Interesting Judgement on Slump Sale
Transaction to be considered as slump sale, though no business liabilities were transferred on date of sale
Facts:
a) Assessee-firm was engaged in the business of running a hotel. It sold its hotel premises of land and building together as a whole to one ‘B’ Ltd. for a total consideration of Rs. 20 crore.
b) Assessing Officer (AO) considered the sale as a ‘slump sale’ and invoked the provisions of section 50B. However, assessee contended that it was not a slump sale going by the definition of section 2(42C) for the reason that there was no liability transferred to the purchaser as on the date of sale.
c) CIT(A) held in favour of assessee. Aggrieved-AO filed the instant appeal before the ITAT.
The ITAT held in favour of revenue as under:
1) Admittedly, the assessee was having huge liability prior to the date of sale with ‘I’ bank. The impugned property was mortgaged to ‘I’ bank. The liability incurred by the assessee’s firm in normal circumstances had to be cleared by the assessee itself prior to sale as banks were reluctant to transfer the mortgage to the purchaser.
2) Therefore, utilizing advance received from the purchaser, the assessee closed the loan and thereafter the property was sold. In order to understand whether the sale was a slump sale or sale of independent items of assets, it was necessary to examine the intention of the parties to the sale agreement. If the business of the vendor was sold as such as a going concern, it would tantamount to a slump sale.
3) In the instant case, it was not merely the land and building that was sold but also the license for lodging, boarding, bar, etc., and the entire amount of Rs. 20 crore was subsumed by mentioning only land and building.
4) On the facts of the given case, it was clear that business of the assessee of running of the hotel had been sold as such by selling the hotel premises to a private limited company, which was also in the business of running of hotel. Therefore, the provisions of section 50B had application to the facts of the case. – [2019] 101 taxmann.com 163 (Cochin – Trib.)
