Bharat Bijilee Limited vs. ACIT (ITAT Mumbai)

Despite s. 50B, transfer of undertaking for non-money consideration not taxable if “cost of acquisition” not determinable

The assessee transferred its undertaking on a “going concern” basis pursuant to a scheme of arrangement u/s 391 to 394 of the Companies Act. In consideration, the transferee allotted preference shares & bonds to the assessee. The assessee claimed that the transfer was not liable to tax on capital gains on the basis that there was no “cost of acquisition” of the undertaking. The AO held that the transaction was a “slump sale” as defined in s. 2(42C) and that the gains had to be computed u/s 50B. This was upheld by the CIT (A). On appeal by the assessee to the Tribunal, HELD allowing the appeal:

(i) In order to constitute a “slump sale” u/s 2(42C), the transfer must be as a result of a “sale” i.e. for a money consideration and not by way of an “Exchange”. The difference between a sale and an exchange is this that in the former the price is paid in money, whilst in the latter it is paid in goods by way of barter. The presence of money consideration is an essential element in a transaction of sale. If the consideration is not money but some other valuable consideration it may be an exchange or barter but not a sale. On facts, as the undertaking was transferred in consideration of shares & bonds, it was a case of “exchange” and not “sale” and so s. 2(42C) and s. 50B cannot apply;

(ii) As regards taxability u/s 45 & 48, the “capital asset” which was transferred was the “entire undertaking” and not individual assets and liabilities forming part of the undertaking. There was no basis for apportioning the consideration amongst the various assets comprised in the undertaking nor could the “cost of acquisition” of the undertaking be determined. In the absence of a cost/date of acquisition, the computation & charging provisions of s. 45 fail and the transaction cannot be assessed (Premier Auto 264 ITR 193 (Bom) distinguished)