Slump sale and its Taxability

slump sale and its taxabilitySlump sale means the transfer of one or more undertakings as a result of the sale for lump sum consideration without values being assigned to the individual assets and liabilities in such sale. If the value of an asset or liability is determined for the sole purpose of payment of stamp duty, registration fees or other similar taxes or fees, that should not be regarded as assignment of values to individual assets and liabilities.

The chargeability of Income tax in respect of slump sale is discussed as under:

Any profits arising from slump sale in the previous year shall be chargeable to tax as capital gains and shall be deemed to be the income of the previous year in which the transfer took place. In relation to a capital assets being an undertaking or division transferred by way of such sale, the “net worth” of the undertaking or division shall be deemed to be the cost of acquisition and cost of improvement. The indexation benefit shall not be allowed. If an undertaking is owned and held by an assessee for less than 36months it shall be regarded as ‘short term capital asset’.

Undertaking – It includes any part of an undertaking or unit or division of an undertaking or a business activity as a whole, but does not include individual assets or liabilities or any combination thereof not constituting business activity.

Net worth in the slump sale – It is the aggregate of the value of the total assets of the undertaking or division as reduced by the liabilities of such undertaking or division. Change in the value of asset on account of revaluation shall be ignored. The value of depreciable assets shall be the written down value of the block of assets. The value of capital assets in respect of which the whole of the expenditure is allowed or is allowable as deduction under sec 35AD would be NIL. The value of all other assets shall be the book value.

The auditor of the company is required to give a certificate in respect of computation of capital gains in case of slump sale. The certificate should be filed along with return of income duly accompanied by the copies of profit/ loss account and balance sheet.

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