COMMISSIONER OF INCOME TAX Vs. T J GEORGE

JUDGEMENT

(1.) This appeal filed by the Revenue arises from the orders of the Tribunal disposing of the appeal arising from the block assessment completed on the respondent assessee under S.158 BC of the Income Tax Act (hereinafter referred to as the Act for short) for the block period 01/04/1996 to 18/12/2002. During search, the Department unearthed sale agreement between the respondent assessee and two others for the sale of a petroleum outlet as a going business concern for a total consideration of Rs.82 lakhs, out of which Rs.5 lakhs was retained by the purchasers to be paid after the dealership is transferred by the petroleum Company to the purchasers. It is the admitted fact that the assessee was carrying on the business as dealer of the Indo - Burma Petroleum Company Limited at a place called Kothamangalam in Ernakulam district. The business concern as a whole with land and building, improvements, fittings and even electricity and telephone connections etc. was sold by the respondent assessee as a going concern to the purchasers with effect from 27/05/1998. The transaction is reflected in the sale agreement dated 23/09/1998 and in another agreement dated 20/12/2000. Since the sale with effect from 27/05/1998 falls within the block period i.e. 01/04/1996 to 18/12/2002 for which assessment was made pursuant to search made on 18/12/2002, the tax liability on capital gains on the sale of the petroleum outlet as a going concern was considered, and for making assessment the Assessing Officer bifurcated the sale consideration of Rs.82 lakhs between the value of land and building and the value of the dealership licence separately and assessed entire receipts towards capital gains. When the assessee filed appeal challenging the assessment on capital gains on the sale of the petroleum outlet, the first appellate authority held that the transaction is really sale of business which attracts tax on capital gains only by virtue of the later introduced amendment in S.55(2) of the Act, by Finance Act, 2002 with effect from 01/04/2003. Since the sale in this case by way of execution of agreement, transfer of possession and receipt of consideration happened prior to the amendment in S.55(2), the CIT (Appeals) allowed the appeal cancelling the assessment on capital gains. On the second appeal filed by the Revenue, the Tribunal confirmed the order of the CIT (Appeals), against which the Revenue has come up in appeal before us.

(2.) We have heard Shri. P. K. R. Menon, learned Senior counsel appearing for the Revenue and Shri. P. Balakrishnan, learned counsel appearing for the respondent assessee.

(3.) Before proceedings to consider the correctness or otherwise of the orders of the lower authorities, we should consider the relevant statutory provisions systematically introduced in the Act providing for assessment on the sale of business assets. None of the authorities have considered the scope of S.50B and S.2(42C) of the Act introduced by Finance Act, 1999 with effect from 01/04/2000, which provides for assessment on capital gains on 'slump sale' defined under S.2(42C) of the Act, for which a special scheme of assessment was provided under S.50B of the Act. The provision next introduced was in S.55(2) by Finance Act, 2002 with effect from 01/04/2003, which provides for determination of capital gains on sale of business with reference to 'cost of acquisition', the definition of which was introduced through the said amendment. On the face of it, the transaction involved in this case, i.e. sale of petroleum outlet by assessee to other persons with land and building, equipments, fittings etc. as a going concern, that is sale 'lock, stock and barrel', is a slump sale falling under S.2(42C) of the Act assessable under S.50B of the Act which came into force with effect from 01/04/2000. Similarly, S.55(2) of the Act defining 'cost of acquisition' on the sale of right to carry on business was introduced by Finance Act, 2002 with effect from 01/04/2003. Since these provisions providing for levy of tax on capital gains on slump sale and on sale of right to carry on business were introduced in the Act after the relevant period during which the respondent sold the business as a going concern, certainly these provisions have no application and assessment could not be made under these provisions subsequently introduced in the statute. However, the question raised for our decision is whether the first appellate authority as well as the Tribunal rightly cancelled the assessment on capital gains treating the transaction just as sale of business which cannot be subject to tax for capital gains for any period prior to the introduction of amendment to S.55(2) of the Act. The learned Senior counsel for the Revenue brought to our notice the admission made by the assessee in the course of search that the sale consideration for right to carry on business, which was subject to approval by the petroleum Company which granted dealership licence to the respondent, was only Rs.5 lakhs and the balance Rs.77 lakhs out of Rs.82 lakhs represents sale consideration for the assets including land and building and equipments. Consideration received for transfer of business as such cannot be assessed during the block period, which is prior to the amendment to S.55(2) of the Act. However the question is whether the sale consideration attributable to sale of land, building and other business assets could be assessed to tax on capital gains.