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Transfer of all employees to another entity for a consideration shall be treated as capital gains ?

CA. Kasi Reddy Nallappa Reddy (Chartered Accountant) (153 Points)

18 September 2019

Dear Professional Colleagues,

The company (A) transferred the all employees to another company for a consideration, whether the same shall be treated as Capital Gain or Business Income ?

Thanks In Advance

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7 Replies

Giridhar S Karandikar (Team Lead) (7543 Points)
Replied 18 September 2019

Capital gains , as you have surrendered your right in the employees. can't be business income as the consideration is of a terminal nature received lumpsum

Kapadia Pravin (17249 Points)
Replied 18 September 2019

Has Company A received consideration in cheque ? Then under which section TDS is deducted ( if any)

Note that in my view, employer company have no legal rights over its employees which company can surrender and encash it .

anand tayi (Student CA Final ) (57 Points)
Replied 18 September 2019

On plain reading of the question, I agree with the second sentence of the Kapadia Pravin, As employees are not a property of employer.

But, If you meant that there is contractual agreement for minimum period of service to be provided by the employee and such right of the employer to avail services is transferred to another person in accordance with terms of the service agreement, Then I have a view of there exist transfer of capital asset(I.e right to avail services of employee) and is chargeable to tax under head capital gains computed in accordance with provisions of sec48

Kapadia Pravin (17249 Points)
Replied 19 September 2019

Such right of transferrability of employees (on Premium by employer) is ultra vires the law and not tenable. If employee wishes to join another company it's ok but if not then it's his right.

Such type of bonded labour agreement in the form of a Right on employees and that too saleable right is not tenable.

It is a neither a capital gain nor PGBP. At the most it's IFOS

anand tayi (Student CA Final ) (57 Points)
Replied 19 September 2019

@ Kapadia Pravin: Yes, Thank you for the reply.
If legally there could not be the circumstance as specified in my earlier reply , It could be treated as income from recommending or referring service workmen and chargeable to tax as brokerage or commission income under head other source as in the given case implies not in the ordinary course of business.