Chargeability under Slump Sale :
Any profits arising from the slump sale effected in the previous year shall be chargeable to tax as capital gains and shall be deemed to be the income of the previous year which the transfer took place. In relation to a capital asset being an undertaking or division transferred by way of such sale, the „net worth‟ of the undertaking or the division shall be deemed to be the cost of acquisition and cost of improvement for the purposes of sections 48 and 49. The benefit of indexation shall not be allowed. If the undertaking is owned and held by the assessee for not more than 36 months, it shall be taken as short-term capital asset.
- The Supreme Court in the case of R.C. Cooper vs. UOI: AIR 1970 SC 564 (610) held that the undertaking is distinct from the various assets which comprise
the undertaking. The aforesaid principle has now been statutorily recognised.
- “Undertaking” is defined to include any part of an undertaking or a unit or division of an undertaking or a business activity as a whole, but does not
include individual assets or liabilities or any combination thereof not constituting business activity [Section 2(42C)].
In case of a slump sale, every assessee shall furnish in the prescribed form along with the return of income, a report of a Chartered Accountant indicating the computation of net worth of the undertaking or division, as the case may be, and certifying that the net worth of the undertaking or division has been correctly arrived at in accordance with the provisions of this section.
“Net worth‟ shall be the aggregate value of total assets of the undertaking or division as reduced by the value of liabilities of such undertaking or division as appearing in its books of account. Change in value of assets on account of revaluation shall be ignored. The value of depreciable assets shall be the written down value of block of assets determined in accordance with section 43(6)(c). The value of capital assets in respect of which the whole of the expenditure has been allowed or is allowable as a deduction under section 35AD would be Nil. The value of all other assets would be the book value.
The auditor of the company is required to give a certificate in the prescribed form relating to the computation of capital gains in case of slump sale. This certificate should be filed along with the return of income duly accompanied by copies of the profit and loss account and Balance Sheet in accordance with the provisions of section 139.