Sale of Undertaking on Lump-Sum Basis is a Slump Sale; Section 41(2) Inapplicable.

By | November 20, 2025
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Sale of Undertaking on Lump-Sum Basis is a Slump Sale; Section 41(2) Inapplicable.

Issue

Whether the transfer of an entire bottling and marketing business as a “going concern” for a lump-sum consideration constitutes a “slump sale” under Section 2(42C), and whether the Revenue can artificially fragment such a transaction to tax individual assets (like balancing charge under Section 41(2)).

Facts

  • The assessee-company was engaged in bottling and marketing beverages under the Coca-Cola brand.

  • It agreed to transfer its entire undertaking (assets, marketing network, goodwill, and non-compete obligations) as a going concern.

  • The total consideration was approximately Rs. 56.23 crores.

  • Crucially, no individual values were assigned to specific assets in the agreement; the transfer was on a lump-sum basis.

Decision

  • The High Court ruled in favour of the assessee.

  • It held that since the business was sold as a going concern for a lump-sum consideration without assigning values to individual assets, the transaction squarely fell within the definition of a “slump sale” under Section 2(42C).

  • Consequently, the provisions of Section 41(2) (regarding balancing charge on depreciable assets) and Section 50B (as applied to itemized sales) were not applicable.

  • The Revenue was barred from artificially fragmenting a composite transaction into parts to tax them under different heads.

Key Takeaway

  • Lump-Sum is Key: For a transaction to be a slump sale, the consideration must be for the undertaking as a whole, not an aggregate of individual asset prices.

  • No Balancing Charge: In a true slump sale, Section 41(2) cannot be invoked to tax the difference between the Written Down Value (WDV) and the sale price of specific assets as business income.

Licensing Agreement was Principal-to-Principal; Consideration Not Taxable u/s 28(ii) as Agency Termination.

Issue

Whether the consideration received for transferring the business could be taxed as a revenue receipt under Section 28(ii)(c), treating it as compensation for the termination or modification of an “agency” relationship.

Facts

  • The assessee procured concentrate under a Licensing Agreement (dated 1-10-1994) with Coca-Cola.

  • The assessment records showed that the assessee bought the concentrate and undertook bottling and marketing at its own risk and cost.

  • The Assessing Officer (AO) attempted to treat part of the Rs. 56.23 crore consideration as compensation for the termination of an agency, which is taxable as business income under Section 28(ii).

Decision

  • The High Court ruled in favour of the assessee.

  • It upheld the concurrent findings of the CIT(A) and the Tribunal that the relationship between the assessee and Coca-Cola was on a Principal-to-Principal basis, not Principal-to-Agent.

  • Since there was no agency relationship, Section 28(ii)(c) was inapplicable. The consideration received was for the sale of the business, not for the termination of an agency.

Key Takeaways

  • Risk Defines Relationship: If a bottler/manufacturer operates at their own risk and cost, buying inputs and selling outputs, they are Principals, not Agents, even if they use a brand under license.

  • Section 28(ii) Scope: This section specifically taxes compensation for the termination of management or agency contracts. It cannot be stretched to cover the sale of an independent business.

Extinguishment of Business Source Makes Consideration a Capital Receipt.

Issue

Whether the consideration received for the transfer of the undertaking, which included non-compete obligations and the termination of existing contracts, should be treated as a Capital Receipt (taxable under Capital Gains) or a Revenue Receipt (taxable as Business Income).

Decision

  • The High Court ruled in favour of the assessee.

  • It held that the transfer resulted in the complete loss of the assessee’s business and an extinguishment of its source of income.

  • The assessee suffered a termination of all contracts, accepted a non-compete obligation, and even had to change its name.

  • Compensation received for the destruction or loss of the “profit-making apparatus” (the source of income) is a Capital Receipt. Therefore, it was taxable under Section 45 (Capital Gains), not Section 28 (Business Income).

Key Takeaways

  • Source vs. Income: Receipts meant to replace income are revenue receipts. Receipts meant to replace the source of income (the business itself) are capital receipts.

  • Non-Compete Impact: A non-compete fee in this context (pre-2003 amendment to Section 28(va)) associated with the transfer of a business was often viewed as a capital receipt related to the sterilization of the right to carry on business.

HIGH COURT OF TELANGANA
Commissioner of Income-tax
v.
Spectra Shares and Scrips Ltd.
P.Sam Koshy and SUDDALA CHALAPATHI RAO, JJ.
IT Tribunal Appeal No. 412 OF 2010
OCTOBER  31, 2025
Ms. Bokaro Sapna Reddy, Ld. Sr. SC for the Appellant. Ms. K. Mamata, Ld. Counsel for the Respondent.
JUDGMENT
P. Sam Koshy, J. – Heard Ms. Bokaro Sapna Reddy, learned Senior Standing Counsel for Income Tax Department for the appellant / Revenue; and Ms. K.Mamata, learned counsel for the respondent / assessee.
2. The instant is an appeal under Section 260A of the Income Tax Act, 1961 (for short ‘the Act’) preferred by the Revenue challenging the order dated 24.08.2007, in ITA.No.536/Hyd/2002, passed by the Income Tax Appellate Tribunal, Hyderabad Bench ‘B’, Hyderabad (for short, the ‘ITAT’) for the assessment year 1998-99.
3. Vide the impugned order, the ITAT dismissed the appeal of the Revenue holding that the entire receipts of the assessee is a capital receipts for a sale of undertaking as a going concern and it is a slump sale.
4. The facts of the case in brief is that the assessee had entered into an agreement dated 19.09.1997, to sell its entire bottling and marketing business to M/s. Bharat Coca Cola Bottling South East Private Limited for a total sale consideration of Rs.56.23 Crores. The net consideration after deducing the liabilities amounted to Rs.40.31 crores. However, the assessee is involved in obtaining concentrate or base from the Coca Cola Company, bottling the product, and selling it under the Coca Cola brand name through its own established marketing network. Over the course of its operations, the assessee had established significant infrastructure including plant and machinery for bottling operations and an extensive distribution network for marketing the products to retail sellers. The sale agreement encompassed the transfer of the entire business as a going concern, including all assets, the marketing network, goodwill, and included a non-compete clause that prevented the assessee from engaging in similar business activities in the future.
5. During the assessment proceedings, the Assessing Officer examined the nature of the transaction and the tax treatment applicable to the sale proceeds. Before the Assessing Officer the assessee contended that the entire transaction constituted a slump sale of the business as a going concern, wherein no individual values were assigned to separate assets and therefore the receipt should be treated as a capital receipt. However, the Assessing Officer did not accept this contention and proceeded to allocate specific portions of the sale consideration to different components including land, building, plant and machinery, goodwill and noncompete fees. The Assessing Officer treated portions of these proceeds as a short-term capital gains under Section 50(B) of the Act and long-term capital gains, while also examining whether certain amounts could be taxed as revenue receipts under Section 28(ii) of the Act.
6. Aggrieved by the assessment order, the assessee filed an appeal before the Commissioner of Income Tax (Appeals)-I, Hyderabad. The Commissioner of Income Tax vide order dated 15.03.2002 partially allowed the assessee’s appeal. The Commissioner of Income Tax found that a sum of Rs.17.62 crores could be considered as having been paid towards other assets, goodwill, non-compete fees, and termination of agreement. Of this, Rs.4 crores was allocated towards goodwill. The Commissioner of Income Tax directed that the long-term capital gains should be computed on land and short-term capital gains under Section 50(B) of the Act on the buildings. However, the Commissioner of Income Tax held that the balance amount could not be apportioned to any particular asset and treated it as a capital receipt from a slump sale, finding that the provisions of Section 50(B) of the Act (introduced with effect from 01.04.2000) were not applicable for the assessment year under consideration and that Section 28(ii) of the Act was also not applicable as the principle of agency was not involved.
7. Dissatisfied with different aspects of the Commissioner of Income Tax’s order, both the Revenue and the assessee filed separate appeals before the ITAT. The Revenue’s appeal challenged the Commissioner of Income Tax’s finding that a substantial portion constituted a capital receipt from slump sale and stated that the provisions of Section 28(ii) of the Act and Section 50(B) of the Act should apply. The assessee’s cross-appeal challenged the Commissioner of Income Tax’s direction to bifurcate the proceeds and tax portions as long-term and short-term capital gains, maintaining that the entire transaction was a slump sale with no individual asset valuations. The ITAT after hearing both the appeals together, vide common order dated 24.08.2007, allowed the assessee’s appeal and dismissed the Revenue’s appeal, conclusively holding that the entire receipt was a capital receipt for sale of the undertaking as a going concern qualifying as a slump sale.
8. Learned Senior Standing Counsel for the Income Tax Department primarily contended that the provisions of Section 28(ii) of the Act were applicable to the transaction and the compensation received by the assessee and should be treated as a revenue receipt rather than a capital receipt. She further contended that the assessee had lost only income and not the source of income upon termination of the agreement with Coco Cola Company. She further contended that since the assessee was merely bottling and marketing products under the Coca Cola brand using concentrate supplied by the principal company, where the assessee was essentially functioning as an agent or distributor for Coca Cola Company. Moreover, the assessee had no independent goodwill of its own because it was marketing products exclusively in the name of its principal, Coca Cola Company. Therefore, the compensation received for the loss of this arrangement was merely compensation for loss of future income streams rather than compensation for loss of a capital asset and should be taxed as revenue receipt under Section 28(ii) of the Act which deals with compensation received by agents on termination of agency relationships.
9. Secondly, the learned Senior Standing Counsel challenged the ITAT’s finding regarding the slump sale treatment which accorded a substantial portion of the sale proceeds. She further contended that independent values had been shown by the valuer for different components of the business undertaking, and therefore, the provisions of Section 50(B) of the Act should be applied to compute capital gains on individual depreciable assets, particularly plant and machinery. Further, she contended that since the purchaser had assessed and valued individual assets including land, building, plant and machinery, goodwill, and other components separately for the purpose of determining the total purchase price, this negated the assessee’s claim that no individual values were assigned to separate assets.According to her, this separate valuation exercise meant that the transaction could not be characterized as a slump sale under Section 2(42C) of the Act, where the business is transferred without values being assigned to individual assets and liabilities. Therefore, the Revenue maintained that the gains on sale of plant, machinery, and building should be computed as short-term capital gains under Section 50(B) of the Act, while gains on land should be computed as long-term capital gains, rather than treating the entire amount as a capital receipt from slump sale as was the finding of the ITAT.
10. Thirdly, she contended that Commissioner of Income Tax’s allocation of Rs.4 crores towards goodwill and the treatment of the balance amount of Rs.17.62 crores as capital receipt was not liable to be taxed. She argued that since the assessee had no independent business identity or goodwill apart from its association with Coca Cola Company, no amount could legitimately be attributed to goodwill belonging to the assessee. Further, she emphasized that the assessee was entirely dependent on Coca Cola Company for the concentrate and operated under the Coca Cola brand, and therefore, any goodwill associated with the business belonged to the principal company rather than the assessee.
11. Lastly, regarding the non-compete fee component, the learned Senior Standing Counsel contended that the assessee being merely a bottler and distributor in the local market, could not effectively compete with Coca Cola Company in any meaningful way, and therefore, the amount attributed to non-compete arrangements should not be treated as capital receipt. She argued that the entire consideration of Rs.56.23 crores should be bifurcated based on the valuations provided with appropriate portions taxed as revenue receipts under Section 28(ii) of the Act and as capital gains under Section 50Bof the Act and regular capital gains provisions rather than being accorded the favorable treatment of capital receipt from slump sale.
12. Per contra, the learned counsel for the respondent / assessee contended that the transaction in question constitutes a slump sale of its business as a going concern, wherein the entire undertaking including fixed and movable assets, marketing and distribution network, trade receivables and goodwill were transferred on a lump sumbasis without individual valuation of assets. Both the Commissioner of Income Tax and the ITAT have concurrently found this to be the case based on cogent appreciation of material on record. While this transaction falls within the definition of ‘slump sale’ under section 2(42C) of the Act, this provision along with Section 50B of the Act governing taxation of capital gains on slump sales were inserted only with effect from 01.04.2000 and are therefore not applicable to the assessment year 1998-99 under consideration.
13. Further, the learned counsel for the assessee emphasized the applicability of Section 28(ii)(c) of the Act and submitted that the Licensing Agreement, dated 01.10.1994, with the Coca Cola Company was entered into on a principal-to-principal basis and not on an agency basis. As evidenced from the terms of the agreement extracted in the assessment order, the assessee independently procured concentrate from the licensor and undertook the entire business of bottling, marketing, and sales at its own risk and cost. Both the Commissioner of Income Tax and the ITAT have concurrently held that the Licensing Arrangement was on a principal-to-principal basis and therefore the consideration received by the assessee would not fall within the scope of Section 28(ii)(c) of the Act which applies to compensation received by agents.
14. Learned counsel for the assessee contended that the Revenue has failed to point out any material that ought to have been considered but was not, nor has it advanced any substantive arguments to demonstrate that the appellate authorities erred in their appreciation of the nature of the licensing arrangement. Section 28(ii)(e) of the Act relied upon by the Revenue is wholly irrelevant as it was inserted only with effect from 01.04.2019 i.e., decades after the assessment year in question.
15. Moreover, on the crucial question of whether the consideration received is capital or revenue in nature, the learned counsel for the assessee submitted that the transfer resulted in complete extinguishment of its source of income and therefore the receipt is undoubtedly capital in nature. The transaction involved not merely cancellation of contracts but a wholesale transfer of the assessee’s entire business undertaking, including termination of existing contracts, acceptance of non-compete obligations, restricting future business activities, and even change of the company’s name from Spectra Bottling Ltd. to Spectra Shares & Scrips Ltd. This constituted a complete loss of the business structure and source of income. Therefore, the learned counsel for the respondent submits that none of the question raised by the Revenue in the in the present appeal constitute substantial questions of law. The findings of both the Commissioner of Income Tax and ITAT are based on proper appreciation of facts and correct application of law as established by binding precedents of the Supreme Court. The Revenue has also failed to demonstrate any perversity in the findings or point to any material that was overlooked by the appellate authorities. The questions raised are mere attempts to re-argue questions of fact already determined by concurrent findings of two appellate authorities.
16. Having heard the contentions put forth on either side and on perusal of records, what is reflected from the pleadings is that the appeal was admitted on the following three substantial questions of law:
“In the facts and circumstances of the case, when the sale effected by the Assessee represents value of each item and do not satisfy the definition of slump sale u/s.2(42c) of Income Tax Act, 1961 whether the findings of the ITAT that it was a slump sale and Sec.41(2) of the Act is applicable, is not erroneous and perverse in law?
Whether the orders of the ITAT that the compensation received by the Assessee would not fall within the meaning of sec.28 (ii) of Income Tax Act is not erroneous in law for not considering the relevant material on record?
In the facts and circumstances of the case, whether the findings of the ITAT that the compensation recorded by the Assessee is for the loss of capital asset and the same is capital receipt instead of treating the same as Revenue Receipt is not erroneous in law being contrary to material facts and reasons on record.?”
17. For better understanding, we need to first understand the provisions of Act dealing with slump sale. Slump sale is defined under Section 2(42C) of the Act, which for ready reference is reproduced below:
“”2. Definitions.
xxx xxx xxx
[(42C) “slump sale” means the transfer of one or more undertakings as a result of the sale for a lump sum consideration without values being assigned to the individual assets and liabilities in such sales.
Explanation 1.—For the purposes of this clause, “undertaking” shall have the meaning assigned to it in Explanation 1 to clause (19AA).
Explanation 2.—For the removal of doubts, it is hereby declared that the determination of the value of an asset or liability for the sole purpose of payment of stamp duty, registration fees or other similar taxes or fees shall not be regarded as assignment of values to individual assets or liabilities;]
Explanation 3.—For the purposes of this clause, “transfer” shall have the meaning assigned to it in clause (47);]”
A plain reading of the aforesaid provision would clearly give an indication of there being a transfer of an undertaking for a lump sum consideration without values being assigned to individual assets and liabilities.
18. Transfer, in turn, stands defined under Section 2(47) of the Act which again for ready reference is being reproduced below:
“2. Definitions.
xxx xxx xxx
(47) [“transfer”, in relation to a capital asset, includes,—
(i)the sale, exchange or relinquishment of the asset; or
(ii)the extinguishment of any rights therein; or
(iii)the compulsory acquisition thereof under any law; or
(iv)in a case where the asset is converted by the owner thereof into, or is treated by him as, stock-in-trade of a business carried on by him, such conversion or treatment;]
[(iva)the maturity or redemption of a zero coupon bond; or]
[(v)any transaction involving the allowing of the possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882 (4 of 1882); or
(vi)any transaction (whether by way of becoming a member of, or acquiring shares in, a co-operative society, company or other association of persons or by way of any agreement or any arrangement or in any other manner whatsoever) which has the effect of transferring, or enabling the enjoyment of, any immovable property.”
If we read the sub-clause (ii) of the aforesaid definition, it clearly spells out extinguishment of the right of the seller over the subject property after the sale.
19. Further, Section 28 of the Act deals with the profits and gains of the business or profession. The relevant portion of the said Section also is for ready reference reproduced below:
“Profits and gains of business or profession.
28. The following income shall be chargeable to income-tax under the head “Profits and gains of business or profession”,— (i) the profits and gains of any business or profession which was carried on by the assessee at any time during the previous year;
(ii) any compensation or other payment due to or received by,—
(a)any person, by whatever name called, managing the whole or substantially the whole of the affairs of an Indian company, at or in connection with the termination of his management or the modification of the terms and conditions relating thereto;
(b)any person, by whatever name called, managing the whole or substantially the whole of the affairs in India of any other company, at or in connection with the termination of his office or the modification of the terms and conditions relating thereto;
(c)any person, by whatever name called, holding an agency in India for any part of the activities relating to the business of any other person, at or in connection with the termination of the agency or the modification of the terms and conditions relating thereto ;
[(d)any person, for or in connection with the vesting in the Government, or in any corporation owned or controlled by the Government, under any law for the time being in force, of the management of any property or business;]
[(e)any person, by whatever name called, at or in connection with the termination or the modification of the terms and conditions, of any contract relating to his business;]”
20. The next provision of law which would also be relevant to be taken note at this juncture is the provision of law dealing with capital gains. Capital Gains is defined Section 45 of the Act. The relevant portion so far as the present appeal is concerned is again for ready reference is reproduced below:
“Capital gains.
45. [(1)] Any profits or gains arising from the transfer of a capital asset effected in previous year shall, save as otherwise provided in sections 3 [***] [54, 54B, [***] [[54D, [54E, [54EA, 54EB,] 54F, [, 54G and 54H]]]]], be chargeable to income-tax under the head “Capital gains”, and shall be deemed to be the income of the previous year in which the transfer took place.”
21. Section 54E of the Act also deals with the provision where in certain cases the capital gain on transfer of capital assets would not be charged.
22. The assessee in the instant case is M/s.Spectra Shares & Scripts Limited. The assessee was having a business agreement with M/s.Coca Cola Company Limited. It was agreed that the assessee company shall be provided with concentrate or base by Coca Cola company for bottling purpose and after bottling, the assessee company would be selling in the market in the brand name of Coca Cola. Subsequently, there was an agreement of sale of business between the two companies i.e., the assessee M/s.Spectra Shares & Scripts Limited and M/s.Coca Cola Company Limited. It was agreed to transfer entire soft drink beverage business. An undertaking of the assessee as a going concern to the buyer, while transferring the undertaking it was agreed to transfer as a going concern on a slump basis including all liabilities, past arrears, taxes, charges, levies, outstanding dues or claims. The buyer M/s.Coca Cola Company Limited, also had agreed to purchase soft drink beverage business with the aforesaid undertaking. In terms of the sale of business, the assessee company was to receive an amount of Rs.56.23 crores against the said cash consideration. The buyer company while acquiring the business had also taken into consideration the assessee’s goodwill and the non-complete agreements and also the relinquishment of rights under the contract. It would be evidently clear that the assessee pursuant to the sale of business would not be able to carry on the said business independently.
23. The Hon’ble Supreme Court in the case of CIT v. B.C. Srinivasa Setty SCC 460 held at paragraph No.10 as under:
“10. Section 45 charges the profits or gains arising from the transfer of a capital asset to income tax. The asset must be one which falls within the contemplation of the section. It must bear that quality which brings Section 45 into play. To determine whether the goodwill of a new business is such an asset, it is permissible, as we shall presently show, to refer to certain other sections of the head, “Capital gains”. Section 45 is a charging section. For the purpose of imposing the charge. Parliament has enacted detailed provisions in order to compute the profits or gains under that head. No existing principle or provision at variance with them can be applied for determining the chargeable profits and gains. All transactions encompassed by Section 45 must fall under the governance of its computation provisions. A transaction to which those provisions cannot be applied must be regarded as never intended by Section 45 to be the subject of the charge. This inference flows from the general arrangement of the provisions in the Income Tax Act, where under each head of income the charging provision is accompanied by a set of provisions for computing the income subject to that charge. The character of the computation provisions in each case bears a relationship to the nature of the charge. Thus the charging section and the computation provisions together constitute an integrated code. When there is a case to which the computation provisions cannot apply at all, it is evident that such a case was not intended to fall within the charging section. Otherwise one would be driven to conclude that while a certain income seems to fall within the charging section there is no scheme of computation for quantifying it. The legislative pattern discernible in the Act is against such a conclusion. It must be borne in mind that the legislative intent is presumed to run uniformly through the entire conspectus of provisions pertaining to each head of income. No doubt there is a qualitative difference between the charging provision and a computation provision. And ordinarily the operation of the charging provision cannot be affected by the construction of a particular computation provision. But the question here is whether it is possible to apply the computation provision at all if a certain interpretation is pressed on the charging provision.
That pertains to the fundamental integrality of the statutory scheme provided for each head.”
However, in the present case, the Revenue’s attempt was to artificially allocate values to individual assets and merely bring some portion of consideration within the ambit of taxable transfer would amount to doing violence to the intent of the Act and is impermissible in law.
24. So far as the first question of law is concerned; it is revealed that there is concurrent finding given by the Commissioner of Income Tax, as also by the ITAT that the assessee sold the business as a going concern on a lumps basis without any individual values to the various assets. The said finding arrived by the two authorities were based on cogent appreciation of material on record. There is nothing substantial which can be brought in by the appellants for the Bench to hold that the finding arrived at by the Tribunal as also by the Commissioner of Income Tax to be perverse or contrary to the law. While the transaction in question falls within the definition of a slump sale as set out in Section 2(42C) of the Act, the definition and the capital gains arising on such transfer came to be taxed by Section 50B of the Act by insertion of these provisions only with effect from 01.04.2000 and therefore it is not applicable to the present case. Further, Section 41(2) of the Act deals with taxation of gains on sale of certain depreciable assets and is not applicable to the facts of the present case since the entire business together with all assets and liabilities were sold as a going concern on a lumpsum basis. Artificially or forcefully allotting values to certain assets with the sole objective of coaxing at least some of the consideration into the mould of a taxable transfer would amount to doing violence to the intent of the Act and is therefore impermissible.
25. So far as the second question of law is concerned; it is revealed that there is concurrent finding given by the Commissioner of Income Tax as also by the ITAT that the assessee sold the business as a going concern on a lumps basis without any individual values to the various assets. The said finding arrived by the two authorities were based on cogent appreciation of material on record. There is nothing substantial which can be brought in by the appellants for the Bench to hold that the finding arrived at by the Tribunal as also by the CIT appeals to be perverse or contrary to the law. The relevant terms of the Licensing Agreement, dated 01.10.1994, as extracted in the Assessment Order would make it clear that the assessee only procured the concentrate from the licensor and the rest of the business of bottling, marketing and sales was undertaken by it at its own risk and cost and that the license was on a principal-to-principal basis and not one of agency. The Commissioner of Income Tax and the ITAT have concurrently held that the Licensing Agreement was on a principal-to-principal basis and the assessee was not acting as an agent of Coca Cola. Therefore, the consideration received by the assessee would not fall within the scope of Section 28(ii)(c) of the Act. Section 28(11)(e) relied upon by the Revenue was inserted with effect from 01.04.2019 and is not relevant for the purposes of the present appeal. The Revenue had neither raised any grounds nor placed any material even at the time of arguments as to the material which ought to have been considered but not done so by the appellate authorities.
26. Dealing with the third question of law, in the course of deciding whether the consideration received by the assessee would amount to a capital gain or revenue receipt, the ITAT after appreciating all the relevant factual matrix of the case held that the transfer in fact resulted in the loss of source of income as also a business loss and, therefore, leading to loss and capital gain of asset and the consideration so received for such a transfer would amount to capital receipt. The entire business of the assessee company, including its fixed and movable assets, marketing & distribution network, trade receivables and goodwill were all transferred as a going concern. The assessee also suffered a termination of existing contracts as well as a non-compete obligation which restricted its ability to undertake a similar business. The assessee had to change its name from M/s.Spectra Bottling Ltd. to M/s.Spectra Shares & Scrips Ltd. as well. Therefore, there was a complete loss of the business by the assessee resulting in an extinguishment of its source of income.
27. The Hon’ble Supreme Court in the case of Kettlewell Bullen & Co. Ltd. v. CIT [1964] 53 ITR 261 held that:
“36. On an analysis of these cases which fall on two sides of the dividing line, a satisfactory measure of consistency in principle is disclosed. Where on a consideration of the circumstances, payment is made to compensate a person for cancellation of a contract which does not affect the trading structure of his business, nor deprive him of what in substance is his source of income, termination of the contract being a normal incident of the business, and such cancellation leaves him free to carry on his trade (freed from the contract terminated) the receipt is revenue : Where by the cancellation of an agency the trading structure of the assessee is impaired, or such cancellation results in loss of what may be regarded as the source of the assessee’s income, the payment made to compensate for cancellation of the agency agreement is normally a capital receipt.”
Therefore, the ITAT has correctly held that the transfer resulted in loss of income and was therefore a loss of capital asset, making the consideration received a capital receipt.
28. The Supreme Court again in the case of CIT v. D.P. Sandu Bros. Chembur (P.) Ltd. (SC)/2 SCC 584 held that:
“13. Were it not for the inability to compute the cost of acquisition under Section 48, there is, as we have said, no doubt that a monthly tenancy or leasehold right is a capital asset and that the amount received on its surrender was a capital receipt. But because we have held that Section 45 cannot be applied, it is not open to the Department to impose tax on such capital receipt by the assessee under any other section. This Court, as early as in 1957 had, in United Commercial Bank Ltd. v. CIT [(1957) 32 ITR 688 : 1958 SCR 79] held that the heads of income provided for in the sections of the Income Tax Act, 1922 are mutually exclusive and where any item of income falls specifically under one head, it has to be charged under that head and no other. In other words, income derived from different sources falling under a specific head has to be computed for the purposes of taxation in the manner provided by the appropriate section and no other. It has been further held by this Court in East India Housing and Land Development Trust Ltd. v. CIT [(1961) 42 ITR 49 (SC)] that if the income from a source falls within a specific head, the fact that it may indirectly be covered by another head will not make the income taxable under the latter head.”
29. By applying this principle, since the slump sale consideration is not taxable under Section 45 of the Act for the assessment year in question due to the non-applicability of Section 50B of the Act, the Revenue cannot artificially fragment the transaction to tax portions thereof under different heads.
30. The Commissioner of Income Tax has not specifically dealt with the issue whether the consideration received was a capital or revenue receipt but has proceeded on the basis that the receipt was capital in nature. The ITAT [@Pg 12, pa 12], has held that the transfer resulted in a loss of source of income and was therefore a loss of a capital asset and the consideration received for such transfer would be a capital receipt. No material or law to the contrary has been placed by the Revenue to either contend that the transfer did not result in a loss of source of income or that such receipt on the transfer of the business is liable to be treated as a revenue receipt.
31. Therefore, in the opinion of the Bench, the three substantial questions of law stand answered against the Revenue and in favour of the assessee affirming the findings given by the ITAT as also by the Commissioner of Income Tax. In view of the same, the appeal fails and is accordingly, dismissed.
32. As a sequel, miscellaneous petitions pending if any, shall stand closed. However, there shall be no order as to costs.