Supreme Court of India
THE COMMISSIONER OF INCOME TAX, AHMEDABADversusEQUINQX SOLUTION PVT LTD.
- Citation
- 2017 INSC 357
- Decided
- 18 April 2017
- Disposal
- Dismissed
- Bench
- R K AGRAWAL
Holding
The transaction does not fall within Section 50(2); it is a slump sale of a long‑term capital asset and the deduction under Section 48(2) is permissible.
Summary
Equinox Solution Pvt Ltd sold its entire running business, including assets and liabilities, in a single transaction on 31‑December‑1990 and claimed a deduction under Section 48(2) of the Income‑Tax Act, treating the sale as a slump sale of a long‑term capital asset. The Assessing Officer held that the transaction fell within Section 50(2) as a short‑term capital gain and denied the deduction. The Commissioner of Income Tax (Appeals) reversed this view, holding that a sale of the whole business is not a transfer of a block of assets under Section 50(2) but a slump sale of a long‑term capital asset, and allowed the deduction. The Tribunal and the Gujarat High Court upheld the CIT (Appeals) order. The Revenue appealed to the Supreme Court, which dismissed the appeal, confirming that the transaction does not fall within Section 50(2) and must be taxed as a long‑term capital gain.
Issues considered
- The sale of an entire running business with assets and liabilities in one go – does it fall within the ambit of Section 50(2) of the Income‑Tax Act as a short‑term capital asset?
- Whether the assessee is entitled to claim deduction under Section 48(2) for a slump sale of a long‑term capital asset.
Legislation cited
- Income Tax Act, 1961s. 260-A, s. 48(2), s. 50(2)
Subjects
slump salelong‑term capital assetshort‑term capital gainSection 50(2)Section 48(2)capital gains taxentire business saleIncome Tax assessment
Judgment
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[2017]4 S.C.R. 94 . . .~
THE ·coMMISSIONER OF INCOME TAX, AHMEDABAD .· ·.
v.
· . EQUINQX SOLUTJQN PVT LTD ..
(Civil Appeal No. 4399 of2007)
B· APRIL rs,2017
. [R. K. AGRAWAL AND ABHAYMANOHAR SAPRE, JJ.]
li1com~ •Tax Act, ]961 '- ss. 50(2), •48(2) -Applicability of-· .
Sale of entire runnbig· btisiness 1vith assets ai1d liabilities in one go
if amounts toshimp sale ofa ''long ter/11 capita/asset".- Responcfent·
C · · as$essee sold its e1itire .run11ing businesS in one go aiidclaimed
deduction ulsA8(2) t1;eating such sale as .slump sale in the 11alure of
a long term capita/gain~ A~·sessing Officer.rejected the exe11iptio11
clainied holding that the case of the assessee wils covered uls. 50(2)
as it was in the nature of short term capital. gain ~ Appeal by
respondei1t before. CIT (Appeal),· allowed holding·. that. the
D
undertaking itself was a capital asset, owned by respondent for six
years, being in the nature of long .term capital asset and the same
having been so/din one go as a running concern cannot be tent1ed
. as short tern1 capital gain~ Appeals byRevimue, dis1i1issed by !TAT ·
and High Court - On appeal, held: The case of the respondent
E ·does not fall within the four corners of s.50 (2) - Provisions of s, ·
50 {2) would apply to a case whei·e the asfossee tran~fers one or ·
more block of assets, which he was Using in running ofhis business
- However, when the. entire running b11~·iness with all assets and
liabilities are sold in. one go,. as .d0i1e by theresponcfent;. i(is a.
slump sale of lJ "long~term capital asset" and not of. "short term
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capital asset" ..- It was, therefore, required to be taxed accordiilgly
- No fault found in the reasoning and.the cimclusion arrived atby · ·
CIT (Appeal) whjch was rightly· upheld by the· Tribuiial a114 High
·Couh.. . . . . .·
• Dismissing the appeal, the Court•
HELD: L The case of the respond~nt (assessee) does
not fall within the four comers of Section 50 (2) of the Income
ACt. Section 50 (2) applies to a case where any block of assets ·
are. transferred .by the assessee but lVhere th~ entire. runqing
business with assets arid .liabilities is. sol~.· by the assessee. in one,
H
·.· .. THECOM~ISSIONEROF INCOME TAX, AHMEDABAD v.•.• · · .•.
EQUINOX SOLUTION PVT. LTD.·
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go, such sale, cannot be considered as• "shotMerlit w1pitai assets". A
·.·in other words, the·. provisions. of Section SO (2) of the Act would
apply to a case where the as~essee transfers oue or 1.nore block
of assets, whlch he was using in running of his b~siness. ·Such is
not the case here because in this case; the assessee· sold the
entire business as a running concern, [Para lll(97~E~FJ . . .
B
Commissioner of Income Tax,· Gujarat· v. Artex
··'Manufacturing Co. 1997 (6)SCC 437 CIT : [1997] 1
Suppl. SCR 608 - relied on. .
P,.emierAutomobilesLt{l. V. lnqome Tax Officer & A1ir.
)64 ITR 193 (Bombay) ~·approved; · c ··
: . . .. ' ...· . . ...-... .-,..~ ...... --""'"""'"~ .........
·•.. [1997l lSllppl.'SCR 608 . Pa1•a 13
264 I1'R 193 (Bombay) . · approved Para 14.
·.··. CiVIL APPELLATE JURISDICTION: Civil AppeaINo. 4399 D
Qf2007.
FromJhe Judgment and Order dated 29.07.2003 of the High Cotirt
of Gujarat at Ahmedabad in Income TaxAppeal No. 59 of2003.
. . . . . .
. .K. Radhakrislma, Sr. Adv., Rupesh Kumar, Ms~ Sln¥eta Garg{fbr
··. · Mrs; Anil Katiyar),Advs. for the Appellant. E
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.· Inde~ Paul Bansal, Vivek Bansal, Haresh Raichura, Ms. Saroj.
Raichura, Advs. for the Respondents: . .
.. , . . ·. Tlw Judginent of the Cow1 was delivered by .
. . ' . .
. A:BIIAYMANOHAR SAP RE, J. I. This appeal is filed by the . F
Revenue(lncome TaxDepartinent) against the order dated 29.07.2003
.. passed l:Jy the High Court of Gujarat atAhmedabadin LT.A. No. 59 of
·. · 2003 whereby the High Court dismissed the Revenue;s appeal on the
. ground that the appeal does not involve any substantial question of law
under Se(;tion 260-A of the Income Tax Act; 1961 (hereinafter referred G
to as "the Act'l .
· · 2. We herein setoutthe facts, hi brief; t~ ap~reciate the issues
it\volved in this appeai. . .
. ··• 3. The respondent-assessee was engaged· in. the business of .
manufacturing sheet metal components out of CRPA & OP sheds at · H
96 , 1 SUPREME COURT REPORTS,. [2017) 4 S.C.R.
,(
A AhJll,adabad. The respondent decided to sell their entire running business
in OJle go. With this airu in view, tbe r~sponden~ sold their entire-running
business in one go with alf its assets and liabilities on 31.12.1990 to a
Cq~nptinYc~Ued 'fAiriftexApplfai1ce~Ltd't{or.Rs.58,53 ,682/-., , '.
: · • . 1. A. The respondent filed. thei1:in\)ome tax.r.etuntfo1' theAs~essment
B Year 1991-1.99'2'.In'tlie returii, the respondent clain1ed deductioi1 under
Section 48(2) qftJie Act as it sto6<l the1lby,'freaiingthe sale tc> be in the
nature qf'.'sJ,m»p,sale;' oftl;te goi\1g c.o,ncern beiqg in th~ nature of long
term capital'°gain in the hands of the' assessee. ' ' ' ' '
' '
5: The Assessi1ig'Officer by his order dated 04.03.1994 did 1iot'
accept the contention of the assessee in claiming deduction. According
c to the Assessing Officer, tlfo case of the assessee was covered under
Sectim1 ~O (2) of the Act ,because it was in the nature of short tem1
cajlital gain as ~p~pi.fiecf if!. Sec~ion 50.(2} of the Act and hence djd not
fall under Section. 48 (2) .qf the Act as claimed by the assessee. The
Assessing Officer accordingly reworked the claim of the deduction
o· treating the same to befalling under Section 50 (2) of the Act and framed
the assessment order. ·
6. The assessee, felt aggrieved, filed appeal before the CIT
(appeals). By order dated 06.10.1995, the Commissioner of Appeals
allowed the assessee's appeal in so far as it related to the issue of
deduction. He held that when it is an undisputed fact that the assessee
E
has sold their entire running business in one go with its assets and liabilities
at a, slump price and, therefore, the provisions of Section 50 (2) of the
Act could not be applied to such sale. He held that it was not a case of
sale of any individual or one block asset which may attract the provisions
ofSection 50 (2) of the Act. He then examined the case of the assessee
F in the context of definition of"long term capital gain" and "short term
capital asset" and held that since the undertaking itself is a capital
asset owned by the assessee nearly for six years and being in the nature
of long term capital asset a1id the same having been sold in one go as a
running concern, i(cannot be termed a "short terms capital gain" so as
to attract the provisions of Section 50 (2) of the Act as was held by the
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Assessing Officer. The CIT (appeals) accordingly allowed the assessee
to claim the deduction as was claimed by them before the Assessing
Officer.
7. The Revenue, felt aggrieved of the order of the CIT (appeal),
filed appeal before the Income Tax Appellate Tribunal. By order dated
H
;
THE COMMISSIONER OF INCOME TAX v. EQUINOX 97
SOLUTION PVT. LTD. [ABHAY MANOHAR SAPRE, J.]
27.06.2002, the Tribunal concurred' with the reas011ing and the conclusion A
arrived at by the Commissioner of Appeal and accordingly dismissed the
Revenue's appeal.
8. The Revenue, felt aggrieved of the order of the Tribunal, carried
the matter to the High Court in further appeal under Section 260-A of
the Act. By impugned order, the High Court dismissed the appeal holding· B.
that the appeal does not involve any substantial question of law within
the meaning of Section 260-A of the Act. It is against this order the
Revenue felt aggrieved and carried the matter to th is Court in appeal by
way of special leave. ·
. 9. Heard Mr. K. Radhakrishnan, learned senior counsel for the C
appellant and Mr. Inder Paul ~ansal, lean~ed counsel for th,e resppndent- . .. .
assessee. . . . ..
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10. Having heard the learned Counsel for the parties and on perusal
of the record of the case, no fault can be found in the reasoning and
. th.e D
· · conclusion arrivedat by the CIT(appeal) in his order which, in o,lirview,.
was rightly, upheld by the Tribunal and then by the High Court calling no
interference by this Court in this appeal.
11. In our considered opinion, the.case of the respondent (assessee)
does not fall within the four corners of Section 50 (2) of the Act. Section
E,
50 (2) applies to a case where any block of assets are transferred by the
assessee but where the entire running business with assets and liabilities
· is sold bythe assessee in one go, such sale, in our view, cannot be
considered as "short-term capital assets". In other words, the provisions
of Section 50 (2) of the Act would apply to a case where the assessee
transfers one or more block Of assets, which he was using in running of F
his business. Such is not the case here because in this case, the assessee
sold the entire business as a running concern.
· 12. As rightly noticed by the CI'~ (appeal)thatthe entire running
business w~th aH assets and liabilities having been sold in one go by the
respondent-assess~e, it was a slump sale of a "long-term capital asset". G
It was, therefore, required· to be taxed accordingly.
1_3. Our view finds suppmt with the law laid down by this Court in
Commissioner of Income Tax, Gujarat vs. Artcx Manufacturing
Co. [1997(6}SCC 437 CIT].
H
98 SUPREME COl]RT REPORTS •. (2017] 4 S.C.R.
A 14. In Premier Automobiles Ltd. vs. In~ori1e Tax Officer&
Anr.; 264 ITR193 ·(Bombay) also, the Division Bench of the Bornbay
High Court examined this question in detail on soriiewhat similar facts ·
· and has taken the same view. The Lean1ed Judge S.H Kapadia ~ (its
of
His Lordship then was as Judge the. Bombay High .Coutt and later
became CJI) speakingfor.the Bench aptly explained the legal position to · .
B
Which We concur as it correctly summarized .the fogal position applicable. ·
· to such facts.
. . 15, Learned Counseifor the appeijitnt (Revenue) was notable to
· . cite any decision taking a contraiy view ncir was he able to point out any '·.•.
·err.or in the decisions cited at the Bar by the assesse's counsel referred
c supra.
. 16. In the light of foregoing discussion,·we find no merit in the
appeal.whiCh fails and is accordingly dismissed ..·
Divya Pandey . Appeal dismi~sed.
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