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income-tax Officer Vs. S.M. Chemicals and Electronics - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Nagpur
Decided On
Judge
Reported in(1983)6ITD111(Nag.)
Appellantincome-tax Officer
RespondentS.M. Chemicals and Electronics
Excerpt:
.....which refers to the nationalised banks may not apply to the facts of this case. however, as the assessee sold the entire business as a going concern, there was no sale or transfer of any plant and machinery dismembered or dissociated from the industrial undertaking. hence, relying on the aforesaid authorities, he held that the action of the ito was not justified. in this view of the matter, he cancelled both the orders passed by the ito and allowed the two appeals filed by the assessee.4. aggrieved by the above order of the commissioner (appeals), the department is in appeal before us. shri roy alphanso, the learned representative for the department, urged before us that the commissioner (appeals) was not justified in his decision because the cases cited before him by the assessee.....
Judgment:
1. These two appeals filed by the department relate to the same assessee. Hence, they are heard together and disposed of by this common order for the sake of convenience.

2. The assessee is a private ltd. company. We are concerned in these two appeals with the assessment years 1975-76 and 1977-78. By a deed of sale dated 28-2-1977, effective from 1-3-1977, the assessee-company sold to Ofisade (P.) Ltd., its entire business undertakings consisting of Sarabhai M. Chemical Division, Systronics Division and Telerad Division and Sarabhai Electronics Research Centre Division. The assessee had been allowed development rebate of Rs. 3,50,128 in the assessment year 1975-76 on the new plant and machinery installed by it.

Similarly, the assessee had been allowed an investment allowance of Rs. 31,000 in the assessment year 1977-78 in respect of the new plants and machineries installed during that year. The ITO invoked the provisions of sections 34(3)(b) and 155(5) of the Income-tax Act, 1961 ('the Act') and withdrew the development rebate of Rs. 3,50,128 allowed in the assessment year 1975-76.

Similarly, he passed an order under Section 155(4A) read withSection 32A (5) of the Act and withdrew the investment allowance of Rs. 31,000 granted in the assessment year 1977-78.

3. The assessee appealed to the Commissioner (Appeals) and contended that the action of the ITO was not justified. The Commissioner (Appeals) heard the appeals for both the years together and disposed of the same by his common order dated 7-10-1981. It was urged before him that the provisions under Section 155 relating to the withdrawal of development rebate or investment allowance did not apply to a case where the entire business was sold as a going concern. According to the assessee, Section 155(4A) or Section 155(5) applied only in a case where the individual plants and machineries were sold separately.

Reliance was placed on the decisions in the cases of CIT v. Mugneeram Bangur & Co. (Land Department) [1965] 57 1TR 299 (SC), Sarabhai M.Chemicals (P.) Ltd. v. P.N. Mittal, Competent Authority IAC [1980] 126 ITR 1 (Guj.) and Artex Mfg. Co. v. CIT [1981] 131 ITR 559 (Guj.) and Circular No. 63 [F. No. 207/6/70-IT (All)] dated 16-8-1971--[1971] 82 ITR (St.) 1 of the CBDT, wherein it has been stated that no tax liability arose on the nationalisation of the commercial banks. The Commissioner (Appeals) observed that the Circular, dated 16-8-1971, which refers to the nationalised banks may not apply to the facts of this case. However, as the assessee sold the entire business as a going concern, there was no sale or transfer of any plant and machinery dismembered or dissociated from the industrial undertaking. Hence, relying on the aforesaid authorities, he held that the action of the ITO was not justified. In this view of the matter, he cancelled both the orders passed by the ITO and allowed the two appeals filed by the assessee.

4. Aggrieved by the above order of the Commissioner (Appeals), the department is in appeal before us. Shri Roy Alphanso, the learned representative for the department, urged before us that the Commissioner (Appeals) was not justified in his decision because the cases cited before him by the assessee were clearly distinguishable on facts. He emphasised the fact that the provision of Section 155(4A)/(5) comes into play immediately after the plants and machineries were sold or otherwise transferred. According to him, it was not necessary to show the exact price for which each plant and machinery were sold.Again, he urged that the sale of the whole undertaking evidently included the sale of the plant and machineries used in that undertaking. Hence, he urged that the order of the Commissioner (Appeals) deserved to be vacated and the orders of the ITO deserved to be restored.

5. Shri S.P. Mehta, the learned representative for the assessee, on the other hand, supported the order of the Commissioner (Appeals). He took us through the three decisions cited before the Commissioner (Appeals) as well as the Board's Circular, dated 16-8-1971, referred to earlier.

On the basis of the above decisions, Shri S.P. Mehta urged that the order of the Commissioner (Appeals) was quite correct and so it deserved to be upheld.6. We have considered the contention of both the parties as well as the facts on record. So far as the assessment year 1975-76 is concerned, the relevant sections are 34(3)(b) and 155(5). Both these sections state about the plant or machinery being 'sold or otherwise transferred'. So far as the assessment year 1977-78 is concerned, the relevant sections are 32A(5) and 155(4A). Both these sections refer to the same phrase, namely, 'sold or otherwise transferred'. On a plain reading of these sections, it is evident that those sections come into play as soon as the plant or machinery is sold or otherwise transferred. We do not find any provision therein to support the proposition that the price of each plant and machinery should be separately cited or found out by the department nor do we find anything in those sections to suggest that they do not apply when the plant and machinery are sold along with all other assets, of the industrial undertaking as a going concern. In the case before us, there is no doubt that the entire business was sold by the assessee as a going concern including the plants and machineries on which development rebate and investment allowance were previously allowed. The sale of the whole undertaking obviously includes the parts thereof and it cannot be said that while the whole undertaking has been sold, certain parts thereof remained unsold. Hence, we come to the conclusion that the ITO was quite correct in invoking the provision of Section 155 and withdrawing the development rebate and the investment allowance, respectively, in the two years under consideration.

7. We have considered the authorities relied on by the Commissioner (Appeals) in his order and the learned representative for the assessee before us. We find they are indeed distinguishable on facts. In the case of Mugneeram Bangur & Co. (supra), the question was as to whether there was any surplus over and above the cost of land sold by the assessee along with its all other assets as a going concern. Unless there is a surplus over the cost realised on account of the sale of the stock-in-trade, there could be no taxable profit. Hence, there was a need to find the sale price of the land which was the stock-in-trade of the assessee separately from the sale price of the other assets. Since the entire concern was sold for a slump price and the department did not find out the exact price for which the land was sold, the Supreme Court held that no part of the slump price could be taxed as profit arising out of sale of stock-in-trade. The facts of the case before us are entirely different, inasmuch as, it is not necessary for the department for the purposes of Section 155 to find out the sale price of each and every piece of plant and machinery separately. Similarly, in the case of Sarabhai M. Chemicals (P.) Ltd. (supra) the question was whether the sale proceeds of the immovable properties which formed part of the total assets of the undertakings have been understated. Unless the consideration of the immovable properties were separately known, it could not be said as to whether the same was overstated or understated.

Further, the sale in that case was at book value by a parent company to its subsidiary, and so, the Court held, that there was no material to show that the sale consideration of the immovable properties had not been truly stated. The facts of the case before us are entirely different.

8. Similarly, in the case of Artex Mfg. Co. (supra) it was necessary to know the particulars of each individual capital assets to find out whether there was any capital gains or balancing charge under Section 41(2) of the Act. Those individual figures were necessary for calculating the arithmetic surplus or deficit. In the absence of those figures, the Court held that it cannot be said that any particular item of machinery was sold at a price more than its book value giving rise to balancing charge under Section 41(2) or capital gains. The facts of the case before us are entirely different.

9. At the time of hearing, Shri S.P. Mehta had also urged before us that in any case, the matter was not free from doubt and such a debatable matter could not be rectified under Section 155. He relied on the decision in the case of T.S. Balaram, ITO v. Volkart Bros. [1971] 82 ITR 50 (SC). We have considered this contention, but we do not find any force in the same. A mere reading of the provisions of Sections 32A(5), 155(4A), 34(3)(6) and 155(5) clearly shows that when the plant and machinery is sold or otherwise transferred, then the allowance of investment allowance or development rebate, as the case may be, 'shall be deemed to have been wrongly made for the purpose of this Act'.

Hence, we do not find any room for doubt or debate when the language of the section is so clear. There is no dispute or doubt that the plants and machineries have been transferred along with other assets and such a situation, according to the provisions of the Act, shall be deemed to be a mistake* Hence, we reject this ground.

10. For the above reasons, we vacate the order of the Commissioner (Appeals) and restore the orders of the ITO for both the years under consideration.


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