LIVE GST Certification Course by CA Arun Chhajer begins 27th April. Register Now!!

Slump sale

Kush Gangar (Final) (47 Points)

12 January 2012

Hiee everyone..........

If a company on a slump sale gets Rs 58Cr, then what would be the amount of Taxation. I think there is a seperate working required. Can anyone give me the ans in detail?

Its urgent.

Thanks in advance

Reply
Follow
Share

1 Replies

Vikky (CHARTERED ACCOUNTANT) (145 Points)
Replied 12 January 2012

The net worth of an undertaking transferred is deemed to be the cost of acquisition and cost of improvement for the purpose of calculating the capital gains.

Section 50-B of the Income-Tax Act, 1961, is a special provision for computing capital gains chargeable to tax in the case of a slump sale. Such capital gains are deemed to be long term where the undertaking has been owned and held by the assessee for more than three years, irrespective of the period for which each individual asset of the undertaking has been held.

Therefore, Section 50-B would prevail over the general provisions of the law. Sections 48 and 49 have been made applicable, subject to some modification, for computing capital gains in the case of a slump sale.
Defining net worth

The net worth of the undertaking transferred is deemed to be the cost of acquisition and cost of improvement for calculating the capital gains. The net worth is to be computed in accordance with Explanations 1 and 2 of Section 50-B.

As per Explanation 1, net worth has been defined as the aggregate value of total assets of the undertaking as reduced by the value of liabilities of such undertaking as appearing in the books of account.

Explanation 2 provides that the value of depreciable assets shall be taken as the written-down value (WDV) determined under Section 43(6)(c) of the Act, while the value of non-depreciable assets will be taken as per the books. The net worth so computed is to be certified by the report of the accountant as defined in Section 288(2).

The word worth as per the dictionary meaning means value of goods or asset or property.

No person would buy any property that is worthless. Further, the word worth is qualified by the word net which would mean the net value of the property that is being sold or purchased. At best, the value of the property can be nil but there is no concept of negativity with reference to the expressions net worth or cost acquisition. Had the legislature also intended negative cost of acquisition, it would have used the words by deducting from or adding to, as the case may be in Section 48 of the Act instead of the words by deducting from actually used by it.