli Tea Estate, to Russel Tea Ltd. for a total value of Rs. 18 cr. Ld. Counsel for the assessee Sh. Agarwalla first of all narrated the facts that according to agreement dated 14.09.1999 between the assessee and Russel Tea Ltd. sale consideration paid by vendee was for specific assets mentioned in the agreement and which were purchased/acquired for specific consideration. According to him, as per clause 3(a) of the agreement specified the total consideration, which was mutually agreed at Rs. 18 cr. and clause (b) gave break up of sale consideration, which follows as under:

"(b) The break up of the consideration between various categories of the assets of the said Tea Estate has been mutually agreed as follows:

He further referred to clause (i) page 3 of the agreement which defines the scope of the sale as follows:

"The Vendor shall sell and the Purchaser shall purchase All That the Tea Estate known by the name of NAGRIJULI TEA ESTATE, P.O. Nagrijuli, District Nalbir in the State of Assam having Tea Board Registration No. 2323 consisting of pieces or parcels of land measuring about 2457 Acres more or less described in the First Schedule hereunder according to the nature and tenure thereof together with all tea plantations, bushes, nurseries and other trees and vegetation thereupon, the factory buildings, godowns, bungalows and/other structures built and standing thereon and the Plants and machinery mentioned in the Second Schedule hereunder written, furniture, fixtures and fittings lying thereat and vehicles and tractors and other fixed assets appertaining to the said tea estate and lying thereat and all rights, titles, entitlements and easements in respect thereof hereinafter collectively referred to as the "said ea Estate ."

9. He also referred to clause (b) on page 5 of the agreement, which provided that vendee will bear and pay all expenses for running of the said tea estate from the date of sale but all liabilities incurred by him to the said date will be payable only by the vendor. He stated that it is provided in the agreement that in the event the vendee is required to pay for or meet any liabilities pertaining to prior period to the said date of the agreement and remaining unpaid then vendee shall pay the same on behalf of the vendor and same shall be reimbursed to the vendee by the vendor. He further drew our attention to clause (c) of the agreement which provides that on taking over possession of the tea estate the vendor and the vendee shall prepare an inventory for all usable store items as may be lying and the same shall be taken over by the vendee at the respective book value in the books of the vendor and total value of such store items shall be paid separately by the vendee to the vendor. He also drew our attention to clause (i) of the agreement wherein gratuity due to staff, employees etc. retired up to the date of sale and gratuity and other retirement benefits due to all management staff of the tea estate up to the date of sale was to be borne and paid by the vendor. Even all the rates, taxes, rents, cess on green leaves, sales tax, excise duty, tea cess, impositions and all other outgoings arising up to 10.10.1999 was the liability of the vendor and which was to be paid for by the vendor.

10. Ld. Counsel for the assessee also referred to the valuation report with reference to the value estimated by an expert, wherein specific value were assigned to the specific clause and categories of assets. He narrated that the valuation report was titled first "A Report on Assessment & Apportionment of Fixed Assets of Nagrijuli Tea Estate (A unit of Russel Tea Ltd.) as on 14.09.1999", wherein the computation of method and complete valuation thereof was valued and the value arrived at is tabulated as under:

In view of the above, stated that the valuation report, according to Ld. Counsel Shri Agarwal, the vendee and vendor passed entries in the respective books regarding transfer and purchase of assets with reference to the valuation described to the different categories of fixed assets and also filed its return of income disclosing profit on sale of these assets. From the cumulative reading of various clauses of agreement dated 14.09.1999 and valuation report dated January 2000 of Shri A. K. Ghosh, Chartered Surveyor and Valuer it appears that under the agreement dated 14.09.1999, the assessee agreed to transfer specific assets comprised in or situated or lying at Nagrijuli Tea Estate for consideration specified in the agreement. In view of these facts, Ld. Counsel for the assessee argued that business undertaking always consist of immovable and movable tangible and intangible, fixed and current assets, which comprises of various rights/obligations/corporeal and other rights. According to him, an undertaking is financed either out of capital or by unsecured and secured loans and current liabilities. He argued that business undertaking cannot be conceived bereft of liabilities and in the case of slump sale not only the assets but also corresponding liabilities relating thereto, to the undertaking should, therefore, be transferred. He argued that the slump sale u/s. 50B of the Act does not envisage transfer of assets of the undertaking only and that also excluding the liabilities of the undertaking. He referred to Rule 6H & form No. 3CEA and pointed out that the net worth of the undertaking which is to be deducted from the sale consideration for arriving at capital gains assessable u/s. 50B of the Act can be worked out only after deducting liabilities of the undertaking from the value of the assets of the undertaking. Accordingly, he explained that where undertaking is transferred for a slump sale consideration, it is necessary to prove that the liabilities relatable to the said undertaking are also transferred as part of slump sale and according to him, which is missing in the present case. Ld. Counsel for the assessee explained the fact further that on the date of transfer of Nagrijuli Tea Estate had the following current assets and current liabilities, it did not come within the ambit of transferred assets for which consideration of Rs. 18 cr. was paid and which are as under:

In view of the above, ld. Counsel for the assessee also cited certain case laws which we will discuss in the latter part of this order.

11. On the other hand, Ld. CIT, DR drew our attention to the assessment order wherein at page 2 last para has clearly noted that Nagrijuli Tea Estate was sold as a going concern, on, as is where is basis and free from all encumbrances as on 14.09.1999. According to him, it is not a piecemeal sale of assets or part of assets of tea estate but it was only mutually agreed upon to break up the consideration between various categories of assets of the tea estate. On this, Ld. Counsel for the assessee stated that once this is sold as a going concern on, as is where is basis, it means, that it is a slump sale in view of the provision of section 50B of the Act. Ld. CIT, DR drew our attention to the agreement dated 14.09.1999 clauses – D & E at pages 2 & 3 of the agreement, which reads as under:

"D. the Vendor is desirous of selling the said tea estate with tea manufacturing factory, godowns, plant, machinery, fixtures fittings, furniture, quarters and structures etc. lying and situate thereat, more fully described, hereafter as a going concern.

E. The Purchase being desirous of purchasing the said tea estate with tea manufacturing factory, plant, machinery, fixtures, fittings, furniture, building and structures etc. has made an offer to the Vendor to purchase the said tea estate as a going concern with effect from 11th October, 1999."

From the above, Ld. CIT, DR stated that the vendee sold to the vendor the said tea estate as a going concern w.e.f. 11.10.1999. In view of the above, Ld. CIT, DR requested the bench to restore the order of the AO treating the same as slump sale and charging capital gains.

12. We find from the above facts of the case that as per clause 3(b) of the agreement segregated consideration of Rs. 18 cr. amongst fixed assets situated at Nagrijuli Tea Estate i.e. the land, tea plantation, nursery and allied agricultural assets and also plant and machinery, vehicles, furniture, fittings and other non-agricultural assets and transferred the same for a sum of Rs. 18 cr. As per clause (b) on page 5 of the agreement the vendee was to bear and pay all expenses for running the tea estate from 11.10.1999 but all liabilities incurred and agreed prior to the date was payable only by the vendor. The said clause further clarifies that in the event the vendee was made liable to pay or made any liabilities pertaining to the period up to 11.10.1999 then the vendor was liable to reimburse the amount paid by the vendee. Further, clause (c) provides that gratuity liability accrued up to 31.03.1999 would be actually paid to an approved fund by the vendor. Even clause (e) on page 6 of the agreement provides that on taking over possession of the vendor, both the vendor and the vendee would prepare inventory and usable store items inclusive of diesel, coal, spare parts, food stuff, fertilizers, chemicals and pesticides, insecticides, packing material etc. at the tea garden which would be taken over by vendee at the book value of the vendor and value of such store items was to be paid separately by the vendee to the vendor. Similarly, as per clause (f) of the agreement, the vendee was to pay and reimburse to the vendor the amount of all deposits, advances and recoverable paid by the vendor in relation to the said tea estate. Further, clause 12 of the agreement at page 9 provides that tea manufactured out of the green leaves plucked upto 10.10.1999 was put on account of the vendor and stock of tea as on the date of transfer i.e. on 11.10.1999 belongs only to the vendor. It means that the assessee has transferred specified and itemized sale in the above stated tea estate and not as a going concern.

13. From the above facts and circumstances, now we have to come to the provisions of section 2(19AA) of the Act and section 2(42C) of the Act which are applicable to transactions involving transfer of the undertaking. In the case of demerger, an undertaking is transferred in a scheme of arrangement wherein consideration of transfer is satisfied by issue of shares to the shareholders of the demerger company by the resultant company and all assets and liabilities of the transferred undertaking are taken over by the resultant company at their respective book values. Hence, in case of de-merger profit or loss is not assessed. In the case of slump sale, in view of section 2(42C) of the Act, the undertaking as a whole is transferred but for a slump sale consideration and, therefore, there can be profit or loss of transfer of undertaking, which can be assessee. However, both in slump sale and de-merger an undertaking is the subject matter of transfer and transfer of all assets and liabilities associated with and which form part of undertaking, which is a necessary condition for application of provisions of section 2(42C) of the Act.

14. Now we have to go through the case laws cited by Ld. Counsel for the assessee whereby he has referred to first leading case of slump sale in the case of CIT v. Magniram Bangur & Co. (Land Department) [1965] 57 ITR 299 (SC), wherein the partnership firm transferred its business as a going concern to a Limited Company and the consideration was received by the partners in the form of shares. In the course of transfer of all assets and liabilities of the business were taken over by the company for a lump sum consideration. The AO and the Tribunal held that though the assessee has disclosed in its books goodwill at Rs. 2.5 lacs but firm did not enjoy any goodwill and the sum of Rs. 2.5 lacs was nothing but additional value of land which was stock in trade of the assessee's business. Hon'ble Supreme Court held that there was nothing in the agreement or document evidencing the transfer which in any manner proves that any attempt was made by the parties to value the land on the date of sale and, therefore, slump sale price could not be apportioned to stock in trade and, therefore, no business income could be assessed. Hon'ble Supreme Court finally held as under:

"The learned counsel for the appellant relies on two grounds to support the contention that there is profit attributable to the sale of land which was the stock-in-trade of the vendors. He says first that in the schedule to the agreement the value of land and the value of goodwill and other items is specified. He says that although the amount of Rs. 2,50,000 was shown as price of goodwill, it was really excess value of the land sold along with other assets. Secondly, he says, relying on the passage already cited above from Doughty's case** that the vendor's business was a business of purely buying and selling land. In our opinion, on the facts of this case it cannot be said that the vendors were carrying on the business of purely buying and selling land. In this case the vendors were engaged in buying land, developing it and then selling it. The agreement itself shows that the vendors had already incurred debts and liabilities for development expenses such as opening out roads, laying out drains and sanitary arrangements, providing electricity and providing for a school.
It seems to us that in the case of a concern carrying on the business of buying land, developing it and then selling it, it is easy to distinguish a realisation sale from an ordinary sale, and it is very difficult to attribute part of the slump price to the cost of land sold in the realisation sale. The mere fact that in the schedule the price of land is stated does not lead to the conclusion that part of the slump price is necessarily attributable to the land sold. There is no evidence that any attempt was made to evaluate the land on the date of sale. As the vendors were transferring the concern to a company, constituted by the vendors themselves, no effort would ordinarily have been made to evaluate the land as on the date of sale. What was put in the schedule was the cost price, as it stood in the books of the vendors. Even if the sum of Rs. 2,50,000 attributed to goodwill is added to the cost of land, it is nobody's case that this represented the market value of the land.

In our view the sale was the sale of the whole concern and no part of the slump price is attributable to the cost of land. If this is so, it is clear from the decision of this court in Commissioner of Income-tax v. West Coast Chemicals & Industries Ltd. and Doughty's case that no part of the slump price is taxable. We, therefore, answer question No. 3 in the negative. As stated before, in view of this answer, it is not necessary to answer questions Nos. 2 and 4."

15. Ld. Counsel for the assessee also relied on the judgment of Hon'ble Bombay High court in the case of Premier Automobiles Ltd. v. ITO [2003] 264 ITR 193 (Bom), wherein Hon'ble High Court considered similar issue, wherein the assessee's sold its Kalyan Undertaking engaged in manufacturing of car for lump sum consideration. Hon'ble High court on close scrutiny of documents connected with the transfer and conduct of the parties found that the intention of the parties was to transfer the business as a whole for a lump sum consideration of Rs. 246 cr. Therefore, Hon'ble Bombay High Court found that, in fact, there was a sale of all assets and liabilities of the Kalyan Undertaking and it is a transfer of going concern and, therefore, it was a case of slump sale and accordingly, it was stated that there arises long term capital gains. Hon'ble Bombay High court in Premier Automobiles Ltd., supra has held as under:

"There is one more aspect which needs to be mentioned. Our above conclusion, namely, that the transaction is a slump sale is not only based on our interpretation of terms and conditions of the entire arrangement but it is also based on the manner in which the gain is accounted for by PAL in its books of account. As can be seen from the extracts of accounts of PAL at page 341 of the paper-book, it is clear that PAL has not accounted for profits on itemized assets. That, Rs. 81.31 crores was the book profit on the slump sale. That, the crucial figure in the accounts at page 341 of the paper-book was Rs. 210 crores and not Rs. 37.84 crores (approx.) as the value of the net current asset did not give rise to any profits and, therefore, that value had to be ignored. These accounts of PAL support the slump sale agreement because the accounts are not based on the sale of itemized assets. This aspect has been lost sight of by the Assessing Officer. There was a separate ledger for the Kalyan business which contains various heads of accounts, viz., building account, land account, plant and machinery account, in which debit/credit entries were made as per the figures given on page 341 of the paper-book. Rs. 81.31 crores was the book surplus and not a tax surplus. In order to decide the tax surplus, one has to take into account cost of acquisition of building, plant and machinery, paint shop, etc. Therefore, Rs. 81.31 crores did not represent taxable profits. That, figure represented only book profits. These accounts of PAL support the slump sale agreement. Therefore they are relevant.

Under section 2(14), capital asset is defined to mean property of any kind held by an assessee whether connected or not connected with his business or profession. In the case of West Coast Electric Supply Corporation Ltd. v. CIT [1977] 107 ITR 483 (Mad), it has been held that the word "property" in the definition of "capital asset" in section 2(14) would include an undertaking acquired as a whole. Therefore, the Kalyan business acquired as a whole by PPL, constituted property in the definition of "capital asset". In the case of demerger, all assets and liabilities stand transferred at book value. There is no such condition prescribed for a slump sale. In the case of a slump sale, there is a sale for consideration. That consideration is paid to the transferor-company and not to shareholders. A slump sale agreement is contractual in nature. The only condition in the case of slump sale is that the sale should be for a lump sum price. Therefore, in the case of a slump sale, there is a transfer of the entire business activity for a fixed price and, therefore, sale value is not attributed to individual items of assets. In the present case, all the tests laid down by the Bombay High Court in the case of CIT v. Narkeshari Prakashan Ltd. [1992] 196 ITR 438 stand satisfied. In our view, principles for computing capital gains are the same, both under section 41(2) as it stood at the relevant time and under section 50 of the Income-tax Act. In the present case, having held that the transaction was a slump sale, the Assessing Officer will now have to decide, on remand, the computation of capital gains. That question of computation does not arise before us in this appeal. In the present case, we have held that there is a sale of an entire Kalyan undertaking under the slump sale agreement and, therefore, the Assessing Officer will now have to compute the quantum capital gains under sections 45 to 50 of the Income-tax Act.

Assuming for the sake of argument that, in this case, our finding that there was a slump sale is erroneous and that the transaction was a sale of itemized assets even then there is a basic fallacy in the stand taken by the Department. In this case, the Assessing Officer has held that there was a sale of itemized assets. According to the Income-tax Officer, there was a short-term gain on sale of building of Rs. 19.31 crores ; Rs. 64.39 crores on plant and machinery, Rs. 7.57 crores on paint shop. These short-term gains have been calculated by the Assessing Officer by assigning specific sale values to building, paint shop, plant and machinery. For example, the sale price attributed to plant and machinery has been taken at Rs. 97.73 crores. Similarly, the sale price for building is fixed at Rs. 23.24 crores. Similarly, the sale price for paint shop is taken at Rs. 68 crores. Basically, the Assessing Officer has apportioned Rs. 210 crores over land, building, plant and machinery. However, he has not given any sale value to intellectual property, the right to use the name "Premier", technical proprietary information and intangibles like licences, quotas, permits, etc., all of which have been transferred to PPL and consequently the liability of PAL stood increased arbitrarily. Moreover, there is arbitrariness in the assignment of sale value by the Assessing Officer. For instance, the Assessing Officer has assigned sale values to buildings, plant and machinery on the basis of the report of the valuer of September, 1996. However, when it came to assignment of the sale value to the paint shop, the Assessing Officer, arbitrarily, without reasons, has reduced the value of the paint shop from Rs. 70 crores to Rs. 68 crores although the paint shop is valued at Rs. 70 crores in the said report. The reason is obvious. If the paint shop is valued at Rs. 70 crores then the total of the assigned sale values exceeds Rs. 210 crores and, therefore, without reasons, the Assessing Officer reduces the sale value of the paint shop from Rs. 70 crores to Rs. 68 crores. Further, in this case, the controversy in computation of capital gains by the Assessing Officer is, whether the Assessing Officer was justified in taking into account valuation of assets done by PPL in September, 1996. At this stage, it may be mentioned that PAL sold the entire Kalyan business for a net consideration of Rs. 247 crores (see page 267 of the paper-book). As per the returns filed by PAL, the book profit/surplus was Rs. 81.31 crores. The Assessing Officer has increased the book profits by 17.92 crores on the basis of revaluation of assets. However, in our view, the Assessing Officer was wrong because revaluation is considered for arriving at a profit on sale for the purposes of books of account of PAL. For the purposes of computing assessable profits, one has to go by the provisions of the Income-tax Act. If the income/profit is the long-term capital gain, one has to take original cost with indexation. For short-term capital gain, one has to take the amount shown under the block of assets on the first day of the previous year. Lastly, the valuation of assets done by the transferee-PPL in this case is not for determining value of individual assets but for allocating the price of various assets in their books of account. Therefore, the sale value assigned by the transferee for the purposes of their books of account cannot constitute the basis for computing income/profits of PAL under the Income-tax Act. In the case of sale of business as a whole, there is no allocation of price to any particular assets and, therefore, the computation of capital gains in such a case is done on the business as a whole which business itself is a capital asset. However, in the case of sale of itemized assets, the Assessing Officer has to allocate the total amount of Rs. 210 crores not only to land, building, plant and machinery but to also all other assets and only then the computation of capital gains could be said to be correct. Otherwise, if Rs. 210 crores is restricted to specific three items then liability of the assessee would stand increased artificially. In the case of sale of itemized assets, the Department will have to work out the cost of each item. We are dealing with the case concerning the assessment year 1995-96. At that time, there was no definition of slump sale. The concept of slump sale is based on judge-made law. Under the circumstances, even if we were to accept the contention of the Department, namely, that there was a sale of itemized assets, the computation of capital gains tax liability in this case is erroneous as Rs. 210 crores is not apportioned over all the transferred assets."

16. Similarly, the coordinate Bench of this Tribunal exactly on identical facts in the case of Harrisons Malayalam Ltd. v. ACIT [2009] 32 SOT 497 (Cochin) discussing the fact that the assessee company was engaged in various business activities like growing and manufacturing tea, rubber plantation, agriculture operation, executing engineering contracts etc. During the relevant year the assessee sold one of its rubber estates with standing trees and all other paraphernalia known as 'Boycee Estate' as a going concern. The CIT(A) held that the surplus arising out of the sale of its 'Boycee Estate' was taxable as capital gain u/s. 50B of the Act read with section 2(42C) of the Act, as the rubber estate owned by the assessee was sold as a going concern, which showed that the sale was a slump sale of undertaking in its entirety. The bench of the Tribunal discussing the issue reversed the order of CIT(A) and held that it is not a slump sale by observing in para 34 to 47 as under:

"34. We considered the matter in detail. The assessee-company is engaged in different types of business like running of plantations, executing turnkey projects, clearing and forwarding agency and shipping business, etc. In its agricultural division, the assessee-company is having a number of estates growing tea, rubber, cocoa, cardamom, etc. In the case of rubber itself, the assessee is having about 12 different estates. During the previous year relevant to the assessment year under appeal, the assessee-company has sold one of its rubber estates known as "Boyce Estate". The estate has been sold on the basis of a detailed agreement executed between the vendor and vendee. The total consideration stipulated for the transfer of the estate has been spilt over different assets both movable and immovable enumerated in different schedules and annexure.

35. The assessee-company has assigned specific consideration/value for the rubber plantation as such along with the standing trees. The consideration for the extent of land has been specifically mentioned. Thereafter, the assessee has listed out every item of movable property transferred to the buyer and value has been assigned to those movable assets. Vehicles and other assets were shown and sold separately. The assessee-company has not transferred the estate with all the assets and liabilities. All the financial assets available to the assessee up to the date of the transaction were not transferred as per the agreement but have been retained by the assessee-company. The assessee-company has assumed all the liabilities including the statutory liabilities till the date of transfer. Therefore, it is not possible to hold that the transfer was a slump sale only for the reason that the rubber estate was transferred to the buyer as a "going concern".

36. Even though the expression "going concern" is a functional qualification as far as the estate is concerned, the said functional qualification is not sufficient enough to decide the exact legal character of the transaction, for the purpose of income-tax assessment. The Commissioner of Income-tax (Appeals) has pointed out that the workers on the rolls of the assessee have also been absorbed by the buyers along with the estate. That does not change the character of the transaction. Rubber plantation is a highly labour oriented activity. It is not easy to retrench all the experienced workers only for the reason that the property has been changed hands. Retrenchment of the workers will create serious labour problems and it will not be possible either for the assessee or for the buyer to dose the contract without having a clear cut understanding on the engagement of labour deployed in the rubber estate. Therefore, the agreement with the buyer that the new owners would absorb the existing labour force is not a salient feature to decide whether the sale was a slump sale or not.

37. The meaning of the expression "going concern" has to be understood in the light of the peculiar nature of the property transferred in the present case. What is transferred in the present case is a rubber estate. The activities in a rubber plantation/estate is a continuous and uninterrupted one and that tapping operations have to be carried out on a regular basis and all other activities have to be carried out without any interruption. Therefore, by the nature of the activities of the rubber plantation itself, it is a "going concern". Even if there is no such an expression in the agreement that the rubber estate is sold as a going concern, the nature of the asset has become "a continuous asset". Even, in the absence of such a specific clause, by its nature, a rubber plantation is in the nature of a "going concern". Unless and until the yielding rubber trees are usually slaughtered and once tapping is started, it always partakes of the character of a "going concern".

38. Therefore, it is to be seen that while adding an expression in the agreement that the rubber estate was transferred as a going concern, the purpose was only to refer to the state of affairs and refer to an existing fact and not to create any legal proposition in the context of the sale deed.

39. Therefore, in the facts and circumstances of the case, we are of the considered view that the Commissioner of Income-tax (Appeals) has been highly carried away by the commercial expression reflected in the 'agreement like "going concern". At the cost of repetition, we have to state that a rubber plantation is always a "going concern". Even if the parties to the contract do not say so, still the estate in the nature of a rubber plantation is a going concern. Therefore, the said expression is not a test to be relied on to decide the exact nature of the transaction for the purpose of income-tax law.

40. The Income-tax Appellate Tribunal, Cochin Bench in the case of Accelerated Freeze Drying Co. Ltd. v. Deputy CIT in I.T.A. No.611/Coch/08 has considered the issue of "slump sale" in its order dated December 15, 2008. In that case, the Tribunal found that there was a bifurcation of sale proceedings, splitting up of the value between the movable and immovable assets, and those are depreciable assets. In that case, the Tribunal held that section 50 is applicable. The Tribunal further held that it was not the value of the transaction to be taken as a noteworthy for the purpose of "slump sale". The Tribunal held that section 50B did not attract in that case.

41. The Income-tax Appellate Tribunal, Bangalore Bench, in the case of Kampli Co-operative Sugar Factory Ltd. v. Joint CIT [2002] 83 ITD 460 has considered the case of split sale vis-a-vis slump sale. In that case, the Tribunal observed that the liabilities did not enter into a transaction in question and what was sold were the assets, movables and immovables and not the liabilities. The agreement made it clear that the liabilities would be the responsibility of the vendor. The Tribunal held that it was not a slump sale for the reason that only the assets excluding the investment and deposits were sold and the liabilities remained with the assessee.

42. In the present case before us, the answers are exactly to the facts and circumstances of the case decided by the Bangalore Tribunal as mentioned above. As in the case of Kampli Co-operative Sugar Factory Ltd, v. Joint CIT [2002] 83 ITD 460 in the present case also, the items sold did not include liabilities. The sale agreement did not include investments and deposits. All the investments, deposits, receivables, stock and such other current assets in the form of financial and other assets remained with the assessee-company along with the liabilities. Only those assets enumerated in the schedules and annexure were sold to the vendee. Therefore, in the light of the above judgment of the Bangalore Tribunal, it is to be seen that the present case is one of split sale and not a case that of slump sale.

43. Similarly, the Income-tax Appellate Tribunal, Mumbai Bench "J", in the case of Mahindra Sintered Products Ltd. v. Deputy CIT [2004] 279 ITR (AT) 1; [2005] 95 ITD 380 has held that where the price had been fixed before hand in respect of identifiable assets of undertaking and no liability was transferred to the buyer, the transfer of undertaking would not constitute a slump sale.

44. The Income-tax Appellate Tribunal, Kolkota Bench "D", in the case of Deputy CIT v. ICI (India) Ltd. [2008] 23 SOT 58 has held the same view that there cannot be a case of slump sale, if all the assets and liabilities of an undertaking have not been transferred to the vendee.

45. As rightly relied on by the learned chartered accountant appearing for the assessee, the same view was taken by the Income-tax Appellate Tribunal, Ahmedabad Bench, in the case of Camphor and Allied Products Ltd. v. Deputy CIT [2001] 79 ITD 489.

46. In the present case, the rubber estate has been sold by the assessee excluding cash in hand, stock in hand, receivables, finance, assets and liabilities. It was not a case of sale by lock, stock and barrel. The assessee company has made conscious exclusions. The assets sold by the assessee have been listed out in different schedules and annexure. The consideration has been specifically assigned to the sale of immovable property by way of rubber estate. Separate consideration has been assigned to the sale of movable properties including vehicles and other properties. Therefore, it is not a case of slump sale for a lump sum amount of consideration where the consideration is not attributable to any particular item of asset. There is no such a statement of blanket consideration in the present case. Here, the sale of every asset is attributable to a specified sum of consideration. Therefore, we cannot say that there is a "slump sale". What is reflected is only "total consideration". As all the assets and liabilities have not been sold as per the agreement, this is not a slump sale as construed in section 50B of the Act. It is a sale of several assets through a common agreement with different amounts of consideration ultimately culminating into a total consideration. The facts being so, in the light of the judgment of different Benches of the Tribunal as stated in the above paragraphs, we hold that this is not a "slump sale" answerable to section 50B of the Act.

47. Moreover, in the light of the decisions:
(a) Manubhai A. Sheth's case (supra);
(b) S. Mutyam Reddy's case (supra);
(c) Alanickal Co. Ltd.'s case (supra);
(d) All India Tea and Trading Co. Ltd.'s case (supra) and;
(e) Singhai Rakesh Kumar's case (supra)

The profits arising on sale of agricultural land is agricultural income in nature and therefore, the surplus does not come within the meaning of capital assets and by the nature of the income, it will not come under the provisions of section 50B, Therefore, in the facts and circumstances of the case, we hold that the Commissioner of Income-tax (Appeals) has erred in directing the Assessing Officer to levy long-term capital gains under section 50B on the surplus arising to the assessee on sale of its "Boyce Estate". The said direction is set aside. This issue is decided in favour of the assessee

17. In view of the above facts and circumstances of the case, we find that Section 50B of the Act provides that any profit or gain arising from the slump sale effected in the previous year shall be chargeable to income-tax as capital gain arising from the transfer of long-term capital assets and shall be deemed to be the income of the previous year in which the transfer took place. Further, Section 2(42C) of the Act defines 'slump sale' as a transfer of one or more undertakings as a result of the sale for a lump sale consideration without values being assigned to the individual assets and liabilities in such sales. The Explanation I to section 2(42C) of the Act further provides that 'undertaking' shall have the meaning assigned to it in the Explanation I of clause (19AA) of section 2 of the Act, whereby an undertaking means, in an inclusive sense, any part of an undertaking, or a unit or division of an undertaking or a business activity taken as a whole, but does not include individual assets or liabilities or any combination thereof not constituting a business activity. The Explanation 2 to section 2(42C) of the Act further provides that the determination of the value of an asset or liability for the sole purpose of payment of stamp duty, registration fees or other similar taxes or fees shall not be regarded as assignment of values to individual assets or liabilities.

18. The admitted facts of the case are that the assessee company carried on business of growing and manufacture of tea, which owned two tea gardens by the names - Tongani Tea Estate and Nagrijuli Tea Estate. According to AO, out of these two tea estates, the assessee by an agreement dated 14.09.1999 sold Nagrijuli Tea Estate, to Russel Tea Ltd. for a total value of Rs. 18 cr. Ld. Counsel for the assessee Sh. Agarwalla first of all narrated the facts that according to agreement dated 14.09.1999 between the assessee and Russel Tea Ltd. sale consideration paid by vendee was for specific assets mentioned in the agreement and which were purchased/acquired for specific consideration. We find that this estate had been sold on the basis of detailed agreement executed between the vendor and the vendee. The total consideration stipulated for the transfer of the estate had been split over different assets, both movable and immovable enumerated in different schedules and annexures. The assessee had assigned specific consideration/value for the tea estate as such along with the standing trees. The consideration for the extent of land had been specifically mentioned. Thereafter, the assessee had listed out every item of movable property transferred to the buyer and value had been assigned to those movable assets. The assessee had not transferred the estate with all the assets and liabilities. All the financial assets available to the assessee up to the date of the transaction were not transferred as per the agreement but had been retained by the assessee. The assessee had assumed all the liabilities including the statutory liabilities till the date of transfer. Therefore, it could not be said that the transfer was a slump sale only for the reason that the rubber estate was transferred to the buyer as a 'going concern.

19. Even though the expression "going concern" is a functional qualification as far as the estate is concerned, the said functional qualification was not sufficient enough to decide the exact legal character of the transaction, for the purpose of income-tax assessment. Even though, the workers on the rolls of the assessee had also been absorbed by the buyers along with the estate but that did not change the character of the transaction. It was not easy to retrench all the experienced workers only for the reason that the property had changed hands. Retrenchment of the workers would create serious labour problems and it would not be possible either for the assessee or for the buyer to close the contract without having a clear understanding on the engagement of labour deployed. Therefore, the agreement with the buyer that the new owners would absorb the existing labour force was not a salient feature to decide whether the sale was a slump sale or not. The meaning of the expression 'going concern' has to be understood in the light of the peculiar nature of the property tram/erred in the instant case. What was transferred in the instant case was a tea estate. The activities in a tea plantation/estate are continuous and un-interrupted ones and tapping operations have to be carried out on a regular basis and all other activities have to be carried out without any interruption. Therefore, by nature of the activities of the Tea estate itself, it is a 'going concern'. Therefore, while adding an expression in the agreement that the Tea estate was transferred as a going concern, the purpose was only to refer to the estate of affairs and to an existing fact and not to create any legal proposition in the context of the sale deed. Therefore, the AO and CIT(A) had been carried away by the commercial expression reflected in the agreement like 'going concern '. Therefore, the said expression is not a test to be relied on to decide the exact nature of the transaction for the purpose of income-tax matters.

20. In the instant case, the items sold did not include liabilities. The sale agreement did not include investments and deposits. Accordingly, all the investments, deposits, receivables, stock and such other current assets in the form of financial and other assets remained with the assessee-company along with the liabilities. Only those assets which were enumerated in the Schedules and Annexures were sold to the vendee. Therefore, the instant case was one of split sale and not a case of slump sale. Accordingly, we are of the view that, in the instant case, the assessee had seen sold Tea Estate excluding cash in hand, stock in hand receivables, finance, assets and liabilities. It was not a case of sale by lock, stock and barrel. The assessee had made conscious exclusions. The assets sold by the assessee had been listed out in different Schedules and Annexures. The consideration had been specifically assigned to the sale of immovable property by way of Tea estate. Separate consideration had been assigned to the sale of movable properties including vehicles and properties. Therefore, it was not a case of slump sale for a lump sum amount of consideration. Further, as all the assets and liabilities had not been sold as per the agreement, this was not a slump sale as construed in section 50B of the Act. Accordingly, in view of the above facts of the case and position of law discussed in various case laws of different Hon'ble Courts, we are of the view that sale of Nagrijuli Tea Estate was not a slump sale within the meaning of sec. 2(42C) of the Act read with section 50B of the Act and, therefore, not even assessable to capital gains. Accordingly, we uphold the order of CIT(A) and this issue of revenue's appeal is dismissed.

21. In the result, the appeal of revenue is dismissed.