Case: Commissioner of Income Tax-6 Vs. Bharat Bijlee Limited

parties were agreed that the assessee was to transfer the undertaking and take bonds/preference shares as consideration. Thus, it was a case of exchange and not a sale. Therefore, the Tribunal held that Section 2(42C) of the Act was inapplicable. If that was not applicable and was not attracted, then, Section 50B was also inapplicable.19. We are of the opinion that the findings of fact rendered by the Tribunal from paragraph 40 and in relation to Ground No.2 are thus rendered by applying the legal principles to the facts and circumstances of the assessees transaction. In the given facts and circumstances and going by the clauses of the Scheme and reading them harmoniously and together, the Tribunal held that the transfer of Lift Division comes within the purview of Section 2(47) of the Act but cannot be termed as a slump sale.20. This finding of fact cannot be said to be perverse or based on no material. It also cannot be said to be vitiated by an error of law apparent on the face of the record. It is in these circumstances, we find that this appeal does not raise any substantial question of law.21. It also does not raise any substantial question of law because the alternative argument, though formulated for consideration before the Assessing Officer and covered by question No.4(iii), is not pressed before us.22. Before us, the emphasis of the revenue is on the applicability of Section 2(42C) of the Income Tax Act, 1961.23. Before parting, we must make a reference and in all fairness to a Division Bench judgment of the Delhi High Court rendered in the case of SRIE Infrastructure Finance Ltd. (supra). This decision is heavily relied upon by Mr.Suresh Kumar, learned counsel appearing for the revenue in support of this appeal. Mr.Suresh Kumar submits that the order of the Tribunal runs contrary to the law laid down in the judgment of the Delhi High Court. The Delhi High Court has considered the matter in the light of the amendments made to the Income tax Act, 1961, particularly, by the Finance Act, 1999, with effect from 1st April, 2000.24. We see no force in the contention of Mr.Suresh Kumar. Firstly, it is not necessary for us to decide any wider question or larger controversy. The judgment of the Delhi High Court would apply provided the transfer is by way of a sale. Before the Delhi High Court, facts were that the petitioner Company was engaged in project financing through term loans and leasing in specified sectors. For the assessment year 2009-20010, the petitioner had disclosed loss of more than Rs.76 crores in their return. No return was filed for the assessment year 2010-2011. The book loss was more than Rs.72 crores. An application was filed before the Settlement Commission for the two assessment years and disclosing additional income. The Settlement Commission passed an order and which is termed as final order in paragraph 4 of the judgment of the Delhi High Court, determining and deciding various questions which are raised in the writ petition. In the writ petition, the only aspect was that of taxability of Rs.375 lacs under Section 50B of the Income Tax Act as capital gains on slump sale paid under the Scheme of Arrangement to the petitioner by its subsidiary. The Settlement Commission held that the amount of Rs.375 lacs received by the petitioner from its subsidiary on transfer of its project finance business and assets based on financing business including its shareholding in SRIE Insurance Broking Pvt. Ltd. was taxable under Section 50B of the Act as a slump sale.25. The argument of the petitioner was that this is a transfer under the Scheme of Arrangement but is not a sale. The Scheme of Arrangement was sanctioned by the High Court of Calcutta. The argument was that this is a transfer of a statutory interest and character. Section 50B therefore had no application as the Scheme of Arrangement is not a slump sale.26. It is in dealing with that argument and in the peculiar facts that the Delhi High Court held that the petitioners contentions cannot be accepted. The petitioner before the Delhi High Court had admitted that there was a monetary consideration in the Scheme of Arrangement. The money was paid and additionally shares of a third company were issued in favour of the assessee. Thus, the consideration was in money as also shares and not shares or bonds exclusively. The transfer could not be termed as an exchange but a sale. In that light the Delhi High Court held that the consideration of Rs.375 lacs was received on transfer of the project finance business of the assessees subsidiary including its shareholding in another company. Therefore, the transaction itself was by way of a sale and not an exchange.27. There is no necessity for us to analyze the circumstances in which the Section 50B was inserted in the statute book. Before us, the issue as to whether the conclusions reached by the Honble Supreme Court in the case of Motors & General Stores (Pvt) Ltd. (supra) would still hold good or that they would not be the enabling principles after the amendment to the Income Tax Act, does not arise at all. We proceed on the footing that the statute was amended with some specific object and purpose. However, we are in agreement with the learned senior counsel appearing for the assessee before us that the applicability of Section 50B would have to be considered in the facts and circumstances of each case. If the transfer is by way of sale, only then it could be termed as a slump sale and then Section 50B would be attracted. It is in these circumstances and going by the facts of the present case that we have decided the present appeal. No larger question or wider controversy need be decided as we are of the opinion that even the judgment rendered by the Delhi High Court is distinguishable on facts.

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]10. At the outset, the counsel agreed that the question posed at paragraph 4(i), namely, the deduction claimed by the assessee on account of the provisions for warranty is concerned, that is fully covered in favour of the assessee and against the revenue by the judgment of the Honble Supreme Court in the case of Rotork Controls Pvt. Ltd. (supra). The appeal, therefore, does not raise any substantial question of law in relation to this deduction.11. The appeal survives now in relation to the transfer of Lift Division.12. In relation to that, what has come on record and admittedly is that, during the assessment year in question, namely,the assessee transferred its Lift Division to M/s. Tiger Elevators Pvt. Ltd., according to the Assessing Officer, for a consideration of Rs.36.5 crores. The Company transferred its Lift Field Operations Undertaking to Tiger Elevators Pvt. Ltd. under the Scheme of Arrangement. That was by invoking Section 391 read with Section 394 of the Companies Act, 1956. That scheme was sanctioned by this Court. The order of the Court is effective from 23rd December, 2004. The Assessing Officer notes that the transfer of the undertaking took place in exchange of preference shares and bonds issued by Tiger Elevators Pvt. Ltd. as per fair valuation report obtained from Bansi S. Mehta & Co., dated 21st October,Tribunal analyzed the transaction/transfer in the present case in the backdrop of the legal principles. The Tribunal referred to the judgment of the Honble Supreme Court in the case of Commissioner of Income Tax, Andhra Pradesh v/s Motors & General Stores (P) Ltd., reported in (1967) Vol.66 ITR 692.In the light of the principles laid down in the above referred decision, the Tribunal concluded in paragraph 40 that the Scheme of Arrangement approved by this Court in the present case, cannot be said to be a sale of the Lift Division or undertaking by the assessee. The Tribunal referred to Clause 3.1 of the Scheme. It then referred to Clause 1.36 in its entirety. Then, it referred to Clause 14.1 of the Scheme.18. The Tribunal then held that, a reading of the clauses in the Scheme of Arrangement shows that the transfer of the undertaking has took place in exchange for issue of preference shares and bonds. It held that, merely because there was quantification when bonds/preference shares were issued, would not mean that the monetary consideration was determined and its discharge was only by way of issue of bonds/preference shares. In other words, the Tribunal held and as a fact that this is not a case where the consideration was determined and decided by parties in terms of money but its disbursement was to be in terms of allotment or issue of bonds/preference shares. In fact, all the clauses read together and the entire Scheme of Arrangement envisages transfer of the Lift Division not for any monetary consideration. The Scheme does not refer to any monetary consideration for the transfer. The parties were agreed that the assessee was to transfer the undertaking and take bonds/preference shares as consideration. Thus, it was a case of exchange and not a sale. Therefore, the Tribunal held that Section 2(42C) of the Act was inapplicable. If that was not applicable and was not attracted, then, Section 50B was also inapplicable.19. We are of the opinion that the findings of fact rendered by the Tribunal from paragraph 40 and in relation to Ground No.2 are thus rendered by applying the legal principles to the facts and circumstances of the assessees transaction. In the given facts and circumstances and going by the clauses of the Scheme and reading them harmoniously and together, the Tribunal held that the transfer of Lift Division comes within the purview of Section 2(47) of the Act but cannot be termed as a slump sale.20. This finding of fact cannot be said to be perverse or based on no material. It also cannot be said to be vitiated by an error of law apparent on the face of the record. It is in these circumstances, we find that this appeal does not raise any substantial question of law.21. It also does not raise any substantial question of law because the alternative argument, though formulated for consideration before the Assessing Officer and covered by question No.4(iii), is not pressed before us.22. Before us, the emphasis of the revenue is on the applicability of Section 2(42C) of the Income Tax Act, 1961.23.Before parting, we must make a reference and in all fairness to a Division Bench judgment of the Delhi High Court rendered in the case of SRIE Infrastructure Finance Ltd. (supra).We see no force in the contention of Mr.Suresh Kumar. Firstly, it is not necessary for us to decide any wider question or larger controversy. The judgment of the Delhi High Court would apply provided the transfer is by way of a sale. Before the Delhi High Court, facts were that the petitioner Company was engaged in project financing through term loans and leasing in specified sectors. For the assessment yearthe petitioner had disclosed loss of more than Rs.76 crores in their return. No return was filed for the assessment yearThe book loss was more than Rs.72 crores. An application was filed before the Settlement Commission for the two assessment years and disclosing additional income. The Settlement Commission passed an order and which is termed as final order in paragraph 4 of the judgment of the Delhi High Court, determining and deciding various questions which are raised in the writ petition. In the writ petition, the only aspect was that of taxability of Rs.375 lacs under Section 50B of the Income Tax Act as capital gains on slump sale paid under the Scheme of Arrangement to the petitioner by its subsidiary. The Settlement Commission held that the amount of Rs.375 lacs received by the petitioner from its subsidiary on transfer of its project finance business and assets based on financing business including its shareholding in SRIE Insurance Broking Pvt. Ltd. was taxable under Section 50B of the Act as a slump sale.The argument of the petitioner was that this is a transfer under the Scheme of Arrangement but is not a sale. The Scheme of Arrangement was sanctioned by the High Court of Calcutta. The argument was that this is a transfer of a statutory interest and character. Section 50B therefore had no application as the Scheme of Arrangement is not a slump sale.It is in dealing with that argument and in the peculiar facts that the Delhi High Court held that the petitioners contentions cannot be accepted. The petitioner before the Delhi High Court had admitted that there was a monetary consideration in the Scheme of Arrangement. The money was paid and additionally shares of a third company were issued in favour of the assessee. Thus, the consideration was in money as also shares and not shares or bonds exclusively. The transfer could not be termed as an exchange but a sale. In that light the Delhi High Court held that the consideration of Rs.375 lacs was received on transfer of the project finance business of the assessees subsidiary including its shareholding in another company. Therefore, the transaction itself was by way of a sale and not an exchange.27. There is no necessity for us to analyze the circumstances in which the Section 50B was inserted in the statute book. Before us, the issue as to whether the conclusions reached by the Honble Supreme Court in the case of Motors & General Stores (Pvt) Ltd. (supra) would still hold good or that they would not be the enabling principles after the amendment to the Income Tax Act, does not arise at all. We proceed on the footing that the statute was amended with some specific object and purpose. However, we are in agreement with the learned senior counsel appearing for the assessee before us that the applicability of Section 50B would have to be considered in the facts and circumstances of each case. If the transfer is by way of sale, only then it could be termed as a slump sale and then Section 50B would be attracted. It is in these circumstances and going by the facts of the present case that we have decided the present appeal. No larger question or wider controversy need be decided as we are of the opinion that even the judgment rendered by the Delhi High Court is distinguishable on facts.