Facts

The assessee was engaged in the business of manufacturing sheet metal components out of CRPA & OP sheds at Ahmedabad. It decided to sell their entire running business in one go. With this aim in view, it sold their entire running business in one go with all its assets and liabilities on 31.12.1990 to a Company called “Amtrex  Appliances Ltd” for Rs.58,53,682. The assessee filed its income tax return for the Assessment Year 1991-1992. In the return, the assessee claimed deduction under Section 48(2) of the Act  as  it  stood then by  treating the  sale  to be in the nature of “slump sale” of the going concern being in the nature of     long term capital gain in the hands of the assessee. The ‘AO’ by his order dated 04.03.1994 did not accept the contention of the assessee in claiming deduction. According to the ‘AO’,  the case of the assessee was covered under Section 50(2)     of the Act  because it  was  in  the  nature of  short term capital gain as  specified in Section 50(2) of the Act and  hence did not  fall under Section 48(2) of  the  Act as claimed by the assessee. The ‘AO’ accordingly reworked the claim of the deduction treating the same to be falling under Section 50(2) of the Act and framed the assessment order. The assessee, felt aggrieved, filed appeal before the CIT (appeals). By order dated 06.10.1995, the Commissioner (Appeals) allowed    the assessee’s appeal in so far as it related to  the  issue of  deduction. He  held that when it is an undisputed fact that the assessee has sold their entire running business in one go with its assets and liabilities at a slump price and, therefore,   the provisions of Section 50(2) of the Act could not be applied to such sale. He  held that it was not a case of sale of any individual or  one  block asset which  may attract the provisions of Section 50(2) of the Act. He then examined  the case  of the assessee in the context of definition of “long term capital gain” and “short term capital asset” and held that since the undertaking itself is acapital asset

owned by the assessee nearly for six years and being in the nature of long term capital asset and the same having been sold in one go as a running concerned,        it cannot be termed a “short terms capital gain” so as to attract the provisions of Section 50(2) of the Act as was held by the Assessing Officer. The CIT (appeals) accordingly allowed the assessee to claim the deduction as was claimed by them before the Assessing Officer. The Revenue, felt aggrieved of the order of the CIT (appeal), filed appeal before the Income Tax Appellate Tribunal. By order dated 27.06.2002, the Tribunal concurred with the reasoning and the conclusion arrived at by the Commissioner of Appeal and accordingly dismissed the Revenue’s appeal. The Revenue,  felt aggrieved of the order of the Tribunal,  carried the matter  to the High Court in further appeal under Section 260-A of the Act. By impugned order, the High Court dismissed the appeal holding that the appeal does not involve any substantial question of law within the meaning of Section 260-A of   the Act. It is against this order the Revenue felt aggrieved and carried the matter    to this Court in appeal by way of special leave.

Issue

Whether provisions of section 50(2), deemed short term capital gains can apply to case where assessee sold entire business as going concern in one go and which   sale otherwise qualifies as long term capital asset under the Act and resultantly gives rise to ‘LTCG’ which is thus entitled to be computed with special benefits under then section 48(2) of the Act available to ‘LTCG’?

Premier Automobiles Ltd v. ITO (2003) 264 ITR 193 (Bom) (HC), the Division Bench of the Bombay High Court examined the extant question in detail on somewhat similar facts and has taken the same view. The Learned Judge S. H Kapadia –  (as His Lordship then was) speaking for the Bench aptly explained  the legal position to which the court in present case has expressed its respectful concurrence as it approved the said Bombay high court view as correctly summarizing the legal position applicable to such facts. Further court took specific note of its earlier decision in case of CIT v.  Artex Manufacturing Co. 1997(6)   SCC 437which it observed supports the view taken in extant case.

Held

Dismissing the appeal of revenue, the court held that the case of the assessee does not fall within the four corners of Section 50(2) of the Act. Section 50(2) applies    to a case where any block of assets are transferred by the assessee and not where the entire running business with assets and liabilities is sold by the assessee in   one go.. In simple words, it is held that the provisions of Section 50(2) of the Act would apply to a case where the assessee transfers one or more block of assets, which he was using in running of his business.  Such  is not the case here  because in this case, the assessee sold the entire business as a running concern and so   court finally gave itsimprimatur to the reasoning in the impugned orders of the

CIT (appeal), Tribunal and High Court and upheld the treatment given by assessee under section 48(2) of the ‘Act’. (AY. 1991-92) (CA No. 4399 of 2007 dt. 18-4-2017)

Editorial : Provisions of section 48(2) applicable upto Assessment Year 1992-1993 are no longer in statute as such after detailed amendments made by Finance Act 1992 with effect from Assessment Year 1993-1994 as explained by CBDT in its circular no. 636 dated 31.08.1992 and also to slump sale special provisions are inserted in section 50B of the Act by Finance Act 1999 with effect from assessment year 2000-2001 as explained by CBDT in  its  circular no.  779 dt. 14.09.1999 (1999) 240 ITR 3 (St)

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