Slump Sale

Dear Sharwan, 

CAPITAL GAINS TAXABILITY:

1. The nature of capital assets depends on how long the undertaking has been in existence. If the undertaking being transferred is in existence for more than 36 months, then it will be treated as Long term asset, and the gain or loss shall be long term. The period of holding of individual assets is not to be considered.

2. Tax rate - LTCG - 20%, STCG - normal rate of tax of the assessee. NO INDEXATION CAN BE CLAIMED even if the undertaking is a long term capital asset.

3. Capital gain = Net consideration - Net worth of undertaking.

Net worth  = (+) WDV of fixed assets as per IT Act (+) Book value of other assets (-) Book value of liabilities.

In your case, net worth of the undertaking is negative. So the net worth shall be taken as NIL. i.e., gain to seller shall be 180 only and not 640.

This was decided by the Mumbai ITAT in the case of ZUARI INDUSTRIES LTD in 2006.

Logic: Gain is only a portion of selling price. You cant make more profit than the selling price.

For VAT Implication, please await other members' opinion.