- (1.) THE only question which is tried to be pressed before us by Mr. Bhowmick in this matter is as per provision of Section 47(iv) of Income -tax Act whether the transfer of capital asset by a company to its wholly subsidiary company could be regarded as transfer and therefore capital gains tax could be levied on such transfer.
(2.) THE facts of this case on that ground briefly are as follows: The entire unit of packing coating units of the assessee has been transferred to M/s. Coates Coating India (P.) Ltd. ('CCIPL') with effect from 31 -12 -1997. While transferring the units the assessee received a sum of Rs. 29,89,87,000 by way of adjustment and issue of equity shares of Rs. 10 each in CCIPL credited as fully paid -up share capital. In the process of such transfer a surplus amount of Rs. 19,14,55,804 was credited to the accounts of the assessee over and above the book value of the assets actually transferred to the CCIPL as on 31 -12 -1997. The assessee claimed that this excess amount is not taxable on the ground that the assessee transferred the assets of the company to its wholly subsidiary company. It was further stated that the unit was transferred with all its assets and therefore, the value of each of the items could not be determined separately as the sale was made on slump basis and accordingly the actual profit from each asset could not be determined. Where slump sale is made with everything including lock, stock and barrel, there is no scope for determination of the profit for individual items. Therefore, the assessee claimed that the profit could not be determined as the excess amount was not taxable. As per the provision of Section 47(iv) the transfer of capital asset by a company to its wholly subsidiary company (unit) could not be regarded as transfer and, therefore, capital gains tax could not be levied on such transfer.
(3.) SUCH contention was not accepted by the Assessing Officer. The Assessing Officer considered the sum of Rs. 19,14,55,804 credited to capital as capital gains on account of transfer of goodwill since CCIPL had in its accounts treated the same as goodwill. The Assessing Officer also did not accept the contention of the assessee that even if the transfer was treated of goodwill, tax is not leviable due to the fact that the transfer was to a wholly owned subsidiary company, and accordingly, the exemption is available to the assessee under Section 47(iv) of the said Act. It appears that the Assessing Officer finally held that Section 47(iv) was not applicable to the present case as the transfer of business undertaking included transfer of stock -in -trade and the proviso to Section 47(iv) excludes the operation of Section 47(iv) in case capital asset is transferred as stock -in -trade.;