Slum Sale : Sec. 50B
“Slum Sale” means the transfer of one or more undertakingsas a result of the sale for a lump sum consideration without values beingassigned to the Individual assets and liabilities.
Note : Thedetermination of value of an asset or liability for the sole purposes of payment of stamp duty, registration fees orother similar taxes or fees shall not be regarded as assignment of values toindividuals’ assets or liabilities.
Special provisions for computation of capital gains in case of slumsale: Sec. 50B
If the agreement for transfer specifiesthe individual value of each asset to be transferred, then the provisions of “slump sale” shallnot be applicable and capital gains on each asset shall be computed separately.
Capital gains shall be taxable in theprevious year in which the slump sale is effected.
Nature of capital gains will depend onthe period of holding of the undertaking transferred by way of slump sale. If theundertaking is held for more than 36 months immediately preceding the date oftransfer, then the capital gains shall be long term. This isirrespective of the fact that the undertaking consist of certain assets which areshort term capital assets.
No profits under the head P/G/B/P shallarise in case of a slump sale even if stock is transferred in slump sale.
The cost of acquisition and thecost of improvement of the undertaking shall be the “net worth” of the undertaking.
The benefit of indexation shall not be available.
No values should be assigned to the individual assets and liabilities.
However, the values can be assignedto the assets for the limitedpurpose of payment of stamp duty, registration fees etc.This issue should be clarified in the agreement.
“Net worth” = Aggregate valueof total assets of the undertaking or division transferred minus value of liabilities of theundertaking or division transferred as appearing in its books of account.
Contingent liabilities do not appear inthe books of account and therefore shall not be deducted while computing the “networth”.
Revaluation of assets shall not beconsidered while computing the “net worth”, i.e., revaluation of assets shall be ignored forcomputing the “net worth”, irrespective of the fact that revaluation isdone in the current year or in past years,
For computing “net worth”, non –depreciable assets are to be taken at their book values.
For computing the “net worth”, in caseof depreciable assets, the written down value of such assets shall be computed as persection 43(6).
Tax effect in a slump sale
The gain or loss resulting out of a slump sale shall be aCapital Gain/Loss under the Income Tax Act. The computation has beenprescribed as follows:
|Full value of consideration xxx||XXX|
|( – ) Expenses in relation to transfer xxx||XXX|
|Net consideration xxx||XXX|
|( – ) Cost of acquisition/Net worth xxx||XXX|
|Capital Gain or ( Loss) xxx||XXX|