Query on business takeover

This query is : Resolved

Pawan Periwal (Querist)
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09 June 2010 Dear Sir/ Mam

One of my client ( Pvt Limited Co) is going to acquire the runing business unit of a Pvt Ltd Co..

Let us assume the Target company have 2 units( A, B), my client is acquiring unit A, partly through own equity and partly through Bank Loan.

The price determination is basis the Depreciable fixed assets ( Land, Building, Machinery) plus goodwill.

The book value of the unit is 50 lakh and the price paid is Rs 60 lakh.

Whether the profit of Rs 10 lakh will be treated as the business income or STCG.

Also can my client can claim depreciation on the cost of 60 Lakhs (which he has actually paid)

Thanks & Regards
CA Pawan Periwal

CA V. Mohanakrishnan

CA V. Mohanakrishnan (Expert)
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09 June 2010 The depreciation can be claimed on the complete Rs.60 lakhs. The difference in the value recorded in the books of the acquirer and consideration paid to be treated as goodwill or capital reserve. Depreciation can be claimed only on the book value recorded as block of asset. for this purpose the transaction needs to be treated as slump sale, by which the the same would be treated as capital gains depending on the period for which the same was held by the selling unit

Pawan Periwal

Pawan Periwal (Querist)
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09 June 2010 Thanks a ton Sir...

Now the next query revolve around to save the tax of the target enterprise. Guess we can take the support of 54GA. ( LTCG to investment in SEZ). Is there any other way around to save the tax of the target entrepreneur.