ITO Vs M/s. Zinger Investments (P) Ltd.

Facts of the case

• The assessee filed its return of income, declaring Nil income.
• Subsequently, action was initiated under section 147 of the Act by issuing a notice under section 148 calling upon the assessee to submit a return of income.
• The AO, during the course of the proceedings noticed that the assessee had transferred its manufacturing division to M/s. Novapan Industries Limited under a scheme of amalgamation approved by the Hon’ble High Court of A.P. w.e.f. 01.04.2006.
• As per the scheme of amalgamation both the assets and the liabilities were transferred by the assessee company to M/s. Novapan Industries Limited.
• As a consideration for the transfer of the division, the amalgamated company M/s. Novapan Industries Limited allotted 38 shares for every 100 shares of the amalgamated company plus also transferred certain investments held by it amounting to Rs.25,24,05,000/- to the assessee company.
• The AO considered the above transaction as slump sale under Section 2(42C) and accordingly determined the Capital Gains amounting to Rs 24.71 Crores (COA Rs 6.81 Crores and Sale Consideration being Shares Rs 6.28 Crores+ Rs 25.24 Crores= Rs 31.52 Crores)
• The assessee being aggrieved of the assessment order, preferred appeal before the CIT(A). the CIT(A) ruled in the favour of Assessee.
• Being aggrieved by the decision of CIT(A), the AO has filed an appeal before the Income Tax Appellate Tribunal.

Question

Whether AO was right in treating the said transaction as slump sale and accordingly bringing to tax Rs 24.71 Crores to tax under the head capital gains?

Decision

Supreme Court through the judgements in the cases of CIT vs. Motors and General Stores Pvt. Ltd. and CIT vs. R.R. Ramakrishna Pillai, laid down the ratio that:

• The presence of money consideration is an essential element to 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.

Therefore, ITAT in the present case relying on the Supreme Court Judgements is of the view that this transaction cannot be considered a slump sale within the meaning ascribed under section 2(42C) of the Act so as to attract the liability of the capital gain under section 50B of the Act. And hence, the grounds raised by the Revenue are dismissed and the appeal is also dismissed.

Date of pronouncement of order: 21.08.2013