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Unit 14: Restructuring: Conversion and Slump Sale

2. Going concern basis: A significant test to fall within the ambit of Slump Sale is the ability Notes
of the buyer to continue the business post acquisition.

14.3.2 Chargeability

Any profi ts 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 benefi t 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.
1. The Supreme Court held that the undertaking is distinct from the various assets which
comprise the undertaking. The aforesaid principle has now been statutorily recognised.

2. “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)].

Did u know? In case of a slump sale, every assessee shall furnish in the prescribed form
along with the return of income.

‘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 Form No.3CEA (Rule 6H) relating

to the computation of capital gains in case of slump sale. This certificate should be fi led 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 of the Income-tax Act, 1961.
14.3.3 Steps in Slump Sale

Under Indian Income tax Act, 1961, “slump sale” means the 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. Therefore transferor is not required to assign value to each
“assets and liabilities” of “business undertaking” to be transferred.

Slump sale is carried out through following steps:

Step 1: Finding Buyer

To finding potential buyers, register your details and requirements on our “buy sell centre”.
Before opting for slump sale there are various issues that needs to be analysed fi rst, especially
impact of capital gain tax to the seller and stamp duty to the buyer needs to be analysed in lights
of business strategies.
1. Short listing of buyer: The buyer or transferee companies needs to be short listed by refi ning
the business and tax objectives.

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