Where the assessee transferred its undertaking under a scheme of demerger which provided that neither the assessee nor its shareholders would receive any consideration from the transferee company as the value of the liabilities taken over were more than the value of the assets taken over and the assessee treated the difference between the said liabilities and assets as a capital reserve and the question arose whether such difference was assessable to tax, Held:

(a) The scheme did not qualify as a ‘demerger’ u/s 2 (19AA) and exemption u/s 47 (vib) was not available as the resulting company had not issued any shares to the shareholders of the transferor;

(b) However, as the transfer was by way of a scheme of arrangement and not by way of a “sale”, it did not constitute a “slump sale” as defined in s. 2(42C) and consequently s. 50B had not application.

(c) In so far as the provisions of ss. 45 and 48 are concerned, as the subject matter of the transfer was a “going concern” for which a “cost of acquisition” cannot be predicated, the machinery provisions of s. 48 break down and consequently the charging provisions of s. 45 cannot apply.

Premier Automobiles 264 ITR 193 (Bom) distinguished.

The result is that the assessee is not chargeable to tax in respect of the aforesaid transfer.