P. Mohanarajan, J.M. - (1.) THIS appeal is by the Revenue and is directed against the order of the learned CIT(A)-III, Bangalore, dt. 7th June, 2002 for the asst. yr. 1999-2000.
(2.) We have heard both sides and perused the records. The assessee-company had filed its return of income for the asst, yr. 1999-2000 showing a total income of Rs. 26,69,230. During the relevant financial year, the assessee-company had sold their business as a 'going concern' to M/s Praxair Carbon Dioxide (P) Ltd. for a consideration of Rs. 2.9 crores (net of liabilities). The company in its return of income has mentioned in Schedule 16 in the notes forming part of the accounts as under: "The company had obtained the approval of the shareholders in the EGM held on 3rd Jan., 1998 for sale of business undertaking as a going concern for a slump price. Accordingly, vide agreement dt. 9th Feb., 1998 with Praxair Carbon Dioxide (P) Ltd., the CO2 manufacturing and distribution business is transferred on 1st April, 1998 for Rs. 3,40,39,332 and capital profit of Rs. 1,95,18,130 arising on such sale is transferred to capital reserve as per the decision of the Board of Directors. As per legal experts opinion such a slump sale is not taxable and hence, requires no provision for taxation." The assessee-company had claimed the profit of this sale of going concern was a non-taxable capital receipt. The AO did not accept the claim of the assessee. According to the AO this transfer includes both tangible and intangible assets. Tangible assets include land, building, structures and directors (sic), the plant and machinery etc., and intangible assets include valid licenses, permits and sanctions, benefit of all pending contract and more importantly 'non-competition'. The AO did not accept the claim of the assessee, according to him all the assets sold are depreciable assets and the written down value should be the cost of acquisition and the sale consideration is already known. Therefore, he computed the capital gains under Section 50 of the IT Act. On first appeal, the learned CIT(A) granted relief to the assessee considering the submissions and the facts. The learned CIT(A) in his order held as follows: , "11.5 In this case also, there is the question of this unexpired portion of contract with suppliers of raw CO2 to the assessee and it is indeed impossible to determine the benefit that would have accrued to the assessee in future years the benefit of which has gone to the purchasers in the sale agreement. Similarly, the cost of technology and improved technology is yet another imponderable. 11.6 Apart from this 'cost of acquisition' which is very difficult to determine, there is the issue of cost of improvement [Evans Fraser & Co. Ltd. (In Liquidation) v. CIT (1982) 137 ITR 493 (Bom)]. Then I find that yet another problem is the compensation for 'non-competition' which is also included in the sale consideration and in what way to apportion the same between 'capital portion' and 'extinguishment of business'. Actually, I find that due to this issue of 'non-competition' perhaps it would be difficult to determine the cost of acquisition even under the newly introduced Section 50B of the Act because such a situation is not envisaged even in this newly introduced provisions of Section 50B of the Act. 11.7 As stated above, the computation of capital gain as done by the AO under Section 50 cannot be upheld .which is deleted because what was sold was entire undertaking and not a few depreciable assets and the sale price also included compensation for non-competition for 10 years which was different from the sale of undertaking as such."
(3.) AGGRIEVED with the finding of the learned CIT(A), the Revenue is in appeal before us. The Revenue in their appeal raised the following grounds: "(i) That the CIT(A) has erred in holding that assessee has sold the entire business as. a going concern and not just depreciable assets without verifying the fact that the assessee has retained certain assets like land Rs. 97,000, vehicle Rs. 4,35,081 and 2,410 cylinders each valuing approximately Rs. 3,000 per cylinder and cylinder deposit aggregating to Rs. 1.5 crores. (ii) That the CIT(A) ought to have considered the fact that the buyer had taken over the business only selectively. (iii) That the CIT(A) has failed to appreciate the fact that the assessee had transferred all the depreciable assets and bulk of the consideration is attributable to those assets and hence capital gain under Section 50 is exigible. (iv) That the CIT(A) ought to have considered the fact that capital gains is all exigible since the assets transferred include depreciable assets and the capital gains computable is short-term capital gains under Section 50 in the light of Hon'ble Delhi High Court judgment in the case of P.N.B. Finance Ltd. v. CIT (2001) 252 ITR 491 (Del).";