Messrs PAKISTAN PAPER PRODUCTS LTD. VS COMMISSIONER OF INCOME TAX, 2006 PTD-KARACHI-HIGH-COURT-SINDH 1027 (2006)

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

----S.136 (2) & R.7 (b)(I) of Third Sched.---Registration Act (XVI of 1908), Ss. 17 & 49---Reference to High Court---Maintainability---Factual controversy---Slump sale---Proof---Unregistered agreement to sell---Assessee claimed exemption on the basis of slump sale---Income - tax authorities declined to give any exemption on the ground that the assessee relied upon unregistered agreement to sell---Validity---Two documents purportedly .executed between assessee and vendors, at the best, could have been taken into consideration together and no conclusive transaction of slump sale could be accepted on the basis of such agreements, to accommodate the assessee to evade payment of income tax on that premises---By virtue of S.17 read with S.49 of Registration Act, 1908, no right, title or interest could be conveyed in favour of vendee without execution of registered deed in respect of immovable property forming part of such transaction---On the strength of alleged agreement, assessee had acquired no title in the assets---High Court agreed with the conclusion recorded by Income Tax Appellate Tribunal---Findings recorded by Income Tax Appellate Tribunal that there was no slump sale in favour of assessee was a question of fact, which was not referable for opinion of High Court under S.136 (2) of Income Tax Ordinance, 1979---Reference was dismissed in circumstances.

Messrs Hotel Metropole Ltd. v. The Commissioner of Income-tax (Central), Karachi 1973 PTD 371; Alapati Venkataramiah v. Commissioner of Income Tax, Hyrabad, 1965 Vol. 57 ITR 185 and Commission of Income Tax (East) v. Messrs Crescent Pak Soap and oil Mills Ltd. 1985 PTD 3 ref.

(b) Interpretation of statutes---

----Fiscal matters---Function of Court---Scope---Function of Court is not to render operation of a statute redundant or interpret it in a manner, which may lead to evasion of tax.

Dr. Muhammad Farogh Nasim for Applicant.

Javed Farooqui for Respondent.

Date of hearing: 16th February, 2006.

ORDER

ANWAR ZAHEER JAMALI, J.---By this reference application under section 136(2) of the Income Tax Ordinance, 1979 following questions have been proposed by the applicant/assessee for the opinion of this Court:--

"(1) Whether on the facts and in the circumstances of the case, the learned income Tax Appellate Tribunal was justified in holding:--

(a) that a contract of sale of all the assets of Mandialli Paper Mills had not been accomplished and finalized with the signing of real and effective Sale Agreement, dated 6-1-1988;

that the' sale of the assets was only established upon the execution of the formal Sale-Deed, dated 6-12-1988;

(b) that there was no "slump" sale and the surplus of the whole transaction was not exempt as claimed."

(2) "And in the alternate, whether on the facts and in the circumstances of the case it was a case of capital gains and a treatment was to be given as such."

(3) "Whether the amendment of Rules 7 & 8 of the Second Schedule in respect of words "class of assets" to "assets" brought out by the Finance Act, 1991 was to have retrospective effect referable to pending proceedings of the year since it was a remedial and curative legislation."

2. Similar questions when proposed before the Tribunal in terms of section 136(1) of the Income Tax' Ordinance, 1979 were disposed of by the Tribunal vide its order, dated 11-12-1993 with the observations that learned counsel for the applicant/assessee had conceded that the questions Nos.2 and 3 do not arise out of the order, dated 28-10-1992 in I.T.A. No. 837/KB of 1991-1992 (assessment year 1989-90), while, in respect of question No.1 the learned Tribunal, after making relevant discussion in para.3 of its order, came to the conclusion that whether there was any slump sale in favour of the assessee or not was a question of fact therefore the findings of the Tribunal in this regard, contained in its earlier order, dated 28-10-1992 were not referable to the High Court for its opinion.

3. Before us also Dr. Farogh Nasim learned counsel for the applicant, at the outset of his submissions conceded that he is not pressing this reference application as regard questions Nos.2 and 3. Advancing his arguments in respect of question No.1, he submitted that the actual transaction of slump sale of Mandialli Paper Mills had taken place vide agreement, 6-1-1988, therefore, the subsequent deed, dated 6-12-1988, showing the break-up/itemized value of purchased assets, furnished no legal justification for the Income Tax Department for levying of Income Tax on the taxable items. In support of his arguments, learned counsel placed reliance upon the cases of Messrs" Hotel Metropole Ltd. v. The Commissioner of Income-tax (Central), Karachi (1973 PTD 371), Alapati Venkataramiah v. Commissioner of Income Tax, Hyerabad, (1965 Vol. 57 ITR 185) and Commission of Income Tax (East) v. Messrs Crescent Pak Soap and oil Mills Ltd. (1985 PTD 3).

4. In reply, Mr. Javed Farooqui learned counsel for the respondent strongly supported the order of Tribunal, dated 28-10-1992, so also the subsequent order, dated 11-12-1993 and contended that in the facts and circumstances of the case when there were definite findings of the Tribunal, that the actual sale had taken place on the basis of document, dated 6-12-1988, the plea of the assessee that for that purpose only earlier agreement, dated 6-1-1988 was to be considered, has no force.

5. In the context of submissions made by learned counsel, we have carefully perused the case record and seen that the learned Tribunal while examining the plea, which has been argued before us with reference to question No.1, has repelled the same in Paragraphs 28 to 30 of its order, which read thus:--

"(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 or promised or part-paid 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 buyers, or such person as he directs, in possession of the property.

(29) 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 PLJ 1974 BJ 78 that under the Transfer of Property Act, sales 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 on 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 itemized 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 then by way of tax on capital gain and on such transaction the balancing charge is not levied under Rue 7 and 8 of 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 itemized 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 transaction. The principle which can be deducted 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 itemized value of the assets can be attributed or not and if on reading of all the documents together the itemized 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 of entire mills the parties hired services of assessors, namely Messrs 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:--

LandRs. 95,00,000

Building50,00,000

Plant and machinery25,00,000

Rs. 170,00,000"

6. We are in agreement with the conclusion recorded by the Tribunal on the point of slump sale that the two documents purportedly executed between the assessee and the vendors of Mandialli Paper Mills i.e. agreement, dated 6-1-1988 and 6-12-1988, at best could have been taken into consideration together and no conclusive transaction of slump sale could be accepted on the basis of earlier agreement, dated 6-1-1988, to accommodate the assessee to evade the payment of income tax on that A premises. It is also wroth consideration that by virtue of section 17 read with section 49 of the Registration Act, no right, title or interest could be conveyed in favour of the vendee without' execution of registered deed in respect of the immovable property forming part of such transaction. Therefore, on the strength of alleged agreement, dated 6-1-1988 applicant had acquired no title in the assets of Mandialli Papers Mills.

7. Moreover, to a question posed by the Court, learned counsel has frankly conceded that on the basis of agreement, dated 6-1-1988 no transaction of purchase of assets was declared by the applicant during the said assessment year, but it was only on the basis of deed, dated 6-12-1988 that such transaction was shown in the subsequent assessment year. This admitted factual position further belies the claim of applicant regarding slump sale, based on the agreement, dated 6-1-1988.

8. We would also like to observe that the case of CIT v. Crescent Oil Soap Mill Ltd. 1985 (PTD) 3, which has been strongly relied by the learned counsel for the applicant is distinguishable. In that case an on-going concern, with all its assets and liabilities, was sold for a lump sum price. Considering this aspect, their Lordships held that since it was not possible to pitch the excess amount against any asset, or to attribute any gain to any asset, therefore, it was a slump sale for a slump price and the provisions of Rule 7(b)(I) of Third Schedule of the Income Tax Ordinance will not come into play. As against it in the present case, only assets of the company have been sold, therefore, even if earlier, definite value was not attributed to assets in the sale agreement, dated 6-12-1988, it, was still possible to attribute appropriate sale price to every assets. Further, if the contention of Dr. Farogh Naseem is accepted then the provisions of sub-rule b(I) of Rule 7 of Third Schedule will virtually become redundant, as it will be very easy to bring any transaction of sale of assets within the ambit of lump transaction to avoid accrual of income under the above rule and consequent payment of tax on such income. It is our firm conviction that the function of the Court is, not to render operation of a statute redundant or interpret it in a manner, which may lead to evasion of tax.

9. Besides, the findings recorded by the Tribunal that there was no slump sale in favour of the assessee is a question of fact, which is thus not referable for the opinion of this Court under section 136(2) of the c Income Tax Ordinance, 1979.

10. For the foregoing reasons we find no substance in this ITC and dismiss the same accordingly.

M.H./P-9/KReference dismissed.