Provisions of section 50B are not applicable if the transaction is not a sale but exchange

1. Introduction:

Section 50B of Income Tax Act, 1961 (for short ‘the Act’) deals with the capital gains in the case of Slump sale.

2. Bennett Coleman & Co.case in brief:

Recently, in Bennett Coleman & Co.Ltd v. ACIT & vice-versa [ITA No.3298/M/2012 and ITA No.3537/M/2012,A.Y.2008-09, decided on 08-01-2018], one of the issue raised by the assessee-company was against the upholding of order of assessing officer by Commissioner (Appeals) on the issue of transfer of Planet M.division of the company in consideration of equity shares and 6% redeemable unsecured debentures being slump sale and therefore liable for tax under section 50B of the Act.

3.Facts of the case

The facts in brief were that the company has w.e.f 1st November 2007 hived off its business of Planet M division consisting of leisure and retail products, on a going concern basis and transferred it to (‘PMRL’), then wholly owned subsidiary of the company on a slump exchange basis. The company has been allotted the following scripts amounting to Rs.12595 lacs for transfer of this business:

Nos.

Face Value

Amount (Rs.)

Equity Shares

9,50,000

Rs.10 each

95,00,000

6%Redeemable unsecured

Debentures

1,25,00,000

Rs.100 each

1,25,00,00,000

1,25,95,00,000

The difference between the value of shares/debentures allotted in exchange of the said division and the net value of that division amounting to Rs.82,87,31,848 was shown in the computation of income as income under section 50B of the Act which was stated to be out of abundant caution and without prejudice to the contentions of the assessee that the said surplus was not chargeable to tax under the provision of the Act. According to the assessee the transaction of hiving off a business of Planet M. division was not a sale but an exchange and consequently does not fall within the meaning of definition of slump sale under section 2(42C) of the Act. According to the assessee the said transfer of division on a going concern basis being a slump exchange, therefore no value could be arrived and ascribed to any assets that were transferred as going concern in a consolidated manner. Further, the contentions of the assessee were that the computation provision qua capital gain were incapable of being applied and therefore the charging of provision of capital gain cannot be applied.

4.Plea of the Appellant

In the opinion of the assessee, the transaction of hiving off the business of Planet M division was not a "Sale" but is an "Exchange." The same not being a sale therefore did not fall within the definition of "Slump Sale" under section 2(42C) of the Act. of the circumstances, the transfer of the division on a going concern basis being a "Slump Exchange", no value could be ascribed to any asset that was transferred as part of the business. So also the cost of acquisition of the undertaking that was transferred on "Exchange" could not be arrived at since what had been exchanged is the entire undertaking comprising of the entire division of the Planet M retail. Consequently, since the computation provisions relating to capital gain were incapable of being applied, following the ratio of the decision of the Hon’ble Supreme Court in B C Srinivasa Shetty (1981) 128 ITR 294 (SC) the changing provisions of capital gains were not attracted. The said ratio was also followed by the Hon’ble Mumbai Tribunal in Avaya Global Connect ltd. ITA No.832/Mum/07.

5. Order of the ITAT Mumbai

After considering the facts and circumstances of the case, rulings placed, rival contentions, the learned Members of the ITAT, Mumbai held that the Planet M Division transferred by the assessee as on a going concern basis where no cost of acquisition is possible to be attributed individual assets in that undertaking and therefore the charging of provision of section 45 are not attracted. It was furthere held that the provisions of section 50B were not applicable to this case as it is a case of slump exchange and not a slump sale. The order of commissioner (Appeals) was set aside and the direction was given to the assessing officer not to tax the amount of capital gain of Rs,84,26,04,286.

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