1. The only question which is tried to be pressed before us by Mr. Bhowmick in this matter is as per the provisions of section 47(iv) of Income-tax Act, 1961, whether the transfer of capital asset by a company to its wholly owned subsidiary company could be regarded as transfer and, therefore, capital gains tax could be levied on such transfer. The facts of this case on that ground briefly are as follows:
The entire unit of packaging of coating units of the assessee has been transferred to M/s. Coates Coating India Pvt. Ltd. (“CCIPL”) with effect from December 31, 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 December 31, 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 owned 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.
2. 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 provisions of section 47(iv) the transfer of capital asset by a company to its wholly owned 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 as 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 the capital asset is transferred to stock-in-trade.
4. The Commissioner of Income-tax (Appeals) took into consideration all such facts and the further fact that CCIPL was a wholly owned subsidiary of the assessee as on the date of coming into effect of the scheme of arrangement and that amalgamation (or demerger) of these companies was also accepted by the hon'ble High Court in the company jurisdiction.
5. Therefore, there cannot be a formula which had no connection with the value of the individual assets and the liabilities. The price was determined that of the business and, therefore, there is no question of picking up any portion of such price and charging it to capital gains. It appears to us that before transfer of the company, the said company had issued subscribed share capital and the original share certificates were produced before the Commissioner of Income-tax (Appeals). The company had transferred a business undertaking as a whole which was a capital asset in itself, that is the contention of Mr. Bhowmick before us. We have also considered the aspect which has been decided by the learned Tribunal and the Commissioner of Income-tax (Appeals). The Commissioner of Income-tax has held that the price was approved by the High Court and did not have any relation with the value of the assets of the undertaking. It further appears that in respect of the grievance of the Assessing Officer that transfer of the undertaking including transfer of stock-in-trade also, the Commissioner of Income-tax (Appeals) has observed that no portion of the price could be attributed to stock-in-trade. The Assessing Officer had brought to capital gains tax the transfer of goodwill treating the goodwill as a capital asset rather than stock-in-trade. The Commissioner of Income-tax (Appeals), therefore, observed that the proviso to section 47(iv) has no application to the present case. The Commissioner of Income-tax (Appeals) granted relief to the assessee by holding as under:
“i. It was the entire packaging coating undertaking which was transferred in consideration of a slump price of Rs. 29,89,87,000 and no price was fixed item-by-item in respect of the different assets belonging to the undertaking.
ii. In view of the decision of the Supreme Court in CIT v. B.C Srinivasa Setty, [1981] 128 ITR 294 as no cost of acquisition can be conceived for the undertaking, the consideration received on transfer of the packaging coating business by the assessee cannot be subjected to capital gains tax. Therefore, the Assessing Officer was wrong in assuming that the amount of Rs. 19,14,55,804 credited in capital reserve was received on account of goodwill.
iii. Further, even assuming that the amount of Rs. 19,14,55,804 is on account of transfer of goodwill, the same cannot be brought to tax as the transaction enjoys exemption under section 47(iv) of the Income-tax Act as explained earlier in this order. The addition of Rs. 19,14,55,804 is, therefore, deleted in full. The appellant accordingly gets relief of Rs. 19,14,55,804.”
6. The learned Tribunal, after taking into account all such facts as well as the order so passed by the Commissioner of Income-tax (Appeals), came into conclusion that the fundamental question in the present case which needs to be considered is whether there was a “transfer” of a “capital asset” during the year. After taking such into account, the learned Tribunal held that from the facts as are brought on record, CCIPL was 100 per cent. subsidiary of the respondent-company and the said company was an Indian company. In the said factual circumstances, the provisions of section 47(iv) were applicable in respect of transfer of business undertaking. After considering all these facts, the learned Tribunal held as follows:
“… In the impugned assessment order, the Assessing Officer has mentioned that the provisions of section 47(iv) were not applicable in view of the proviso to section 47(v). On a careful scrutiny of the said proviso, however, we do not find any merit in the Assessing Officer's said contention. Under the approved scheme of arrangement, the respondent had transferred the entire packaging coating business. Such business undertaking itself constituted distinct ‘capital asset’ under section 2(14) of the Act. For transfer of the said capital asset consideration was not determined with reference to individual asset but the consideration was determined with reference to capitalised value of the said business. In our opinion, the proviso to section 47(v) and (iv) is applicable, if any only if, in the hands of the ‘transferee’ the capital asset on its transfer constitutes ‘stock-in-trade’. Nothing was brought on record by the Revenue authorities at any stage to substantiate that such packaging coating business on its transfer was accounted for in the books of CCIPL as ‘stock-in-trade’. Having regard to the facts on record, therefore, we are fully satisfied that since the entire paid-up capital of CCIPL as on December 31, 1997, was held by the respondent, the transfer of the undertaking was squarely covered by the provisions of section 47(iv) and, therefore, no income under the head ‘Capital gains’ was assessable in the assessment year 1998-99. For the reasons as aforesaid, we, therefore, uphold the order of the Commissioner of Income-tax (Appeals) deleting the addition of Rs. 19,14,55,804.”
7. In the result, we do not find that there is any illegality or irregularities in respect of the order so passed by the learned Tribunal and we express the same view as has been expressed by the learned Tribunal and uphold the order.
8. In the circumstances, we do not find that there is any substantial question of law involved to be decided by us since we have dealt with the matter extensively.
9. Hence, the appeal is not admitted. All parties concerned are to act on a xerox signed copy of this order on the usual undertakings.
10. Urgent xerox certified copy of this order, if applied for, be supplied to the parties subject to compliance with all requisite formalities.