M/s. Triune Projects Pvt. Ltd. Vs. DCIT

Facts of the Case

The appellant-assesse, a private limited company having business of design, engineering and consultancy in the oil and gas (both onshore and offshore), petroleum refinery and allied sector. On 22.09.2006 it entered into a Slump Sale Agreement with Triune Energy Services Pvt. Ltd. (hereafter referred to as ‘buyer’). Effect of the same was, All tangible assets and liabilities  (excluding two assets i.e. one in the form of bad debt and another shown to be written off ) together with goodwill were conveyed for a lump sum consideration of `45.85 crores. The net book value of the assets so transferred was `5.27 crores. since its undertaking had been in existence for more than three years it computed long term capital gains under Section 50B and offered 20% of it as tax.

The Assessing Officer (AO) rejected the assessee’s claim holding that the slump sale tax claim was a “sham transaction” designed to avoid tax liability by artificially inflating assets value and that the assets so transferred were short term in nature. The AO decided that the considerations, i.e., lump sum amount received was income from other sources and directed a higher rate of tax.

The aforesaid matter pending before

Question before Delhi High Court

Whether the said transaction of sale of Assets was Slump sale liable to tax under the head Capital gain and not sham?

Decision

1. In this case high court find that revenues Contention is insubstantial. The sale transaction was reported for a total consideration of Rs.45.83 crores. The sale was for a going concern, which included ongoing service contracts, employment contracts and other tangible assets, and intangible assets such as technical know-how etc.

2. As per Explanation 1 to Section 2 (19) (AA) of the Income Tax Act, it is not precondition of definition of Undertaking that, the buyer is bound to pay good money, transact and purchase bad and irrecoverable debts. Whereas if certain assets or properties are left out because they would cause inconvenience or lead to some kind of a trouble for the purchasing party, it is well within its right to exclude it from the list of assets.

3. For these reasons, the revenue’s contentions were rejected. Accordingly, it is held that the slump sale qualifies for treatment under Section 50(B) of the Act as capital gain and not liable to tax under Income from other sources. Once the transaction is considered as slump sale transaction, it cannot be considered as sham transaction.

Date of Judgement: 22^nd Nov, 2016 at High Court, New Delhi.