Capital Gain in case of Slump sale

Section 50B of Income Tax Act, 1961

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 section 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 [a report of an Chartered accountant 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;

(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.

SUMMARY

✓ Profir or gain arising from the slump sale shall be chargeable to tax.

✓   where undertaking, transfered under slump sale is owned and held by assessee more than 36 month, the gain shall be treated as LTCG and in other case, it shall be treated as STCG.

✓Report of Chartered Accountant in prescribed form 3CEA shall be enclosed.

✓  Capital Gain = slump sale consideration - Net worth

Computation of Net worth

✓  Net Worth = Aggregate value of assets - Aggregate value of Liabilities as per book value.

✓Revaluation of assets shall not be considered for computing Net worth.

✓ Non depreaciable assets should be taken at cost (without revaluation).

✓ Depreciable assets should be taken WDV as per Section 43(6)(c)(i)(c).