The
concept of ‘Slump sale’ was incorporated in the Income Tax Act, 1961 (herein
after referred to as “the Act”), by the inclusion of section 2(42C) into the
provision by the Finance Act, 1999. Section
50B was inserted by the Finance Act, 1999, with effect from 01.04.2000 (i.e. from
assessment year 2000-01) in the Act. It contains special provisions for
computing capital gain in the case of slump sale.
Background
In
the process of integration of the Indian economy with the world economy, a
number of companies are going for restructuring to gain benefits from large
scale operations and focus upon its core competencies. In the restructuring
exercise, certain companies sell off their unprofitable business activities and
the business activity as a whole is sold along with assets and liabilities. The
income from restructuring process was used to compute as capital gains and
business income in respect of each asset. In this view, the concept of “Slump
Sale” has been introduced to compute income with respect to such division or
undertaking as a whole.
THE
MEMORANDUM EXPLAINING THE PROVISIONS OF FINANCE BILL, 1999, TO THE EXTENT
RELEVANT, IS REPRODUCED BELOW:
“With
a view to recognise demergers, slump sales and to rationalise the existing
provisions of amalgamation, a number of amendments have been proposed on the
basis of the following broad principles:
…………
In
the cases of slump sales, law should have clarity that the gains arising from
such sales would be taxed under the head ―capital gains and there should be no
ambiguity with regard to the mode of computation of such profits and gains”
Slump sale transaction was not
chargeable to tax prior to insertion of Section 50B
The
Supreme Court in the case of PNB Finance Ltd. v. CIT (2008) 307 ITR 75 (SC) emphasized
the position before the insertion of section 50B of the Income Tax Act, and
held that prior to insertion of section 50B gains from slump transactions was
neither taxable as business income under section 41(2) nor as capital gains
under section 45 of the Income Tax Act. In order to tax the same as capital
gains, the court followed the judgment as laid down in the case of CIT v.
B.C. Srinivasa Setty 128 ITR 294 (SC) and held that the charging section
and the computation sections are an integrated code and if one fails the other
fails too. In the case of slump sale, there are a bundle of assets (including
intangible assets like goodwill) that are transferred and in the absence of any
specific provision like section 50B of the Income Tax Act, it is not possible
to determine the cost of the said assets and thus, the computation mechanism
fails and so does the charging section. Thus, it was held that a ‘slump sale’
transaction was not chargeable to capital gains tax prior to insertion of
section 50B in the Income Tax Act.
Text
of Section 50B
[1][Special provision for
computation of capital gains in case of slump sale
50B.
(1) Any profits or gains arising from the slump sale
effected in the previous year shall be chargeable to income-tax as capital
gains arising from the transfer of long-term capital assets and shall be deemed
to be the income of the previous year in which the transfer took place :
Provided
that any profits or gains arising from the transfer under the slump sale of any
capital asset being one or more undertakings owned and held by an assessee for
not more than thirty-six months immediately preceding the date of its transfer
shall be deemed to be the capital gains arising from the transfer of short-term capital assets.
(2)
In relation to capital assets being an undertaking or division transferred by
way of such sale, the “net worth” of the undertaking or the division, as the case
may be, shall be deemed to be the cost of acquisition and the cost of improvement
for the purposes of sections 48 and 49 and no regard shall be given to the
provisions contained in the second proviso to section 48.
(3)
Every assessee, in the case of slump sale, shall furnish in the prescribed form
along with the return of income, a report of an accountant as defined in the Explanation
below section 288(2), indicating the computation of the net worth of the
undertaking or division, as the case may be, and certifying that the net worth
of the undertaking or division, as the case may be, has been correctly arrived
at in accordance with the provisions of this section.
[2][Explanation
1 : For the purposes of this section, “net worth” shall be the aggregate value
of total assets of the undertaking or division as reduced by the value of
liabilities of such undertaking or division as appearing in its books of account
:
Provided
that any change in the value of assets on account of revaluation of assets
shall be ignored for the purposes of computing the net worth.
Explanation 2 : For
computing the net worth, the aggregate value of total assets shall be,—
(a)
in the case of depreciable assets, the written
down value of the block of assets determined in accordance with the provisions
contained in sub item (C) of item (i) of sub-clause (c) of clause (6) of section
43; [3][***]
[4][(b) in the case of capital assets in respect of
which the whole of the expenditure has been allowed or is allowable as a
deduction under section 35AD, nil; and
(c)
in the case of other assets, the book
value of such assets.]]]
---------------------
1. Inserted by the Finance Act, 1999, with
effect from 01.04.2000.
2. Explanation
1 and Explanation 2 substituted for explanation by the Finance Act, 2000 with
effect from 01.04.2000. Ealier Explanation was inserted by the Finance Act,
1999 with effect from 01.04.2010.
3. Word “and” omitted by the Finance (No. 2)
Act, 2009, with effect from01.04.2010.
4. Substituted ibid. Prior to its substitution,
clause (b) read as under:
“(b) in the case of other assets, the book
value of such assets.”
Important Principles -
Section 50B of the Act
v Slump
sale is for lump sum consideration
v It
is nothing but a transfer of a whole or a part business
v For
slump sale, transfer has to be by way of sale
“Slump Sale” meaning
In
simple words, ‘slump sale’ is nothing but transfer of a whole or part of
business concern as a going concern; lock, stock and barrel.
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
As
per section 2(42C), inserted by the Finance Act, 1999 with effect from 01.04.2000
(from assessment year 2000-01), “Slump sale” means the transfer of one or more
undertakings as a result of the sale of a lump sum consideration without values
being assigned to the individual assets and liabilities in such sales. In other
words, slump sale means transferring the undertaking as a whole including all
the assets and liabilities as a going concern.
A sale in order to constitute a slump sale
must satisfy the following quick test:
(i) Business is sold off as
a whole and as a going concern
(ii) Sale for a lump sum
consideration
(iii) Materials available on
record do not indicate item-wise value of the assets transferred
Explanation
1 to section 2(42C) :
For the purposes of this
clause, “undertaking” shall have the meaning assigned to it in Explanation 1 to
clause (19AA).
In order to come within the
preview of the definition, one should satisfy the following conditions:—
(i) TAXPAYER
OWNS AN UNDERTAKING
Undertaking
for this purpose means any part of an undertaking or a unit or division or a business
activity taken as a whole, but does not include individual assets or
liabilities or any combination thereof not constituting a business activity.
(ii)
HE
TRANSFERS THE UNDERTAKING BY WAY OF SALE
The “undertaking” is transferred by way
of sale. A transfer by any other mode (like compulsory acquisition) is not
covered by the definition of slump sale under section 2(42C).
“UNDERTAKING” shall include any part of
an undertaking or a unit or division of an undertaking or a business activity
taken as a whole, but does not include individual assets or liabilities or any combination
thereof not constituting a business activity.
(iii)
TRANSFER
TAKES PLACE FOR A LUMP SUM CONSIDERATION
The transfer is for lump sum
consideration without assigning values to individual assets and liabilities.
“LUMP
SUM CONSIDERATION” means consideration not being in instalments or any other
basis. It should be one time.
Explanation
2 to
section 2(42C):
For
the removal of doubts, it is hereby declared that the determination of the value
of an asset or liability for the sole purposes of payment of stamp duty,
registration fee or other similar taxes or fees shall not be regarded as assignment
of value to individual assets or liabilities.
What constitutes ‘slump sale’?
Indian
courts have evolved certain principles underlying ‘slump sale’ under the Act:
(1) Continuity
of Business
The
Bombay High Court in the case of Premier Automobiles Ltd. v. ITO and Anr.
(2003) 264 ITR 193 (Bom) while dealing with the concept of ‘slump sale’
generally clarified that one of the principle tests for determination of
whether a transaction would be a ‘slump sale’ is whether there is continuity of
business. Thus, the concept of ‘going concern’ is one of the most important
conditions to be satisfied when analyzing whether a transaction can be regarded
as a slump sale. The same view has also been upheld by the Punjab and Haryana
High Court in the case of CIT v. Max India Ltd. (2009) 319 ITR 68 (P&H).
(2) Transfer
of Liabilities
The
continuity of business also assumes that all assets and liabilities of the
concerned undertaking are transferred under the sale. This view has been upheld
by the Supreme Court, in the case of R.C. Cooper v. Union of India AIR 1970 SC
564, whereby it held that an ‘undertaking’ was a part of an undertaking/ unit/
business when taken as a whole. Additionally, the ‘net worth’ of the
undertaking being transferred considers the book value of the liabilities to be
reduced from the aggregate amount of assets of the undertaking, emphasizing the
requirement of transferring liabilities.
(3)
Transfer of all Assets
While
an essential element of a ‘slump sale’ is that the assets and liabilities of
the undertaking are transferred to ensure continuity of business, for a
transaction to be characterized as a ‘slump sale’, it is not essential that all
assets are transferred. The Punjab and Haryana High Court in CIT v. Max India
Ltd. (2009) 319 ITR 68 (P&H) has held that it is not essential that all
assets are transferred for a transaction to qualify as a slump sale. Even if
some assets of the transferor are retained by it, and not transferred to the
transferee, the transaction may still retain the characteristic of a slump
sale. However, for it to be considered a slump sale, it is essential that the
assets (along with the liabilities) being transferred are an undertaking in
itself, and can function ‘without any interruption’. This understanding of the
term ‘undertaking’ is equally applicable to demergers.
(4)
Exchange not a Slump Sale
The
Bombay High Court in the case of Bharat Bijlee Limited v. Addl. CIT (ITA No.
2153 of 2011) has held that for any transaction to be considered as ‘slump
sale’, an essential element is that the transfer of the undertaking must be for
cash consideration. In the case in hand, the High Court, while referring to an
earlier judgment of the Supreme Court held that a transfer of an undertaking in
exchange for shares/ bonds of the transferee entity would not constitute a
‘sale’ and accordingly, it would not be taxed as a slump sale under section 50B
of the Act.
(5) Long Term Capital Gains
Another
important aspect of a slump sale is that the gains arising from the sale of an
undertaking (if any) shall be computed as long term capital gains, if the
undertaking as a whole has been held for a period of 36 months, irrespective of
the fact that some of the assets may have been held for a period of less than
36 months. The substance, not the form of a slump sale transaction is to be
examined. In cases where the entire undertaking has been transferred under
different agreements, the Income Tax Appellate Tribunal, Mumbai in the case of Mahindra
Engineering & Chemical Products Ltd. v. ITO (TS-253- ITAT-2012 (Mum) has
held that the same would constitute a slump sale.
Exceptions:
Following
transactions will not be considered as Slump Sale:
(i)
Sale of Individual assets of an
undertaking
(ii)
Transfer by way of exchange
(iii)
Compulsory Acquisition
(iv)
Extinguishment
(v)
Inheritance by will, etc.
Who
is eligible
The
provisions pertaining to slump sale apply to all the assessees and are not
limited to companies.
Nature
of transaction
Sale
or undertaking as a going concern or slump sale.
Taxability
of capital gains arises in the year of transfer of the undertaking
According
to section 50B(1), any profits or gains arising from the slump sale effected in
the previous year shall be chargeable to income-tax as capital gains arising
from the transfer of long-term capital assets and shall be deemed to be the
income of the previous year in which the transfer took place.
Nature
of capital gains : Short-term or long-term
The
nature of Capital Gains (whether short-term or long-term) shall be dependent
upon the period of holding of the undertaking where, any profits or gains
arising from the transfer under the slump sale of any capital asset being one
or more undertaking owned and held by an assessee for more than thirty-six
months immediately preceding the date of its transfer shall be deemed to be the
capital gains arising from the transfer of long-term capital gain, otherwise it
will be short-term capital gain.
Even if all assets are
short-term in nature and undertaking is long-term in nature, the transfer of
assets shall be held as long-term only and taxable as long-term capital gains.
Period
of Holding
Capital gains arising on transfer of an undertaking
are deemed to be long-term capital gains. However, if the undertaking is ‘owned
and held’ for not more than 36 months immediately before the date of transfer,
gains shall be treated as short-term capital gains.
Cost
of Acquisition and Cost of Improvement
In
relation to capital assets being an undertaking or division transferred by way
of slump sale, the “net worth” of the undertaking or the division, as the case
may be, shall be deemed to be the cost of acquisition and the cost of improvement
for the purpose of computing the capital gain under sections 48 and 49. In
other words, cost of acquisition in this case would be the “net worth” of the
undertaking/business or division so transferred.
Computation
of “Net Worth”
No
actual cost of acquisition or cost of improvement shall be taken for the
computation of Net Worth. Net Worth shall be taken on the basis of—
§ Book
values of assets & liabilities
§ as
on the date of transfer.
“NET
WORTH” means aggregate value of total assets of the undertaking or division as
reduced by the value of liabilities of such undertaking/business or division as
appearing in its books of account. [Explanation 1 to Section 50B]
The aggregate value of
total assets, for the purpose of computation of Net Worth
|
Asset Type
|
Value to be considered
|
|
Depreciable Asset
|
WDV of the block of Asset
as under section 43(6)
|
|
Capital Asset under
section 35AD
|
NIL
|
|
Other Assets
|
Book value of such Asset
|
KEY
NOTE
Any
change in value of assets on account of Revaluation of assets shall be ignored
for the purpose of computing Net Worth.
Indexation
not available on cost of acquisition, i.e. net worth
In
the case of slump sale the benefit of indexation is not available. (Second proviso
to section 48 i.e. its cost will not be indexed).
Computation
of capital gains
Capital gains arising on slump sale are
calculated as the difference between sale consideration and the net worth of
the undertaking.
Capital
Gain= Sale Consideration-Net Worth
KEY NOTE :
(i)
Contingent liabilities do not appear in
the books and therefore not to be deducted while computing the net worth.
(ii)
No revaluation of assets to be
considered while computing the net worth. In other words, revaluation of any
asset shall be ignored for the purposes of computing the net worth.
(iii)
The consideration is fixed for the whole
undertaking and received by the transferor. It is not fixed for each of the
asset of the undertaking.
(iv)
The assessee may also transfer a
division instead of the undertaking as a whole by way of such sale.
(v)
The undertaking as a whole or the
division transferred shall be a capital asset.
No
Revaluation
Revaluation
of assets shall not be considered while computing the “Net Worth”. However,
revaluation can be done for other purposes (other than purpose of sale).
The total value of total
assets, for this purpose, shall be—
(i) VALUE OF DEPRECIABLE
ASSETS
In
the case of depreciable assets the written down value of the block of such
assets shall be computed as per section 43(6)(c)(i)(c), which computes the WDV
in the following way:—
(a)
Actual cost of the assets falling within
the block transferred by way of slump sale as reduced by.
(b)
Less : Depreciation actually allowed upto assessment year 1987-88 and future
assessment years as if the asset was the only asset in the block of assets.
(c)
Less : Depreciation that would have been allowable for assessment year
1988-89 and future assessment years and if the asset was the only asset in the
block of assets.
Ø However,
the above reduction shall be limited to the written down value of Block of
assets.
“WRITTEN DOWN VALUE”
Value
of the relevant block of assets means written down value of the entire relevant
block at the beginning of the year plus any addition during the year minus
assets (exclusive of assets sold in slump sale) sold during the year.
(ii) VALUE OF
NON-DEPRECIABLE ASSET
In
the case of non-depreciable assets, the book value of such assets shall be considered as value (other than revalued
figures).
KEY NOTE :
v The
“Slump sale” provisions do not apply where assets of an undertaking are
transferred without the transfer of liabilities.
v No
profits under the head “profits and gains of business and profession” even if
the stock is transferred.
v No
value shall be assigned to individual assets & liabilities except for the
purpose of payment of stamp duty, registration fees etc.
Chartered Accountant’s
report certifying the computation of Net Worth to be enclosed [Section 50B(3)
& Rule 6H]
In
the case of slump sale, every assessee shall furnish alongwith the return of
income, a report of Chartered Accountant [as defined in the Explanation below
section 288(2)], in Form 3CEA indicating the computation of the net worth of
the undertaking or division, as the case may be, and certifying that the net
worth of the undertaking or division, as the case may be, has been correctly
arrived at in accordance with the provisions of section 50B.
Text of Rule 6H
[1][CCCC – Report in the
case of slump sale
Form of report of an accountant under sub-section (3) of
section 50B.
6H. The
report of an accountant which is required to be furnished by every assessee
along with the return of income, in case of slump sale, under sub-section (3)
of section 50B shall be in Form No. 3CEA.]
------------------
1. Heading “CCCC” consisting of rule 6H,
inserted by the IT (Twenty-first Amdt.)
Rules, 1999, with effect from 25.06.1999.
KEY
NOTE
v Profit
on slump sale will have to be included in book profit for MAT purposes
v Unlike
demergers/mergers, slump sale is not subject to approval from High Court
v No
enabling provision for transfer of losses/unabsorbed depreciation to purchaser
PROVISIONS ILLUSTRATED –
Slump Sale – Computation under Section 50B
|
Capital Gains – Section
48 read with Section 50B
|
||
|
S. No.
|
Particulars
|
Amount (in Rs.)
|
|
1.
|
Full value of
consideration (FVC)
|
10,00,000
|
|
2.
|
Less: Net worth of
undertaking
|
7,50,000
|
|
3.
|
Taxable Capital Gains
|
2,50,000
|
|
Net Worth – Explanations
1 and 2 to Section 50B
|
||
|
S. No.
|
Particulars
|
Amount (in Rs.)
|
|
1.
|
Income-tax WDV of
depreciable assets
|
50,00,000
|
|
2.
|
Add:
Book value of non-depreciable assets (excluding revaluation)
|
1,00,00,000
|
|
3.
|
Total
|
1,50,00,000
|
|
4.
|
Less: Book value of
liabilities (excluding revaluation)
|
75,00,000
|
|
5.
|
Net Worth
|
75,00,000
|
Unabsorbed
losses and depreciation not available
In
case of slump sale, benefit of unabsorbed losses and unabsorbed depreciation of
the undertaking transferred shall not be available to the transferee company.
However, the transferor company can carry forward such losses/unabsorbed
depreciation, because the condition of continuation of such business has been
dispensed with both for brought forward business losses and unabsorbed
depreciation.
No
business income arises
In
the case of slump sale, no profit under the head “profit or gains from business
or profession” shall arise even if the stock of the said undertaking is
transferred alongwith other assets. In other words, even “stock-in-trade” of
such undertaking shall not be taxable under “income from business”.
A
business can be transferred either by way of slump sale or severable sale of
assets comprised therein. In respect of severable sale, income in respect of
each asset would have to be computed severally. Where the assessee opts for
severable sale as mode of transfer, the surplus will be short-term capital gain
in respect of depreciable assets. While in respect of other assets, it may be short-term
or long-term depending upon the holding period. However, in respect of sale of
stock-in-trade it will be business income.
Non-applicability
of Sales-tax on Slump-sale transaction
The
judicial position is that no sales tax would be payable on the transfer of a
business as a going concern, including the transfer of a whole unit or division
of any business under the value-added tax laws or the local sales tax laws.
This is based on the rationale that the sale of an entire business cannot be equoted
with the sale of movable goods, the latter being subject to sales tax only.
In absence
of sale deed, the unregistered agreement would not transfer any title to
assessee of the agricultural land - Deduction under section 54B and 54F was not
allowable
Assessee
claimed to have purchased land through an agreement to sale which was
unregistered and the payment was also claimed to have been made in cash.
Assessee had not produced any other document to show that assessee had acquired
the ownership title in land in question. If an agricultural land was purchased
by assessee from the sale proceeds of the existing land, then even if the said
land was purchased in the name of the wife, the claim of deduction under
section 54B was allowable. However, in the case in hand, despite the expiry of
about 10 years from the alleged agreement to sale assessee had admitted that no
sale deed had been executed till date. Though the agreement to sale which had
finally culminated in sale deed was relevant only for the purpose of the date
of investment, but the alleged agreement to sale itself was not a title
document transferring the ownership of land. Therefore, in the absence of
subsequent sale deed, the claim of deduction under section 54B and 54F could
not be allowed based on such unregistered agreement to sale. Assessee had
failed to prove that he had acquired the new asset within the prescribed period
after the sale of the existing asset. Further the purchase of agricultural land
through agreement to sale clearly showed that the assessee had managed that
agreement only a day before the expiry of the period. However, when there was
no subsequent sale deed, then the unregistered agreement would not transfer any
title to the assessee of the agricultural land. Accordingly, the claim of
deduction under section 54B and 54F was not allowable. (Related Assessment Year
: 2008-09) - [Shri Ram Narayan v. ITO - Date of Judgement : 28.06.2019 (ITAT Jaipur)]
Transfer of business division to
subsidiary against shares, same was not a ‘slump sale’ but an ‘exchange’; thus,
provisions of Section 50B is not applicable
It was held that transfer of business
division to subsidiary against shares, same was not a ‘slump sale’ but an
‘exchange’; thus, provisions of Section 50B would not be applied. In the present case the consideration
was not money but equity shares and debentures and hence the transaction was
not a “Sale” but an “Exchange” and consequently, the provisions of Section 50B
of the Income Tax Act, are not attracted. In the case of CIT v.
Bharat Bijlee Ltd. (365 ITR 258) where an undertaking was transferred under a
Scheme of Arrangement to a company which allotted preference shares and bonds
as consideration to the Transferor company. Following the decision of the
Hon’ble Supreme Court in Motor & General Stores (P) Ltd. (66 ITR 692), the
jurisdictional High Court held that the provisions of section 50B were
inapplicable to the transaction (Related Assessment year
2007-08))—[Oricon Enterprises Ltd. v. ACIT (2018) 170 ITD 231 (ITAT Mumbai)]
Transfer
of Hospital business — No Transfer of Land and building of Hospital — Not slump
sale — Receipt on account of transfer of Hospital business taxable
Tribunal
held that though the Hospital business was transferred as a going concern, land
and building of Hospital was not transferred accordingly the Transfer of business
could not be called slump sale as envisaged under Section 2(42C) of the Act.
Thus the capital gains could not be computed in terms of Section 50B. The
receipt of Rs. 10,00,000 was to be taxed in accordance with law. (Related
Assessment years 2009-10 to 2013-14) - [Manipal Health Systems (P) Ltd. v.
ACIT (2018) 65 ITR 51 (SN)) (ITAT Bangalore)]
The fact that certain assets
of the "undertaking" are left out of the sale transaction because it
would cause inconvenience for the purchaser does not mean that the transaction
is not a "slump sale". To expect a purchaser to buy and pay value for
defunct or superfluous assets flies in the face of commercial sense
The sale transaction was reported for a total
consideration of Rs.45.83 crores. The sale was for a going concern, which
included ongoing service contracts, employment contracts and other tangible
assets, and intangible assets such as technical know-how etc. To expect a
purchaser to buy and pay value for defunct or superfluous assets flies in the
face of commercial sense. Unfortunately, the Revenue’s understanding is that in
a going concern the buyer is bound to pay good money, transact and purchase bad
and irrecoverable debts. Not only does it fly in the face of common and
commercial understanding, but it is not even a pre-condition , as is evident
from the definition of “undertaking”, cited in Explanation (1) to Section 2
(19) (A) of the Act. - [Triune Projects (P) Ltd
v. DCIT – Date of Judgement : 22.11.2016 (Del)
In computing the net worth
for computing capital gains from a slump sale, depreciation on assets have to
be deducted even if not claimed by the assessee
Plainly, the
purpose of clause (a) of Explanation 2 to Section 50B of the Act is to provide
a methodology to compute the written down value of the block of assets
transferred by an Assessee as a part of the undertaking or division sold by way
of a slump sale. The reference to Clause C is clearly not for the purposes of
computing the block of assets remaining with the Assessee after the slump sale.
It is apparent from the above that the intended object and scope of Clause C as
used in Section 50B of the Act is totally different than the purpose of the
said provision when read as a part of Section 43 of the Act. In the
circumstances, clause (a) of Explanation 2 to Section 50B of the Act must be
read in a manner to expressly include the computation provisions of Clause C
without reference to other the import of the said provisions of Section 43 of
the Act. In our view, the ITAT fell into error in importing the interpretation
of Clause C read as a part of Section 43 of the Act, to interpret the scope of
clause (a) of Explanation 2 to Section 50B of the Act. (Related
Assessment year : 2001-02) - [CIT v. Dharampal Satyapal
– Date of Judgement : 06.01.2016 (Del)
Transfer of Lift Division
of assessee to “T” in consideration of bonds/preferential shares on face value
was an exchange and not sale, as such it was a transfer under section 2(47) and
not under section 2(42C), as such provisions of section 50B were also not
applicable. No substantial question of law was as such arises
The
Tribunal then held that, a reading of the clauses in the Scheme of Arrangement
shows that the transfer of the undertaking has took place in exchange for issue
of preference shares and bonds. It held that, merely because there was
quantification when bonds/preference shares were issued, would not mean that
the monetary consideration was determined and its discharge was only by way of
issue of bonds/preference shares. In other words, the Tribunal held and as a
fact that this is not a case where the consideration was determined and decided
by parties in terms of money but its disbursement was to be in terms of
allotment or issue of bonds/preference shares. In fact, all the clauses read
together and the entire Scheme of Arrangement envisages transfer of the Lift
Division not for any monetary consideration. The Scheme does not refer to any
monetary consideration for the transfer. The parties were agreed that the
assessee was to transfer the undertaking and take bonds/preference shares as
consideration. Thus, it was a case of exchange and not a sale. Therefore, the
Tribunal held that section 2(42C) was inapplicable. If that was not applicable
and was not attracted, then, section 50B was also inapplicable. [Para 18] The
findings of fact rendered by the Tribunal from paragraph 40 and in relation to
ground are thus rendered by applying the legal principles to the facts and
circumstances of the assessee’s transaction. In the given facts and
circumstances and going by the clauses of the Scheme and reading them
harmoniously and together, the Tribunal held that the transfer of Lift Division
comes within the purview of section 2(47) but cannot be termed as a slump sale.
[Para 19] This finding of fact cannot be said to be perverse or based on no
material. It also cannot be said to be vitiated by an error of law apparent on
the face of the record. It is in these circumstances, this appeal does not
raise any substantial question of law. [Para 20]
[CIT v. Bharat Bijlee Ltd.
(2014) 365 ITR 258 : 270 CTR 579 : 224 Taxman 282 : 107 DTR 249 (Bom)]
Sale
of trademarks, assets, technical know-how, copyrights and goodwill pertaining
to business being carried out by assessee; if found to be part of one
transaction - would be a slump sale. - [Mahindra Engineering & Chemical
Products Ltd. v. ITO – Date of Judgement : 27.03.2012 (ITAT Mumbai]
Section
50C is not applicable for computing capital gains under section 50B
Neither
in section 50B nor in section 48, it is provided that the “fair market value”
of the undertaking shall be treated as the full value of the consideration
received or accruing as a result of its transfer under slump sale. Hence,
section 50C is not applicable for computing capital gains under section 50B.— [DCIT
v. Summit Securities Ltd. (2012) 135 ITD 99 (ITAT Mumbai (SB)]
It
was held that negative figure of net worth cannot be ignored for working out
capital gains in case of a slump sale under section 50B. In this case, the
assessee transferred its entire power transmission business to another company
and the sale consideration of said business was Rs. 143 crores. The assessee
had negative ‘net worth’ of Rs. 157 crores as per section 50B (i.e. value of
liabilities or Rs.1517 crores was in excess of aggregate value of assets of Rs.
1360 crores). In such a scenario, the ITAT Special Bench held that negative
figure of net worth of Rs. 157 crore could not be ignored and the capital gain
chargeable to tax in case of slump sale would be Rs. 300 crore (i.e., Rs. 143
crore plus Rs. 157 crore) and not Rs. 143 crore as offered by the assessee.— [DCIT
v. Summit Securities Ltd. (2012) 135 ITD 99, Date of Judgement: 07.03.2012
[ITAT Mumbai (SB)]
Transfer of a unit is not taxable as
slump sale under the Income-tax Act where consideration is assigned to
specified assets and further liabilities and current assets are not transferred
along with the unit
It
was held that since the sale consideration in the agreement was split between
identified moveable and immoveable assets being transferred and the sale
agreement did not include liabilities, receivables, stock and other current
assets, the sale of the tea estate would be taxed as an itemised sale, not as a
slump sale under Section 50B of the Income-tax Act, 1961. [DCIT v. Tongani Tea Co Ltd (ITA No
1233/Kol/2008) –Taxsutra.com ITAT Kolkata)]
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