Capital Gains In Case Of Slump Sale

Slump Sale means the transfer of one or more undertakings as a result of the sale for a lump sum consideration without values being assigned to the individual assets and liabilities in such sales.

Cost of acquisition and cost of improvement in case of slump sale: “Net Worth” of the undertaking or the division. (NO INDEXATION OF SUCH COSTS WILL BE ALLOWED).

Note : Cost of acquisition of assets in case of slump sale of business specified under section 35AD [Section 50B] [W.e.f. A.Y. 2010-11]

Section 50B relating to slump sale amended: While computing the net worth in case of slump sale for the purpose of computing capital gain, 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, its cost shall be taken as NIL.

NET WORTH = 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.

Aggregate value of total assets:
(a) In case of depreciable assets- the written down value of the block of assets.
(b) In case of any other assets- the book value of such assets.
Note :
(1) Any change in the value of assets on account of revaluation of assets shall be ignored for the purposes of computing the net worth.
(2) Benefit of unabsorbed losses and unabsorbed depreciation of the undertaking transferred shall not be available to the transferee company.
(3) If the business is transferred on “severable sale” basis, the surplus will be short-term capital gains in case of depreciable assets. While in case of other assets, it may be short- term or long-term depending upon the holding period.                                                                               (4) No profit under the head profit or gains from business or profession shall arise even if the stock of the said undertaking is transferred alongwith other assets.
(5) Determination of value for stamp duty, registration fees shall not be regarded as assigning values to individual assets or liabilities.
(6) Report of a Chartered Accountant in prescribed Form 3CEA shall be enclosed.

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