PREMIER AUTOMOBILES LTD Vs. INCOME TAX OFFICER

JUDGEMENT

(1.) BEING aggrieved by the judgment and order passed by the Tribunal, dt. 18th Nov. , 2002, in ITA No. 3580/mum/1999 [reported as Premier Automobiles Ltd. v. Dy. CIT (2003) 79 TTJ (Mumbai) (TM) 850--Ed. ], Premier Auto Ltd. has filed this appeal under Section 260a of the IT Act, 1961. The appeal pertains to asst. yr. 1995-96. Facts

(2.) PREMIER Auto Ltd. is a company registered under the Companies Act, 1956, and is engaged in the business of manufacture and sale of cars. Upto and during the year under consideration, Premier Auto Ltd. (hereinafter referred to for the sake of brevity as "pal") was engaged in the manufacture of two cars viz. , Padmini and Premier 118 NE at Kurla and Kalyan, respectively. PAL had plant and machinery for 118 NE at Kalyan, Kurla (gear box) and Pune (machining) (hereinafter referred to as "kalyan undertaking" ). PAL had manufacturing facility for Padmini at Kurla. PAL entered into MOU on 11th March, 1993, with Automobile Peugeot (AP) to establish a joint venture company known as Kalyan Motors Co. Ltd. (KMCL) for manufacture and distribution of 60,000 Peugeot cars throughout India. Under the MOU, it was agreed that PAL will contribute to the equity of joint venture company--KMCL to the extent it was engaged in the manufacture and sale of 118 NE cars. PAL also entered into supplemental MOU with AP on 17th May, 1994. PAL also executed a deed of declaration of trusteeship on 29th Sept. , 1994, whereby PAL agreed to sell, assign and transfer to Kalyan Motor Co. Ltd. its Kalyan undertaking as a going concern on "as is where is" basis. On 19th Oct. , 1994, PAL entered into joint venture agreement with AP. On 6th Jan. , 1995, PAL executed a slump sale agreement whereby PAL transferred and sold to Kalyan Motor Co. Ltd. , the said Kalyan undertaking as a going concern on "as is where is" basis. PAL manufactured the body, seats, and various gadgets of 118 NE cars at Kalyan factory. PAL assembled the said cars at Kalyan plant. PAL painted the cars at Kalyan plant. However, the gear box shop for the said cars was located at Kurla and the machine shop was located at Pune. Therefore, Kalyan business of manufacture of 118 NE cars Was located at three sites. On 30th Nov. , 1995, PAL submitted its return of income enclosing a Pandl a/c in which it disclosed a book profit of Rs. 81. 31 crores from the slump sale dt. 6th Jan. , 1995. The AO, however, took the view that it was a sale of itemized assets. He, therefore, assigned the sale value to building, plant and machinery, paint shop, etc. separately. He determined the sale price of the building at Rs. 23. 24 crores from which he deducted written down value of Rs. 3. 92 crores and arrived at short-term capital gain of Rs. 19. 31 crores. Similarly, he took the sale price of plant and machinery at Rs. 97. 73 crores from which he deducted written down value of Rs. 33. 44 crores to arrive at the profit of Rs. 64. 39 crores. Similarly, he took the sale price of paint shop at Rs. 68 crores and arrived at short-term capital gain of Rs. 7. 57 crores. The AO determined the sale price by relying on the cost of acquisition mentioned in the books of accounts of the transferee company (i. e. , PPL ). This finding of AO was accepted by CIT (A) and by the majority judgment of the Tribunal. According to PAL, the AO erred in relying on allocation done by PPL for its books of accounts. According to PAL, agreement dt. 6th Jan. , 1995, was a slump sale for Rs. 247 crores which price has been allocated for accounting purposes by PPL and which allocation was not binding on PAL. Therefore, the basic issue is whether agreement dt. 6th Jan. , 1995, was a slump sale or a sale of itemized assets ? Being aggrieved, the assessee--PAL has come by way of appeal under Section 260a of the IT Act to this Court for the asst. yr. 1995-96. Although PAL--assessee has framed large number of questions, the following three questions arise for deciding this appeal:

(3.) MR. S. E. Dastur, learned senior counsel appearing on behalf of the assessee--PAL, invited our attention to the MOU, dt. 11th March, 1993, between PAL on one hand and AP on the other hand. He submitted that the object of MOU was to create a joint venture manufacture of 60,000 vehicles for which AP offered to contribute Rs. 350 crores and PAL agreed to contribute Rs. 210 crores in the joint venture. He submitted that AP offered a good price as AP got a ready facility including infrastructure to manufacture 60,000 cars, He contended that the object of MOU was to create a joint venture company. That, the total cost of the joint venture was estimated at Rs. 560 crores which included Kalyan undertaking costing Rs. 210 crores. He contended that prior to MOU, dt. 11th March, 1993, PAL manufactured 118 NE cars at Kalyan with gear box workshop at Kurla and machining at Pune. That, the said amount of Rs. 210 crores had remained fixed and constant right from 11th March, 1993. That, the rest of the items like investments, toolings, know-how and technical assistance were to be brought in by AP. That, under Clause III of the MOU, the existing dealers of PAL were to be transferred to Kalyan Motor Co. Ltd. (JVC ). He contended that under the MOU, readymade dealers of PAL also got transferred. He contended that under the MOU, 51 per cent of the shareholding in Kalyan Motor Co. Ltd, belonged to AP and PAL and the balance went to others. At this stage, it may be mentioned that later on the name of KMCL was changed to PPL. That, under Clause IV of the MOU, PAL was to contribute to the equity of Kalyan Motor Company Ltd. in the form of assets of the Kalyan undertaking. Mr. Dastur contended that, under the MOU, what was contemplated was centralization of all the activities at one place. It was argued that if one reads the MOU in its entirety, it is clear that there was a transfer of the entire Kalyan undertaking by PAL to KMCL and, therefore, the MOU constituted a step-in-aid to the execution of slump sale agreement. That on 17th May, 1994, a supplemental MOU came to be executed between AP and PAL. Mr. Dastur submitted that under Clause 2 of supplemental MOU, parties undertook to verify the assets to be transferred by PAL to Kalyan Motor Co. Ltd. (hereinafter referred to as "kmcl" ). According to PAL, the supplemental MOU does not refer to valuation of assets. That, the supplemental MOU refers to verification of assets to be transferred by PAL to the joint venture company. That, under Clause 2 of the supplemental MOU, it was provided that AP will check whether the Kalyan undertaking had the capacity to manufacture 60,000 Peugeot cars under what was called as industrial due diligence. Under supplemental MOU, the verification clause also contemplated various Government authorities to check the capacity of the Kalyan undertaking to manufacture 60,000 Peugeot cars. That, under Clause 2 of supplemental MOU, the only exercise which was required to be undertaken was, whether there existed the principal assets in the Kalyan undertaking for which the estimated cost was fixed at Rs. 210 crores. That the Clause 2 did not deal with valuation. That, under Clause 3 (b) (II), AP was to conduct due diligence exercise. That, under the supplemental MOU, it was inter alia provided that the parties shall execute slump sale agreement by 30th Sept. , 1994, failing which the MOU and supplemental MOU would stand terminated. That, the MOU and supplemental MOU were subject to approval by Government authorities.