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Section 41(2) of the Income-tax Act, 1961 - Balancing charge - Assessment year 1978-79 - Whether provisions of section 41(2) are not attracted where entire business is sold as a going concern without indicating any item-wise consideration - Held, yes FACTS The assessee sold the whole of sugar factory as a going concern. The purchaser took over the liability of a certain amount and the balance was shown as apportioned against the various items of assets. The Assessing Officer held that, the individual items of assets were sold and, therefore, the assessee was liable to tax under section 41(2) as well as capital gains tax. The Commissioner (Appeals) confirmed the assessment order. On second appeal, the Tribunal held that the sale was of the whole of the going concern, and, therefore, the assessee was not liable to tax under section 41(2) or capital gains. On reference: HELD Section 41(2) applies where assets are sold. The Legislature has never intended to apply this provision in a case where the entire business is sold. It is not attracted where transfer is made without indicating any item-wise consideration. Inasmuch as, when the entire concern is sold, the business is no more retained and carried on. Selling of the whole concern or business so long carried on, is not carrying on the business. It is the giving up or closing down or cessation of the business. Therefore, the receipt thereof cannot be an income from business. It can at best be a capital gain, if on materials, item-wise fixation of price of assets can be attributed attracting the application of section 41(2). Even if item-wise distribution is indicated, the question will be a little different if the whole of it is sold as a going concern. In such a case, section 41(2) as coined by the Legislature cannot be attracted. [Para 4] In the instant case, the price of the sugar factory as a going concern, was fixed at Rs. 53,50,000, the liability of Rs. 15,90,324 was taken over by the purchaser and the balance of Rs. 37,59,676 was apportioned to different items of assets. To the assessee, it was Rs. 53,50,000, which it had received for the entire sugar factory as a going concern. Out of this consideration,…

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