THE issue is – Whether the short term capital gains upon sale of the plant and machinery of the two tea estates is to be determined by reducing the sale consideration from the written down value of the block of plant and machinery of all the tea estates, and not only the written down value of the plant and machinery of the tea estates sold. YES is the verdict.
Facts of the case
The assessee engaged in the business of growing and manufacturing tea, had purchased two tea gardens during f.Y 1999-2000 and sold them in the A.Y 2003-04. From the agreements for sale, it would appear that values of the individual assets in both the cases were assigned. The assessee had, in its computation of income, shown short term capital gain of Rs.2,05,12,694/-. The AO did not, however, accept the contention of the assessee and in the absence of any details, he took the opening WDV for the two tea gardens at pro rata basis at Rs.69,33,555/-. Adding with this, the cost of new plant & machinery for Rs.4,39,68,100/- the WDV in respect of plant & machinery for these two tea gardens comes to Rs.5,09,01,655/-. Hence, the difference of Rs. 3,14,73,345/- was treated as business income of the assessee and was added back to its income. On appeal, the CIT(A) observed that the entire transaction of sale of the two tea estates each as a going concern was exigible to capital gains and no part thereof could be excluded as being non-depreciable asset or not being a capital asset. What had been sold by the assessee was a profit generating commercial industrial unit and not land or plant and machinery or Furniture & Fixtures etc as claimed by the assessee. Thus the assessee’s contention of disclosing only short term capital gains on Plant & Machinery was totally erroneous.
Having heard the parties, the High Court held that,
++ it is seen that the CIT(A) has opined that the capital gains have to be computed u/s 2(42C) r/w/s 50B whereas the contention of the assessee is that the capital gains have to be computed on the basis of section 2(11) r/w/s 50. The agreements for sale go to show that value has been assigned to individual assets. It was, therefore, contended by assessee’s counsel that the assessment has to be made u/s 50 r/w/s 2(11) wherein the block of assets has been defined. The AO erred, according to him, in insisting upon the written down value of the plant and machinery in respect of the two gardens sold. The assessee admittedly owned at the relevant time eight tea gardens out of which two were sold. The assessee may have any number of gardens, any number of factories, any number businesses. The combined income from all the individual units shall be assessed as the income of the assessee. The Revenue’s counsel is unable to show as to why and how can the sale be treated as a slump sale. He is unable to dispute that in the A.Y 2002-03, the plant and machinery of all the gardens had a written down value of Rs.2,77,34,222/-. For the year under consideration, a separate standard could not have been insisted upon. That would not also be in accordance with the concept of block of assets. Once the fact that the block of assets computed at a sum of Rs.2,77,3,222/- for the A.Y 2002-03 is admitted, there remains no further controversy as regards the fact that during the year under consideration there was an addition of a sum of Rs.4.41 crores approximately. The opening balance and the addition during the year aggregate to a sum of Rs.7,18,62,306/-. The sale took place at a sum of Rs.8,23,75,000/-. The difference between the two would be a sum of Rs.1,05,12,694/- as computed by the assessee. We find that the computation made by the assessee is a correct computation. In that view of the matter, the Tribunal is not justified in computing the capital gains in respect of each tea estate sold by the assessee as a whole and not with reference to the individual assets comprised in the said tea estate. Further, the short term capital gains upon sale of the plant and machinery of the two tea estates was to be determined by reducing the sale consideration from the written down value of the block of plant and machinery of all the tea estates and not only the written down value of the plant and machinery of the tea estates sold.
++ in so far as interest expenditure is concerned, it is not in dispute that the assessee had advanced interest free loans or advances to its sister concerns whereas the assessee had borrowed money in respect whereof the assessee was liable to pay interest. Assessee’s counsel submitted that the loans or advances made to the sister conccerns were from out of the own funds of the assessee and the money was borrowed for the purpose of business. This submission cannot be accepted. The question essentially is a question of fact. Both the CIT(A) and the Tribunal have come to a concurrent finding that the amount of interest spent by the assessee could not allowed to be deducted in the facts and circumstances of the case. We cannot interfere with the aforesaid finding of fact.
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