ITA NO. 837/KB OF 1991-92,'DECIDED ON 28TH OCTOBER, 1992. VS ITA NO. 837/KB OF 1991-92,'DECIDED ON 28TH OCTOBER, 1992., 1993 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 1175 (1992)

(a) Income-tax---

.....Slump transaction"---Definition.

Slump transaction can be defined to mean, sale of entire going concern as a whole inclusive of all movable and immovable properties, goods and stock-in-trade, assets and liabilities without specifying the itemised valuation of various assets, stock-in-trade and goodwill, if any, and payment of consideration as a whole for entire business as such, with the result that no portion of sale price is attributable to any particular item. In such transaction what is sold is not the individual itemised property but the entire business as a whole undertaking and the price so received is termed as "slump price".

Where on valuing of all the relevant documents of the transaction together itemised value could be attributed then such transaction was not a slump transaction.

CIT East v. Crescent Pak Soap and Oil Mills Ltd. 1985 PTD 3; Sara Bhai M. Chemicals (P.) Ltd. v. P.N. Mittal; Chamber's Twentieth Century Dictionary Shorter Oxford Dictionary, 3rd Ednand W.R. Doughty v. Commissioner of Taxes AIR 1927 PC 76 ref.

(b) Income Tax Ordinance (XXXI of 1979)---

----Third Sched., Rr.7 & 8---"Slump transaction"---Definition---Provisions contained in Rr.7 & 8 of Third Sched. to Income Tax Ordinance, 1979 would not be attracted in case of slump transaction---Mere sale of a whole going concern shall not take out the transaction out of purview of Rr.7 & 8 of the Third Sched: --Where itemised value of consideration was attributable, such transaction was not a slump transaction.

Slump transaction can be defined to mean, sale of entire going concern as a whole inclusive of all movable and immovable properties, goods and stock-in-trade, assets and liabilities without specifying the itemised valuation of various assets, stock-in-trade and goodwill, if any, and payment of consideration as a whole for entire business as such, with the result that no portion of sale price is attributable to any particular item. In such transaction what is sold is not the individual itemised property but the entire business as a whole undertaking and the price so received is termed as "slump price".

In the case of a slump transaction for a slump price the provisions of Rules 7 and 8 of the Third Schedule to the Income Tax Ordinance, 1979 are not attracted.

Every sale of entire going concern shall not amount to slump transaction for slump price and mere sale of a whole going concern shall not take out the transaction out of the purview of Rules 7 and 8 of the Third Schedule to the Income Tax Ordinance, 1979.

When an entire business undertaking is transferred inclusive of all assets, liabilities, trading, stock-in-trade, goodwill etc. for a lump sump amount and it is not possible to attribute value to separate items forming the entire going concern then the increase in the value on sale/transfer is not deemed to be taxable otherwise than by way of tax on capital gain and on such transaction the balancing charge is not levied under Rules 7 and 8 of the Third Schedule to the Income Tax Ordinance, 1979. However, if itemised value can be attributed to various assets even in the case of sale of entire going concern then it would not amount to a slump transaction for slump price.

All the documents executed between the parties and the relevant documents are to be read together for the purpose of ascertaining whether itemised value of the assets can be attributed or not and if on reading of all the documents together the itemised value can be attributed then the transfer is not to be held as slump transaction.

In the facts and circumstances of the present case the assessee had not sold any stock-in-trade, had not transferred any liability to the vendee and the itemised value of the consideration could be attributed to the each asset. The sale by the assessee was not a slump transaction.

CIT East v. Crescent Pak Soap and Oil Mills Ltd. 1985 PTD 3; Sara Bhai M. Chemicals (P.) Ltd. v. P.N. Mittal; Chamber's Twentieth Century Dictionary; Shorter Oxford Dictionary, 3rd Edn.; W.R. Doughty v. Commissioner of Taxes AIR 1927 PC 76; Akber Manufacturing v. CIT (1957) 31 ITR 9;i; Hall and Anderson (Pvt.) Ltd. v. CIT (1963) 47 ITR 790; Alapati Venkataramiah v. CIT (1967) 57 ITR 185; Pandit Lakshmikanta Jha v. CIT (1970) 75 ITR 790; Jayantilal Bhogilal Desai v. CIT (1981) 130 ITR 655; Additional Commissioner of Income Tax v. Mercury General Corporation (Pvt.) Ltd. (1982) 133 ITR 525; Chandra Katha Industries v. CIT (1982) 133 ITR 168 and PLD 1974 BJ 25 ref:

(c) Income-tax----

----Doubt as regards consideration attributable to one item or the other-- Benefit of such doubt must go to the assessee.

Muhammad Naseem for Appellant.

M. Musharraf Akhund, D.R. for Respondent.

Date of hearing: 30th September, 1992.

ORDER

The above appeal is directed against the order, dated 9-10-1991 by the learned C.I.T.(A), Zone-III, Karachi in ITA No. 1338/CIT(A)/III/91, relating to the assessment year 1989-90.

The appellant a private limited company deriving income from manufacture of paper at Karachi and purchase of paper books on local and import basis has raised objections to the addition under the provision of Rules 7 and 8 of the Third Schedule to the Income Tax Ordinance, 1979 and partial add back out of repairs and renewals. In grounds of appeal some other objections have also been taken but they have not been pressed during the course of arguments.

3. The main issue raised in the appeal is relating to the additions under rules 7 and R of the Third Schedule to the income-tax Ordinance, 1979. The relevant facts are that the appellant owned two Paper Mills, one at Karachi and other at Mandiali known as Mandiali Paper Mills The Mandiali P9per Mills was not making profits which was leased out by the appellant since last nine years which was sold to the lessees in the assessment year 1989-90. Before sale of the said mills the appellant received annual lease amount at Rs.21,25.001. An agreement to sell was executed in this behalf on 6th day of January, 1988 which included the entire land owned by the appellant with construction thereon comprising building for pulp and paper plant, warehouses services administrative building, housing colony for labour and equipped and fitted with plant and machinery for paper making, boiler, tube well, turbine pumps, electrical gas equipments and installation, laboratory equipments as well as furniture, fixtures, telephone and electric connections on as and where basis alongwith good-,,ill of Mandiali Paper Mills which was described in the sale agreement as said property and was further described in the Schedule attached therewith which reads as follows:

(a)Land measuring 208 Kanals.

(b)Building for pulp and paper plant, warehouse, stores, housing colony for labour and staff on as and where basis.

(C)Plant and machinery for paper making including boiler, power house, installations, tube wells, laboratory equipments, furniture and fixtures on as and where basis.

(d)Goodwill of the Mandiali Paper Mills.

4. The total sale consideration was fixed at Rs.1,85,00;000. It was further stated in the sale agreement that the vendor has agreed to sell and the vendee has agreed to purchase the said property for a lump sum consideration pf Rs.1,85,00,000. Initial payment of Rs. 14,00,000 was made vide draft dated 22-12-1987, Rs.10,00,000 vide cheque, dated 2-1-1988 and Rs.4,00,000 by a cheque drawn on Deautshe Bank Asia, Karachi. It was further agreed that the remaining balance of Rs.1,71,00,000 would be paid by the vendee to the vendor in the following manner:

(a)Rs.36,00,000 (Rupees three million six hundred thousand only) will be paid by the Vendee to the Vendor on or about 15th of July, 1988.

(b) Rs.6,000,000 (Rupees six million only) will be paid by the Vendee to the Vendor on or about 15th September, 1988.

(c)Rs. 3,500,000 (Rupees three million five hundred thousand only) will be paid by the Vendee to the Vendor on or about 15^th November, 1988.

(d)The balance payment of Rs.4,000,000 (Rupees four million only) will be paid by the Vendee to the Vendor on or about 31st December, 1988 thus liquidating the full amount of sale consideration of Rs.18,500,000 (Rupees eighteen million five hundred thousand only).

(e)The Vendee shall not make any default in making payment which will fall due on 15th July, 1988, 15th September, 1988, 15th November, 1988 and 31st December, 1988, without prejudice to the Vendor's rights to terminate this agreement and to enter possession as specified in clause 2(t) below, the Vendee hereby undertake to pay 15% interest and also 5% penal interest until all the payments are made as mentioned in clause (2), (a), (b). (c) and (d).

(f)Notwithstanding anything contained in clause (2), (a), (b), (c) and (d) in case the Vendee does not pay the amount mentioned on the due dates, the Vendor shall have the right to terminate this agreement at its exclusive discretion and acquire possession of the said property, delivery whereof shall forthwith be given by the Vendee to the Vendor peacefully and without demur..

5. It was further agreed in the agreement of sale that the Vendor shall deliver vacant and peaceful possession of the said property to the Vendee on the 1st July, 1988 on payment of Rs.36,00,000. It was further agreed in para. 4 of the Sale Agreement that upon. delivery of possession of the said property to the Vendee it shall be the exclusive liability of the Vendee to pay all taxes and charges relating to the said property including electricity, water, gas and telephone charges. The Vendee was further required to arrange and obtain full insurance coverage of the said property in the name of the Vendor until final transfer of the said property through registration in favour of the Vendee. It was stipulated that clearance certificate for effecting the sale and transfer of the said property if required shall be obtained by Vendee and Vendor shall pay the expenses thereof and that the Vendor shall transfer the same to the Vendee free from all claims, charges and encumbrances of whatsoever nature. The Vendor further undertook in para. 6 of the sale agreement to execute and register the sale-deed for the final and effectual- transfer of the title of the said property in favour of the Vendee upon receipt of full payment: The Vendee agreed to bear all the expenses for effecting transfer of the said property and registration thereof in the name of the Vendee. Since the physical possession of the mills was already with the Vendee as lessees it was agreed that the continuance of possession by the Vendee after 1st July, 1988 shall not be construed as possession in part performance of the contract. It was further stipulated that the Vendor shall deliver the original deeds of the said property to the Vendee after registration of sale-deed. It was stated in the sale agreement that the draft of the agreement for sale was approved in the meeting of Board of Directors of the Vendor company on 4th of January, 1988 and was approved by the Board of Directors of the Vendee company on 5^th January' 1988.

6. From the perusal of record it appears that negotiations for sale were going on between the parties for some period before the execution of sale agreement on 6th of January, 1988 which is evident from the fact that an amount of Rs.14,00,000 was already paid by the Vendee to the appellant on 22-12-1987 and an amount of Rs.10,00,000 was paid on 2-1-1988. Before the execution of sale agreement. the appellant hired services of M/s. Haseeb Associates for physical inspection of the mills and ascertaining value of fixed assets comprising land, building plant and machinery. M/s. Haseeb Associates submitted their report on 3rd of January, 1988 whereby they certified current assessed value of the fixed assets at site as on 30th December, 1987 as under:

In pursuance of the sale agreement, dated 6th January, 1988 the appellant executed a sale-deed on 6th of December, 1988 which was duly registered with the Sub-Registrar, Fero7xwala, District Sheikhupura on the same day, It was recited in the sale-deed that the parties mutually agreed to sell and purchase respectively the land for consideration of Rs.95,00,000 and all construction thereon fan a consideration of Rs.50,00,000. It was further recited in the sale-deed that the general meeting of the Vendors called on 26-12-1987 by a resolution authorised the sale of the property to the purchasers for the consideration set out in the sale deed and that 4oard of Directors o: the Vendors by a resolution passed in meeting held on 23rd July, 1988 further authorised the sale. The sale-deed further acknowledged receipt of Rs.1,45,00,000 in instalments starting from 22-1-1987 up to 23-11-1988.

8. The assessing officer during the assessment proceedings in the assessment year 1989-90 observed that the appellant sold Mandiali Paper Mills for total consideration of Rs.1,85,00,000.. He further observed that the W.D.V. of the assets of the mills was Rs.16,23,214 as at the end of preceding year. The assessing officer further observed that the appellant claimed the transaction as a slump transaction for a slump price and under impelling circumstances, therefore, the excess over the W.D.V. or cost was not liable to tax under Rules 7/8 of the Third Schedule. The assessing officer did not accept the contention that it was slump transaction as according to the assessing officer the expression "slump" means reduce, fall, sinking or sudden fall in prices, business etc. The assessing officer observed that the sale price was 11.4 times of the W.D.V. of the Mills, premises and assets and more than 5 times of the price as per accounts. It was contended by the A.R. of the appellant before the assessing officer that the price increased due to appreciation in the value of land. The assessing officer did not accept this plea as well for the reason that the land was valued by experts and shown in the registered sale-deed at R:s.95 00,000 and even the residual value of other assets namely building, machinery and furniture at Mandiali was Rs.90,00,000 which was much above the tax W.D.V. of these assets and was more than even the original cost in some cases. The assessing officer observed that the buildings were valued by experts and shown in the registered sale-deed at Rs.50,00,000 against W.D.V. of Rs.10,03,537 and original cost of Rs.42,42,741. In support of the contention that the transaction was a slump transaction and, therefore, no addition could be made under Rule 7/8 of the Third Schedule to the Income Tax Ordinance, 1979, reliance was placed on the judgment of Hon'ble Sindh High Court in the case of C.I.T. East v. Crescent Pak Soap and Oil Mills Ltd. (1985 PTD 3). Some other cases considered by the Hon'ble High Court were also referred during the course of arguments. The assessing officer, however, did not accept the contention and held that the facts of the cited cases were distinguishable. The A.R. of the appellant placed reliance on the following observation of the Gujarat High Court in the case of Sara Bhai M. Chemicals (P.) Ltd. v. P.N. Mittal:

"It is well-settled that business is property and the undertaking of a business is a capital asset of the owner of the undertaking. When an undertaking as a whole is transferred as a going concern together with its goodwill and all other assets, what is sold is not the individual itemised property but what is sold is the capital asset consisting of the business of the undertaking and any tax that can be attracted to such a transaction for a slump price at book value would be merely capital gains tax and nothing else but capital gains tax. Plant or machinery or any fixture or furniture is not being sold as such. What is sold is the business of the undertaking for a slump price. If the capital asset, namely, the business of the undertaking, has a greater value than its original cost of acquisition then, capital gains may be attracted in the ordinary case of a sale of an undertaking, and that is precisely what has been indicated in Doughty's case (1927) AC 327 (PC) and in Mugneeram Bangur's case (1965) 57 ITR 299 (SC). Kharwar's case (1969) 72 ITR 603 (SC), in our opinion, relied upon by Mr. Desai for the respondents, deals with a different situation where out of the total 'assets of the business only machinery was sold and then it was a clear case of section 41(2) of equivalent provisions of the Indian I.T. Act, 1922, being attracted to such a transaction:'

9. The assessing officer held that the above observation was not applicable for the reason that in the cited case the firm's assets were sold as a going concern to a limited company, no specific price could be assigned to the different assets sold for the purpose of section 10(2)(vii) of the Repealed Income-tax Act, 1922 and sale was of the whole business and not of assets only and for slump price.

10. The assessing officer thereafter observed that in the sale agreement separate values were not assigned to the different classes and gross sale price was stated to be Rs. 1,85,00,000 whereas in the registered sale-deed, dated 6-12-1988 the price of land and building was separately valued. He referred to the valuation certificate issued by M/s. Haseeb Associates, Architects and Civil Engineers as well. The assessing officer observed that M/s. Haseeb Associates certified the value of land, building and machinery amounting to Rs.1,70,00,000 and, therefore, the remaining sum of Rs.15,00,000 was the value of furniture, fixtures, etc. It was contended that the total price of the mills was inclusive of goodwill but the plea was not accepted by the assessing officer for the reason that mill was suffering losses and was finally closed in 1977. It was subsequently leased out to M/s. Firdous Flour Mills for about 9 years and subsequently it was sold to the same group. The assessing officer held that the goodwill, if any, belonged to buyers who were running it for last many years. The assessing officer ultimately repelled the contentions raised on behalf of appellant for the following reasons:

(i) The assets sold by the appellant were not on depreciated or slumped values but at normally enhanced value. Thus, according to the assessing officer the sale does not amount to slump transaction. The additional reason was assigned by the assessing officer to the effect that the value of each class of asset was given in the valuation report dated 3-1-1988 and such valuation was mentioned in the registered deed, dated 6-12-1988 as well.

(ii) There was no sale of going concern with all its assets and liabilities According to the assessing officer there was no sale or business as the business was already closed in 1977 and there were no stocks, debts etc. available to the appellant.

11. The assessing officer while holding that the sale of Mandiali Mills of the appellant was not a slump transaction placed reliance on some cases from Indian jurisdiction. He ultimately worked out profit from sale of Mandiali Mills and income chargeable to take under Rule 7(c) read with Rule 8 of the Third Schedule to the Income Tax Ordinance, 1979 as follows:

"(1)Land: This has been sold for Rs.95,00,000 original cost was Rs.3,98,892. The excess is not liable to tax being in respect of land, which is not subject-matter of action under Rule 7/8 of 3rd Schedule.

(2)BUILDING: Buildings at Mandiali have been sold for Rs.50,00,000. The original cost of this class of assets is as under:---

(a)Original cost of Mandiali Paper Mills:

It can be seen from above that the original cost of these class of assets is less than sale price of building at Mandiali. Circular C.No: 1(37)-IT 1/79, dated 1-10-1979 is inapplicable in this case. Since the law speaks of class of assets irrespective of their location and the nature of work. The sale price is, therefore, adjusted against total W.D.V. of this class of assets at Karachi and Mandiali which is Rs.11,24,449 and is worked out as under:---

W.D.V. of Mandiali Paper Mills:

W.D.V. of this class of assets as worked out at Rs.11,24,449 is reduced by the sale proceeds thereof at Rs.50,00,000 and the excess of Rs.38,75,551 is deemed to be income chargeable to tax under Rule 7(c) of Third Schedule of the Income Tax Ordinance, 1979.

(3)MACHINERY: Machinery at Mandiali has been disposed of at Rs.25,00,000 as discussed above. This amount is adjusted against W.D.V. of Mill at Mandiali which was Rs.5,87,672. The surplus thus works out at Rs.19,12,328 (Rs.25,00,000, Rs.5,87,672). This amount is adjusted against remaining W.D.V. of this class of assets at Karachi which is Rs.27,784. The difference is thus worked out at Rs.18,84,544 (Rs.19,12,328, Rs.27,784). This amount is deemed to be chargeable to tax under Rule 7(c) read with*Rule 8 of Third Schedule to the Income Tax Ordinance, 1979. .

(4)FURNITURE AND FIXTURE: There is no mention of the value of fixture and fittings either in registered sale-deed or M/s. Haseeb Ahmad Associates' report. They expressed their inability to value these assets as mentioned on page 34 of their Report. However, as per agreement to sell the furniture and fixture and fittings at Mandiali were also sold. The agreement to sell speaks of the goodwill also but as discussed above there was no goodwill of this concern with the assessee vendors. The difference of Rs.1,85,00,000 and Rs.1,170,00,000 is therefore, held to be the value of furniture, fixture and fittings at Mandiali. The total W.D.V. of these assets at Mandiali amounts to Rs.6,122 + Rs. 25,883) = Rs.32,005. The profit amounts to Rs.14,67,995. This is adjusted against value of these assets at Karachi which is (Rs.14,557 + Rs.1,61,000 = Rs.l.75,562). The remaining amount (Rs.14,67,995 -- Rs.1,75,562) that is the difference amounting to Rs. 12,92,433 is deemed to be income chargeable to tax under Rule 7(c) read with Rule 8 of the Third Schedule to Income Tax Ordinance, 1979.

Total amount liable to be added is as under:

12. Being aggrieved with the above treatment the appellant preferred first appeal before the learned CIT(A) Zone-III, Karachi. It was contended before the learned CIT(A) that in sale agreement the fixed price was agreed for land building, plant and machinery, existing business goodwill and no separate price was identified for any asset or class of assets. The sale-deed in respect of land and building was prepared at the instance of purchaser and in compliance of the requirement of law according to which the title in immovable property is to be passed by execution of sale-deed. It was pleaded that subsequent execution of sale-deed will not nullify the initial character of slump price, which took place with the execution of sale agreement. Ii was further argued that the sale-deed was executed in respect of land and building only and there was no sale- deed for the rest of the assets. So far the report of M/s. Haseeb Associates was concerned it was maintained that the purpose was to help purchaser in ascertaining and quantifying the sale price. It was further pleaded that the assessing officer was not entitled to take sale consideration separately far different class of assets. The meaning assigned to the slump transaction by the assessing officer was also assailed. It was also contended that the assessing officer was not entitled to estimate the prompt sale of furniture and fittings at Rs.14,67,995 while no furniture and Fittings were handed over nor contemplated to be sold. It was further alleged that the assessing officer ought to have estimated value of goodwill which according to the appellant was estimated at 15,00,000 by M/s. Haseeb Associates. The learned CIT(A) did not accept the contention that the sale was a slump transaction. The learned CIT(A) upheld the concept of slump transaction as understood by the assessing officer. The learned CIT(A) further held that in the sale-deed and .valuation report of Haseeb Associates separate values have been assigned to different classes of assets. He further came to the conclusion that the sale price paid by the buyers was for land, building, plant and machinery and fixtures and fittings, i.e., of the tangible assets of the assessee company's Mandiali Paper Mills. There was no mention of sale of business or goodwill in the sale-deed. The learned C.I.T. (A) also came to the conclusion that there was no question of goodwill because for the last nine years the Mills was on lease with the purchaser. The learned C.I.T. (A) Ultimately confirmed the treatment meted out to the appellant and hence this second appeal before us.

13. We have heard Mr. Muhammad Nasim, learned counsel for the appellant and Mr. M. Musharraf Akhund, learned Representative for the Department. Mr. Muhammad Nasim has mainly 'reiterated the same arguments before us as advanced before the learned two officers below. He has contended that the learned two officers below have not construed the correct meaning of the expressions "slump transaction" and "slump sale". He has further contended that the learned two officers below have erred in ignoring the sale agreement between the parties for a slump sale and placing reliance on the valuation report of M/s. Haseeb Associates and sale-deed. Since Mr. Muhammad Nasim has not raised any new plea before us, therefore, for the sake of brevity we would not like to reiterate his contentions in detail before us as they have already been referred while giving resume of the facts leading to this second appeal. We have carefully considered the contentions raised by the learned representatives for the parties before us and the picas taken before the learn two officers below. Our findings on the various issues are as follows.

14. The first issue, which requires our consideration is as to what is meant by slump transaction for slump price. The assessing officer as well as the learned C.I.T. (A) have understood the expression with the assistance of various dictionaries to mean, a fall in prices or demand; fall or sink suddenly into water or mud; to fall suddenly or heavily; a sudden or serious fall of prices, business etc. opposed to boom, diminution of demand for commodity or interest taken in subject or undertaking. On the other hand, Mr. Muhammad Nasim has contended that the expression "slump" has various meanings, some of which have been taken by the learned two officers below which are not relevant when used in context of a transaction for the purpose of taxation. He has submitted that in Chamber's Twentieth Century Dictionary "slump" has been defined as lump also and the slump sum as a lump sum. In Shorter Oxford Dictionary, 3rd Edition the slump has been defined as a whole, a lump sum; a transaction as one quantity or to deal in mass or group. Mr. Muhammad Nasim has further submitted that the expression "slump transaction" has not been defined in the repealed Income Tax Act, 1922 or income Tax Ordinance, .1979 but the expression has been used by superior Courts and, therefore, the expression "slump transaction" is to be considered in the sense in which it has been used in various judgments by the Privy Council and superior Courts in the Indo-Pak Sub-continent. Mr. Muhammad Nasim has argued that the leading case on the issue is W.R. Doughty v. Commissioner of Taxes (AIR 1927 PC 76). In this case the Privy Council defined the slump transaction to mean the transfer of entire going concern with entire assets, liabilities, stock-in-trade etc. The principle enunciated in the Doughty's case has been considered in large number of cases in Indo-Pak Sub-continent. Mr. Muhammad Nasim, learned counsel for the appellant has placed reliance on various cases in this behalf but we need not to dilate on all the cases because all those cases have been considered by a Full Bench of Hon'ble Sindh High Court in the case of C.I.T. v. Crescent Pak Soap and Oil Mills Limited (1985) PTD 3) and after a detailed resume of entire case-law the issue has been decided and as such it has been made easier for us. It has been held in this judgment that unless the price of the buildings, plant and machinery which was sold was shown itemised it was not possible out of the total consideration settled for transfer to assign any particular amount or amounts to building, plant and machinery sold. It was further held that since the sale consideration paid was for the entire going concern, therefore, it was not possible to say that any particular amount was pitched against building, plant and machinery. It was ultimately held that it was clearly a slump transaction and, therefore, it cannot be said that proviso to clause (7) of subsection (2) of section 10 of the Act would or could be attracted.

15. Taking guidance from the above judgment of Hon'ble High Court of Sindh and large number of cases considered in the above judgment we can define the slump transaction to mean, sale of entire going concern as a whole inclusive of all movable and immovable properties, goods and stock-in-trade, assets and liabilities without specifying the itemised valuation of various assets, stock-in-trade and goodwill, if any, and payment of consideration as a whole for entire business as such, with the result that no portion of sale price is attributable to any particular item. In such transaction what is sold is not the individual itemised property but the entire business as a whole undertaking and the price so received is termed as "slump price". After defining a slump transaction and slump price the issue whether in the case of such transaction the provisions contained in Rules 7 and 8 of the Third Schedule to the Income tax Ordinance, 1979 (corresponding to section 10(2)(vii) of the Repealed Income Tax Act, 1922) are attracted or not can be decided in negative without any difficulty because the issue already stands decided by a Full Bench of the Honourable Sindh High Court in the case of Crescent Pak Soap and Oil Mills Ltd. cited above. Thus, it is held that in the case of a slump transaction for a slump price the provisions of Rules 7 and 8 of the Third Schedule to the Income Tax Ordinance, 1979 are not attracted. It is further held that the learned two officers below have not correctly understood the expression "slump transaction" and they have fallen in error by ignoring or not properly appreciating the ratio in the case of Crescent Pak Soap and Oil Mills Limited.

16. After coming to the conclusion that in the case of slump transaction for slump price the provisions contained in Rules 7 and 8 of the Third Schedule to the Income Tax Ordinance, 1979 are not attracted the question arises whether the sale of Mandiali Mills by the appellant amounts to a slump transaction or not. The reason being that every sale of entire going concern shall not amount to slump transaction for slump price and mere sale of a whole going concern shall not take out the transaction out of the purview of Rules 7 and 8 of the Third Schedule to the Income Tax Ordinance, 1979. A contention that sale of an undertaking as a whole was outside the purview of proviso to section 10(2)(vii) of the repealed Income Tax Act, 1922 (corresponding to Rules 7 and 8 of the Third Schedule to the Income Tax Ordinance, 1979) was repelled by Chagla, C.J. of Bombay High Court in the case of Akber Manufacturing v. C.I.T. (1957) 31 ITR page 99. Relevant finding at page 107 is as follows:

"The second point urged by Mr. Palkhivala is that under the relevant proviso to section 10(2)(vii), if the undertaking is sold as a whole, then the proviso has no application. There is no warrant whatever for this contention. The proviso refers to any such building, machinery or plant being sold, and whether the building, machinery or plant is sold separately and individually or sold together and the whole of the undertaking is transferred, the position is identical under the proviso. The object of the Legislature in enacting the proviso is clear that if arty building, machinery or plant realises a price on sale which is more than the written down value, then to the extent that depreciation has been claimed and allowed to the company, the company should make good that depreciation. If that is the principle underlying this proviso, we see no reason why the application of that principle should be limited to a case where a part of the undertaking is' sold and not the whole."

17. The admitted facts in the present case are that during the course of negotiations for sale, the services of Haseeb Associates were utilized by the parties for ascertaining the value of the Mills and vide valuation report, dated 3-1-1988 the value of land was assessed at Rs.95,00,0(X), the value of building was assessed at Rs.50,00,000 and the value of plant and machinery was assessed at Rs.25,00,000. The total valuation of fixed assets was thus arrived at Rs.1,70,00,000. On 6-1-1988 agreement of sale was executed for entire Mills and in the schedule of property goodwill was added to the land, building and plant and machinery. The total price for sale was agreed at Rs.1,85,00,000 without specifying separate values for the land, building, plant and machinery and goodwill. As already narrated in earlier part of this order it was stipulated upon in the sale agreement that by the agreement of sale the property was agreed to be sold which was already in possession of vendee and the possession was not to be construed as possession in part performance of the contract and that upon registration of the sale-deed of the said property in favour of vendee the vendor shall deliver the original title deeds of the said property to the vendee. In pursuance of terms and conditions agreed in the sale agreement a sale-deed was executed and duly registered on 6-12-1988 in respect of land and building which included warehouses, stores, services, administration block, housing colony for labour and staff alongwith fittings, Fixtures, all connection of Sui gas, water and electricity on as and where basis. In this sale-deed the value of land was agreed at Rs.95,00,(XX) and the value of construction was received at Rs.50,(X),000. Thus, total consideration in the sale-deed for land and building was shown at Rs.1,45,00,000

18. On the basis of above facts Mr. Muhammad Nasim has contended that the valuation certificate containing the value of land, building and plant and machinery separately should be ruled out of consideration because the services of assessors were hired for the purpose of assessing the value of the Mills as a while and not for the purpose of ascertaining itemised value of the Mills. He ha further submitted that for this reason the assessors have shown the value at Rs1,70,000 while the actual value of the entire concern was Rs.1,85,00,000 which has been agreed in the sale agreement. So far the sale-deed is concerned Mr Muhammad Nasim has maintained that it was executed just as a matter of formality and at the request of vender who required such a sale-decd for the purpose of taking loan against the value of land and property. Mr. Muhammad Nasim has contended that notwithstanding the fact that the land and building fall under the category of immovable property the entire transaction stood concluded with the execution of sale agreement in which a total consideration of is.1,85,00,000. was agreed upon for the sale of entire going concern. According 'to Mr. Muhammad Nasim since no itemised value of the land, building, plant and goodwill was shown in the sale agreement separately, therefore, it would be deemed that the entire consideration of Rs.1,85,00,000 was slump price for a slump transaction in respect of an entire going concern and no itemised value can be attributed to the land, building, plant and machinery and goodwill and as such the ratio in the judgment of Hon'ble Sindh High Court in the case of Crescent Pak Soap and Oil Mills (cited above) is fully attracted.

19. On the other hand, the learned D.R. has contended that the sale of Mandiali Mills by the appellant does not amount to slump transaction for slump price because the itemised value of land, building and plant and machinery were already worked out at the instance of parties by M/s. Haseeb Associates vide their report, dated 3-1-1988. on the basis of which the total price of the Mills was agreed upon in the sale agreement. The learned D.R. has further argued that a perusal of the sale agreement shows that it was a mere agreement of sale and was not an outright sale as neither the entire sale consideration was received by the appellant nor the title deeds were handed over to the vendee. So much so that it was clearly mentioned that on expiry of lease period on 1st of July, 1988 the possession of vendee shall not be construed in part performance of the contract. It was further agreed in the sale agreement that subsequently the sale-deed shall be executed and registered. The property was not transferred in favour of the vendee is evident from the 'fact hat in the sale agreement it was stipulated that clearance certificate, if any, or effecting the sale and transfer of the property shall be obtained by vender and vendor shall pay the expenses thereof. It was further agreed that the vendor shall beat all the expenses for effecting transfer of the property and registration thereof and the appellant further undertook to execute and register the sale-decd for the final and effectual transfer of the title of the said property in favour of the vendee upon receipt of full payment. All such conditions are contained in paras. 5, 6, 7, 8 and 9 of the sale agreement. The learned D.R. has submitted that the sale agreement and the sale-deed if read together leave no scintilla of doubt that the Mills was sold by the appellant with the execution of sale-deed and not with the signing of sale agreement. The learned D.R. has pointed out that it is contained in para. 6 of the sale agreement that the vendor shall execute and register the sale-deed for final and effectual transfer of the title of the property in favour of vendee upon receipt of full payment and a perusal of sale-deed shows that the final payment was made by a bank draft dated 23-11-1988 and thereafter sale-deed was executed on 6-12-1988. It means that the actual transfer of property took place with the execution of sale-deed. A perusal of sale deed further shows that in the general meeting of vendors called on 26-12-1987 sale of the property was authorised by a resolution and thereafter appellant's Board of Directors by a resolution passed in meeting held on 23rd July, 1988 further authorised the sale. If the sale transaction was already finally concluded on 6-1-1988 as argued by Mr. Muhammad Nasim there was no necessity of passing a resolution by the appellant's Board of Directors on 23-7-1988 authorising the sale. All these circumstances are indicative of the fact that the property was finally conveyed and transferred with the execution of sale-decd on 6-12-1988 wherein the cost of land and' building arc separately shown. The learned D.R. has further argued that the Mills was admittedly leased out to the vendors about nine years before the sale transaction and, therefore, at the time of sale the appellant was not engaged in any buying or selling, in trading or any manufacturing as such. He was only receiving lease money for the last nine years. At the time of sale transaction the appellant had no stock-in-trade at the Mills and as such the total sale consideration was not inclusive of any buying or selling, any stock-in-trade or any liability as in the cases cited by Mr. Muhammad Nasim and more particularly in the case of Crescent Pak Soap and Oil Mills where the firm transferred running business to the company whi7h was inclusive of goodwill, plants, machinery, motor cars, vehicles, furniture, fixtures, other movable and immovable properties, assets, stock-in-trade, books and other deeds with benefits of all leases, securities, pending contracts, orders, engagements, services, all cash in hand or in banks, all bills and all rights, and properties belonging to the vendors or to which the vendors were entitled in connection with the management of the business of the firm. The learned D.R. has thus submitted that in the case of Crescent Pak Soap and Oil Mills Limited it was not possible to attribute separate value to each item of the asset, stock-in- trade, liability etc. while in the present case the separate values of the land, plant and machinery and building have already been worked out and as such the sale of Mandiali Mills does not amount to slump transaction for slump price.

20. We have carefully considered the facts obtaining on record and the contentions raised by the learned representatives for the parties. Before giving our finding on the issue if the Mandiali Mills stood transferred with the execution of sale agreement or with the execution of sale-deed and dilating on the effect thereof we would like to refer to certain cases from Indian jurisdiction in which similar circumstances came for consideration.

21. In case of Hall and Anderson (Pvt.) Ltd. v. C.I.T. (1963) 47 ITR 790) an agreement was executed on 29-11-1946 for sale of business, assets, liabilities, land, buildings, furniture etc. as a going concern for Rs.80,00,000 with effect from December 1, 1946. The price was made up at Rs.20,00,000 for freehold land, Rs.30,00,000 for buildings and other immovable properties and Rs.30,00,000 for movable properties. It was agreed that the possession of the properties agreed to be sold would be given to vendee on execution of agreement. The price was paid by the purchaser and the possession of entire properties including the immovable properties and the business was delivered to the purchaser on December 1, 1946. The seller in his books made entries of sale as on 1-12-1946. It was agreed in the sale agreement that the seller shall execute in favour of the purchaser a conveyance decd or any other document considered necessary in respect of the portions of the premises, which did not pass by delivery of possession. On February 26, 1949 the seller executed a sale- deed in favour of the vendee in respect of immovable properties. The sale-deed was registered on the same day. The question was referred to the Calcutta High Court if in the facts and circumstances of the case the sale was effected on December 1, 1940. It was held by the Calcutta High Court that word "sale" was not defined in the Indian Income-tax Act, 1922 and in order to find out the legal implication of "sale" one must resort to the Transfer of Property Act, in the case of immovable property and to the Sale of Goods Act for movable property. Under section 8 of the Transfer of Property Act, even though the assessee has parted with the immovable properties to all intents and purposes as from December 1, 1946, in law the ownership continued in it until February 26, 1949. The sale of immovable properties was, therefore, effected on February 26, 1949.

22. The Supreme Court of India held similar view in the case of Alapati Venkataramiah v. C.I.T. (1967) 57 ITR 185. The appellant owned certain land and buildings, plant and machinery therein and carried on the manufacture of tiles and bricks who entered into an agreement to sell assets including the stocks and goodwill of business on 17-3-1948 for a sum of Rs.2,00,000 to a company. On the same day the appellant handed over possession of the land and buildings and machinery to the company. On March 20, 1948 the company credited the sum of Rs.2,00,tX10 in its account in favour of the appellant and the appellant also made appropriate entries in his own account books. The sale -deed in respect of the land was executed in favour of the company on November 22, 1948. The Hon'ble Supreme Court of India held that the delivery of possession of immovable property could not by itself be treated as equivalent to conveyance of the immovable property. It was further held that entries in the account books of the appellant and of the company on March 20, 1948 were irrelevant for the purpose of determining the date when the sale or transfer took place. The title to the land and buildings and plant and machinery and electrical fittings permanently embedded thereon could not pass to the company till the conveyance was executed and registered and the transfer of property by sale took place on 22nd November, 1948 when the sale-deed was executed and registered.

23. In another case reported as Pandit Lakshmikanta Jha v. CIT (1970) 75 ITR 709 the facts were that a private limited company took over publication of two newspapers as a going concern alongwith its assets and liabilities with effect from September 30, 1948. Subsequently a sale-decd was executed on 1st June, 1950 confirming the transaction which had already been effected on September 30, 1948 and the sale-deed was registered on August 12, 1950. The consideration for the transfer was in lump sum at Rs.12,50,000. However, in the sale-deed, dated June 1, 1950 the value of movables was determined and likewise the value of immovable properties was also recited. The value of movable and immovable properties recited in the sale-decd was in excess of the written down value and it was held by the Supreme Court that the excess could be assessed under the second proviso to section 10(2)(vii) of the repealed Income Tax Act, 1922.

24. In another case reported as Jayantilal Bhogilal Desai v. CIT (1981) 130 1TR 655), the facts were that the assessee was carrying on business of manufacturing and selling pencils in Ahmadabad city. He sold machineries, goodwill, stock, furniture etc. of his business to a firm for Rs.4,61,111 on June, 30, 1960. On July 1, 1966 a sale-deed called deed in respect of sale of movable properties was executed by the assessee in favour of the partners of the firm. In this deed it was stated that the assessee had sold machineries, tools, etc. of his business to the partners of the firm for Rs. 3,25,000 on June 30, 1966. It was further stated in the decd that the price of stock, stores, and ready goods was settled by the mutual agreement on June 30, 1966. A further deed, dated December 14, 1966 was executed by the assessee in favour of the purchasers. In this decd it was clarified that the consideration of Rs.3,25,000 was paid for the machineries, tools, etc. of the assessee's business. It was further stated that the price of the goodwill transferred to the firm was agreed at Rs.25,000 and that the stock was sold to the firm for Rs.1,11,111. It was stated that the total price of, the machineries, tools, goodwill, tenancy rights and stock was determined at Rs.4,61,111. On reference it was contended on behalf of the assessee that there had been a slump sale and he was not assessable on the transfer of his machineries and tools and that the second document executed on December 14, 1966 could not be taken into consideration. It was held by Gujarat High Court that the first sale-deed and the second sale-deed were to be read together and reading of both the documents showed that separate heads of items were earmarked as forming part of the whole transaction and different prices agreed to between the parties and, therefore, the entire business has not been sold at a slump price.

25. In the case of Additional Commissioner of Income Tax v. Mercury General Corporation (Pvt.) Ltd. (1982) 133 ITR 525) the assessee company entered into an agreement of sale with certain parties in May and June, 1967. The agreements of sale provided that sale-deeds were to be got registered before December 31, 1967. The Tribunal gave finding as under:

"In our considered opinion, it could not be held on the facts of the present case that any transfer of any part of the property had taken place in favour of the vendees in the present years. The mere execution of agreements of sales or even receipt of sale consideration could not operate as completed sales in the absence of registered sale -deeds. The Supreme Court authorities in the cases reported as CIT v. Bhurangya Coal Co. (1958) 34 ITR 802, Alapati Venkataramiah v. CIT (1965) 57 ITR 185 and the Delhi case of CIT v. Meatles Ltd. (1972) 84 ITR 37, clinch the matter in so far as the legal position is concerned."

26. The Delhi High Court confirmed the above finding of the Tribunal.

27. In the case of Chandra Katha Industries v. CIT (1982) 133 ITR 168, it was held that the agreement to sell in respect of immovable property of the value exceeding one hundred rupees would not create any right in favour of the vendee unless the transaction is evidenced by a written instrument duly registered. It was further held that whatever amount is paid under an agreement to sell is only by way of earnest money, just as the vendee cannot claim the title to the property on the basis of agreement to sell, the vendor does not acquire a right to claim payment of the consideration from the vendee. It was further held in this case that in every case where concern carrying on business is sold as a whole it cannot be assumed that the transfer is for a slump price. In this case entire assets and liabilities were sold on July 31, 1970. By sale-deed executed on August 1, 1970, the consideration was agreed to be the book value of the assets and liabilities the details of which were available and it was held that the excess realization over the written down value m respect of the plant and machinery was justified.

28. Now again reverting to the facts of the present case the admitted facts are that the sale agreement dated 6-1-1988 neither purports to finally convey and transfer the Mandiali Paper Mills and the right, title and interest therein in favour of vendee nor the property could legally be transferred by mere execution of a sale agreement in view of the provisions contained in section 54 of the Transfer of Property Act, 1882 which reads as follows:---

"54. `Sale defined: `Sale' is a transfer of ownership in exchange for a price paid or promised or part-paid and part-promised.

Sale how made: Such transfer, in the case of tangible immovable property of the value of one hundred rupees and upwards, or in the case of a reversion or other intangible thing, can be made only by a registered instrument.

In the case of tangible immovable property, of a value less than one hundred rupees, such transfer may be made either by a registered instrument or by delivery of the property.

Delivery of tangible immovable property takes place when the seller places the buyer, or such person as he directs, in possession of the property."

Several authorities have already been cited on the issue from the Indian jurisdiction and we would like to cite one authority only from Pakistani jurisdiction. It has been held by Honourable Lahore High Court in the judgment reported as PLD 1974 BJ 25 that under the Transfer of Property Act, sale means actual transfer of ownership and not mere intended and promised transfer. Therefore, a contract for sale by itself does not create any interest in or charge on property while the sale creates such rights and, therefore, represents the transfer of ownership in property. We are persuaded to agree with the submission of learned D.R. that perusal of sale agreement and the sale-deed and reading of various terms and conditions in the two documents leaves no room for any doubt that the Mandiali Mills stood transferred/sold in favour of vendees on execution and registration of sale-deed and not with the execution of sale agreement. The contention of Mr. Muhammad Nasim to the contrary is without substance and is hereby repelled.

30. We are now left with the issue whether in the facts and circumstances of the case the transaction of sale amounts to slump transaction for slump price. We have already discussed the purport, meaning and scope of the slump transaction and slump price whereby a transaction of the transfer of an entire going concern as a whole without specifying itemised value of the assets is held to be slump transaction. Thus, the crux of the issue is that when an entire business undertaking is transferred inclusive of all assets, liabilities, trading, stock-in-trade, goodwill etc. for a lump sum amount and it is not possible to attribute value to separate items forming the entire going concern then the increase in the value on sale/transfer is not deemed to be taxable otherwise than by way of tax on capital gain and on such transaction the balancing charge is not levied under rules 7 and 8 of the Third Schedule to the Income Tax Ordinance, 1979 (equivalent to section 10(2)(vii) of the repealed Income Tax Act, 1922 and section 41(2) of the Indian Income Tax Act, 1961). However, if itemised value can be attributed to various assets even in the case of sale of entire going concern then it would not amount to a slump transaction for slump price. We have observed that in various authorities under the Indian jurisdiction in the similar circumstances as in the present case the transactions have been held not to be slump transactions. The principle which can be deduced from the various authorities cited from Indian jurisdiction is that all the documents executed between the parties and the relevant documents are to be read together for the purpose of ascertaining whether itemised value of the assets can be attributed or not and if on reading of all the documents together the itemised value can be attributed then the transfer is not to be held as slump transaction. In the present case we find that before ascertaining the value o f entire mills the parties hired services of assessors, namely M/s. Haseeb Associates who on 3-1-1988 certified current assessed value of the company's fixed assets at site as on 30th December, 1987 as follows:

31. Thereafter, on 6-1-1988 the sale agreement was executed for a sum of Rs.1,85,00,000 and in the Schedule of property the goodwill was added to the land, building and plant and machinery. In the sale agreement no itemised value of the assets is given but over and above the value of assets certified by the assessors an amount of Rs.15,00,000 is added on one hand in the consideration and on the other hand the goodwill of the Mills is added in Schedule of property from which it can be inferred that the goodwill of the Mills was valued at Rs.15,00,000. Again registered deed is executed on 6th of December, 1988 wherein the value of land and building is recited at the same figures as in the certificate of assessors. In the Schedule of properties only land and building are shown and the sale consideration is mentioned at Rs.1,45,00,000. Thus, in the sale-deed two items have been omitted from the schedule of property, to wit, plant and machinery and the goodwill and the consideration amount has been reduced from Rs.1,85,00,000 actually received by the appellant to Rs.1,45,00,000. Thus, the amount of Rs.40,00,000 not shown in the sale-deed and the two items of property, i.e., plant and machinery and goodwill omitted from the schedule of property are pitched against each other and when all the three documents, i.e., assessors' certificate, sale agreement and sale-deed are read together the value of plant and machinery is worked out at Rs.25,00,000 and the value of goodwill at Rs.15,00,000. In this manner it becomes crystal clear without any shadow of doubt that in the facts and circumstances of the present case the appellant has not sold any stock-in-trade, has not transferred any liability to the vendee and the itemised value of the consideration can be attributed to the each asset as discussed above. We are, therefore, of the considered view that the sale of Mandiali Paper Mills by the appellant is not a slump transaction. The finding of the learned two officers below on this point is, therefore, upheld.

32. Mr. Muhammad Nasim next argued in the alternative that even if the transaction is not held as a slump transaction the treatment given by the assessing officer and confirmed by the learned C.I.T.(A) is not justified. He has contended that the learned two officers below have erred in holding that the amount of Rs.15,00,000 could be attributed to the furniture s and fixtures and that the appellant had no goodwill in the mills for the reason that the appellants were running the mills in losses nine years before the transaction. Mr. Muhammad Nasim has contended that in the last nine years the appellants was earning substantial profit by way of lease money and in the immediately preceding year an amount of Rs.21,25,000 was received as lease money. He has further contended that the mills was being run by the lessees on profit which is evident from the fact that they have purchased it for substantial consideration. He has further contended that the department cannot approbate and reprobate at the same time. Mr. Muhammad Nasim has vehemently argued that on one hand the department has placed reliance on the report of assessors, M/s. Haseeb Associates, sale agreement and the sale-deed collectively for attributing specific valuation to the assets and on the other hand the department has ignored the overall effect of the contents of the assessors' report and the sale agreement. In the assessors' report the entire fixed assets of the Mills consisting of land, building and plant and machinery have been assessed at Rs.1,70,00,000 which is inclusive of furniture and fixtures, if any. Mr. Muhammad Nasim has contended that during the period of nine years when the Mills remained on lease the furniture and fixtures were totally discarded and destroyed and secondly the value of building at Rs.50,00,000 is inclusive of fittings and fixtures which is evident from the description of building in the sale-deed.

33. The learned D.R. has supported the treatment given by the learned two officers below but on perusal of entire material available on record we are persuaded to agree with the contention of Mr. Muhammad Nasim because the appellant was all along being assessed in respect of his income from Mandiali Mills as income from business and throughout the business was being conducted by the lessees who were paying annual lease money of Rs.21,25,000, meaning thereby that the Mandiali Mills was running in profits and as such the goodwill was attached with the Mills. Moreover, in the certificate of assessors all the fixed assets consisting of land, building, plant and machinery have been valued at Rs.1,70,00,000. In the sale agreement the total sale consideration has been shown at Rs.1,85,00,000 and in the Schedule of property one item of goodwill of the Mandiali Mills has been added meaning thereby that the goodwill was valued at Rs.15,00,000. In such circumstances the two officers below were not justified in ignoring, the value of goodwill and attributing the amount of Rs.15,00,000 to the value of furniture and fixture. No details of furniture and fixtures are available and, therefore, we are of the considered view that the fixtures, if any, formed part of the building and no furniture was handed over by the appellant to the vendee at the time of sale. It is cardinal principle of the law of taxation that the benefit of doubt, if any, must go to the assessee and, therefore, it is held that out of the total sale consideration the value of Rs.15,00,000 should be attributed to the goodwill and consequently the addition under section 7(e) at Rs.12,92,433 on account of excess profit under the head furniture and fittings is directed to be deleted. The addition made under the head building and plant and machinery is hereby confirmed.

34. The only other objection pressed by Mr. Muhammad Nasim is to the disallowance under the head repairs and renewals in the profit and loss account. The total claim under the head was at Rs.22,380 out of which 50% has been disallowed by the assessing officer and has been confirmed by the learned C.I.T. (A). The claim is very meagre and consequently the disallowance is not justified which stands deleted.

35. The appeal is partly allowed to the extent and in the manner as indicated above.

M.BA./2410/T Appeal partly allowed.