1. Section 2(42C): Definition of Slump Sale:
- Transfer of one or more undertakings as a result of the sale for a lump sum consideration without values being assigned to the individual assets and liabilities in such sales.
2. Section 50B: Special provision for computation of capital gain in case of Slump Sale:
- a. Any profits or gains from slump sale shall be chargeable to income-tax as capital gains and shall be deemed to be the income of the previous year in which transfer took place.
- b. Nature of capital gain will depend upon the period of holding of undertaking transferred by way of slump sale. If the undertaking is held for more than 36 months immediately preceding the date of transfer, the capital gain shall be Long Term Capital Gain. This is irrespective of the fact that the undertaking consist of certain assets which are short term capital assets.
- c. No profit under the head P/G/B/P shall arise in case of slump sale if stock is transferred in slump sale.
- d. Cost of acquisition and cost of improvement of the undertaking shall be the “net worth” of the undertaking
- e. The benefit of indexation shall not be available.
- f. No values shall be assigned to individual assets or liabilities.
- g. However, values can be assigned to individual assets for the limited purpose of payment of stamp duty and registration fees. This issue should be clarified in the agreement.
- h. Capital Gains: Slump sale consideration minus net worth of the undertaking
- i. Net worth= Aggregate value of all the assets of the undertaking minus value of liabilities.
- j. Contingent liabilities do not appear in the books of accounts and therefore shall not be deducted while computing net worth.
- k. Revaluation of assets shall not be considered while calculating net worth of the undertaking.
- l. For computing net worth, non-depreciable assets are to be taken at their book values.
- m. For computing net worth, any assets whose total cost has been allowed as deduction under section 35ADshall be taken as NIL.
- n. For computing net worth, in case of depreciable assets, the WDV shall be computed as per section 43.
- o. A report of Chartered Accountant certifying correctness of computation of net worth of the undertaking has to be furnished along with the return of income.
- p. In case of slump sale, the unabsorbed depreciation and unabsorbed losses of the undertaking shall not be available to the transferee for carry forward.
3. Section 43(6): WDV of block of assets: WDV of the transferor in case of slump sale shall be reduced by the following:
- Actual cost of the assets falling within the block transferred by way of slump sale as reduced by:
- Less: depreciation that would have been allowable as if the asset was the only asset in the block of assets.
- However the reduction shall be limited to the WDV of the block of assets.