Slump Sale

CA PARAS BAFNA (Practising CA ) (33423 Points)
Replied 15 January 2011

Brief answer to the queries -

Prior Condition-

The unit or division which is being transferred should constitute as business activity as whole.

1. Separate Books of Accounts:

Net worh of business being transferred is required to be ascertained. It will require seggregation of various items of assets and liabilities. To avoid further litigations in the matter, and for the purpose of simplicity , creation of separate books of account of the unit is preferred. From these , proper accounting effect could be made in the existing accounts after the slump sale takes place.

2. In case of slump sale accumulated losses and depreciation will be carried forward by the transferor.

3. The company may pass the necessary resolution at its level. However, as per Income Tax Act A report of CA in Form No 3CEA ( certifying the correctness of Net Worht) is required to be submitted alongwith the ROI.

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CA Sandeep Kumar (Audit Assistant) (804 Points)
Replied 15 January 2011

1) If books were not maintained separately, not to worry, it will not deny the fact that there existed a separate division.

2) Unabsorbed depreciation/carry forward of business losses will still be available to the company only, as the transferee is not eligible to claim the same. So the benefit wil be to transferor only

Also make sure form 3CEA (IT rules 1962) is signed by the auditor of the company

3) In case of a public ltd co or a pvt ltd co which is a subsidiary of public ltd co, will have to take the consent of shareholders in a general meeting (section 293)

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Vikas Wadhawan (Service) (52 Points)
Replied 15 January 2011

Thanks Paras & Sunny for this quick reply.............

Don't you think that the carried forward losses will be allowed only to the extent it relates to the business activities being retained by the Company.

Though I understand that long term capital gains are not allowed to adjusted against business losses but is there a way to plan / structure this transaction to minimize the tax impact as the company is in huge losses..............

CA Sandeep Kumar (Audit Assistant) (804 Points)
Replied 15 January 2011

No. We do not compute losses based on each division of a company.. It is a loss of the company as a whole.. so no question of loss pertaining to particular division.. though we disclose the same as loss pertaining to a division due to requirement of accounting standards, i do not think there is any problem in income tax act..

I am sorry, i do not know any tax planning in this case.

wait for other members to reply..

Good day

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CA PARAS BAFNA (Practising CA ) (33423 Points)
Replied 15 January 2011

Against the LTCG you can adjust current year's business loss, if there be any.

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Vikas Wadhawan (Service) (52 Points)
Replied 17 January 2011

Friends

One more clarification I need for this query. The period of holding is calculated form the date of start of this business activity and the date of addition of various assets (which are being sold as part of this slump sale) in this business division has no impact n detarmination of LTCG / STCG.

Thanks in advance

CA PARAS BAFNA (Practising CA ) (33423 Points)
Replied 17 January 2011

You are Right Vikas.

Anuj Jindal (Manager Taxtion) (21 Points)
Replied 20 June 2012

Do any one have judgement or some department clarification on the point that unabsorbed Depreciation or accumalated losses is available to transferor Company not to transferee company in case of Slump Sale.

Thanks and Regrads

Anuj Jindal