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Relevant sections are applicable in case of slump sale under Income Tax Act: Expl 1
Meaning
Slump sale has been defined in section 2(42C) of the Income-tax Act. It means
transfer of one or more of the undertaking as a whole as a result of the sale for a
lump sum consideration. It further provides that in case of slump sale values should
not be assigned to individual assets and liabilities. However, the values of individual
assets and liabilities are allowed to be determined for stamp duty, registration or
In the context of section 50B, the capital asset is of unique nature, as it not only
encompasses all the assets but also all the liabilities of the undertaking. Where the
Reference in this regard may be made to the decision of Mahindra Engineering &
Where an industrial undertaking is transferred under slump sale which was owned
and held by the assessee for not more than 36 months immediately preceding the
date of its transfer, the profit or gains arising from such transfer is deemed to be
capital gain arising from the transfer of short term capital assets. The relevant
criterion for considering whether the undertaking is a short term or long term is the
period of owning and holding the undertaking as a whole and not individual assets
of such undertaking. Suppose the undertaking was set up four years ago and some
of the assets were purchased and held for a period of not more than 36 months, it is
the entire undertaking which will be treated as long term capital asset for the
individual assets of the undertaking has been delinked for computing capital gain on
the transfer of undertaking. In such a case even if some assets of the undertaking
were purchased a day before its transfer, they will still form part of the undertaking
as a long term capital asset. So long as the undertaking is owned and held by the
assessee for a period of more than 36 months, the capital gain arising from its slump
sale is considered as long term capital gain notwithstanding the period for which its
Conditions
Procedure
Accountant.
¾ Section 50B of the Income-tax Act provides that any profits or gains
arising from the slump sale affected in the previous year shall be
period not exceeding 36 months, then the gain arising from the
¾ In case of long term capital gains, the benefit of indexation shall not
be available.
¾ Computation of Net Worth: Net Worth shall be the aggregate value
For computing the net worth, the aggregate value of total assets shall
be,—
assets.
(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 sub-section (2) of
section 288, 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.
[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; [and]
(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
Sub-section (2) of section 50B makes it abundantly clear that the undertaking or
division as a whole is considered as one capital asset and the net worth of this capital
asset is considered as cost of acquisition and cost of improvement for the purposes of
sections 48 and 49. Section 50B is a code in itself for the determination of cost of
It is important to note here that the position under income tax was that the `Net
worth’ as defined u/s 50B cannot be a negative figure and in case it is so, that is,
where the liabilities are more than the value of assets as computed u/s 50B, then for
the purposes of computing capital gain u/s 48, the net worth would be considered as
Nil. This view was upheld in Zuari Industries Ltd. Vs. ACIT [(2007) 105 ITD 569
(Mum.)] and Paper Base Co. Ltd. Vs. CIT [2008) 19 SOT 163 (Del)].
/Mum/2009 (SB) dated 7th March 2012, the position has been revered by Special
Bench. Therefore, if the liabilities are more than the value of assets as computed u/s
50B, then for the purposes of computing capital gain u/s 48, the negative net worth
“Where the gross total income of an assessee includes any profits and gains derived
section (4) (such business being hereinafter referred to as the eligible business), there
shall, in accordance with and subject to the provisions of this section, be allowed, in
hundred per cent of the profits and gains derived from such business for ten
The objective for introduction of tax benefit to a power undertaking is made clear in the
memorandum explaining the provisions of the Finance Bill, 1993 introduced in the
Parliament [200 ITR (St.) 140]. The above object has further been clarified in its Circular No.
657 issued by CBDT on 20th August, 1993 which provides that the provision was
insertedwith a view to substantially increase the power generation capacity in the country.
Understanding the intent of the provision is considered necessary for the purpose of finding
The provisions of section 80IA provides that the benefit of deduction under section
80IA shall be available to an assessee who derives any profits or gains from an
relevant for the purpose of claiming deduction under section 80IA is:
• There should be an undertaking
In the instant case, it has already been discussed in detail that in case of slump sale
requirement will be satisfied since the buyer will acquire the entire undertaking.
Now, the second requirement is that the undertaking should be engaged in the
under section 80IA. Therefore, if the same business is continued then it can be
assumed that the buyer is engaged in the specified business as provided in section
Once the aforesaid primary conditions are satisfied, the section further provides that
the undertaking should not have been formed by the following means:
any purposes.
Therefore, the issue to examine is whether acquisition of undertaking by way of
an existing business.
The provisions contained in section 80IA are silent in this regard and do not provide
for whether the benefit would be available to the purchaser of the undertaking or
not. It is a well settled law of interpretation that if the provisions contained in the
Act are silent in any regard, then in order to examine the legal position regard must
be given to the cases decided by the judiciaries in this regard at the first instance.
contained in other sections of the Act which provide for similar benefit.
In the above context, we may mention that there is no direct judicial precedence
available in this regard. In other words, no direct case has yet been decided by any
In order to examine the aforesaid legal provisions, regard may be made to the other
tax Act.
The provisions contained in section 10A provides for the deduction with respect to
undertaking and not qua an assessee. Therefore, provisions contained in this section
and related board circular may be referred to in order to ascertain the correct legal
position.
It may be mentioned that section 10A also provide that the undertaking should not
any purposes.
In other words, the provisions contained in section 10A and 80IA is almost identical
undertaking under slump sale, then it can be said that the benefit will also be
There is a recent circular which has been issued by the CBDT vide its circular no
01/2013 dated 17.01.2013 wherein the CBDT has considered the availability of
deduction under section 10B on slump sale. The CBDT in the said circular has
“Whether tax Benefits under sections 10A, 10AA and 10B would continue to remain
The vital factor in determining the above issue would be facts such as how a slump-
sale is made and what is its nature. It will also be important to ensure that the slump
sale would not result into any splitting or reconstruction of existing business. These
are factual issues requiring verification of facts. It is, however, clarified that on
holiday can be availed of for the unexpired period at the rates as applicable
In the said circular the CBDT has clearly clarified that the benefit of deduction
which is otherwise eligible for deduction. In other words, the CBDT has clarified that
the deduction will continue to available even in case of slump sale. Therefore, it can
impliedly be said that the acquisition of an undertaking by way of slump sale will
The issue of availability of deduction on slump sale under section 10A was also
considered by the Hon’ble Bombay High Court in the case of Sonata Software Ltd,
wherein the Hon’ble High Court has clearly held that the benefit of deduction under
section 10A shall be available to the with respect to the undertaking even if the
From the aforesaid discussion, it can be said that the acquisition of an undertaking
reconstruction.
So far as the issue relating to transfer to a new business is concerned, it will not be
applicable since there is no transfer of assets as such to a new business, rather the
existing business itself is being transferred. Therefore, the assets continue to remain
From the aforesaid detailed discussion, it can be interpreted that all the requirement
of claiming deduction under section 80IA are being duly complied on acquisition of
It may be argued that wherever the intent of legislature is to pass on the benefit to
the successor, it has been specifically so provided in the section itself. For
Likewise, the transferee is made specifically eligible for relief under section 80- IA
Further, Sub-section (12) of section 80-IA provides that where any undertaking of an
Indian company which is entitled to the deduction under the said section is
transferred before the expiry of the period specified therein, to another Indian
section 80-IA shall apply to the amalgamated or the resulting company as they
A new sub-section (12A) has been inserted in section 80-IA providing that the
or demerger after 31-3-2007, the benefit of deduction under section 80-IA will not be
Section 80-IA should be taken a complete code by itself. Wherever, therefore, the
legislature intended the transfer of benefit u/s 80IA along with the transfer of
undertaking, the section would specifically provide for the same. Therefore, the
benefit u/s 80IA may not be available in the case of outright sale.
Conclusion:
The issue of continued availability of benefit u/s 80-IA to the buyer is a controversial
issue and has not been set at rest till date. Technically a sound view emerges that in
case of slump sale 80IA should be available. But, simultaneously it can be argued
Hon'ble Supreme Court in the case of Bajaj Tempo Ltd. vs. CIT (1992) 196 ITR 188
(SC) held that "A provision in a taxing statute granting incentives for promoting growth
and development should be construed liberally, and since a provision for promoting economic
power undertaking is made clear in the memorandum explaining the provisions of the
Finance Bill, 1993 introduced in the Parliament [200 ITR (St.) 140]. The above object has
further been clarified in its Circular No. 657 issued by CBDT on 20th August, 1993 which
provides that the provision was insertedwith a view to substantially increase the power
generation capacity in the country. Technically, there is no prohibition except in the case of
amalgamation and demerger. Therefore, in our opinion, the deduction u/s 80IA can be
claimed by buyer under slump sale. However, the income tax department probably will take
the other possible view and the issue may lead to litigation.