Page 331 - DCOM508_CORPORATE_TAX_PLANNING

Corporate Tax Planning

Notes 11. Gains made by a foreign resident from the alienation of a permanent establishment or

a fixed base in India by way of slump sale, shall be taxable in India as per Sec. 50B read
with Article 13 (Capital Gains) of the UN/ OECD Model Convention on Double Taxation
Avoidance Agreement.
14.3.5 Trade-off between Itemised Sale and Slump Sale

An assessee has to choose what is best suitable for him — an itemised sale or a slump sale. This
is done by evaluating the advantages and disadvantages of slump sale.

Advantages

If the undertaking is owned and held for more than 36 months, the long-term capital gains are
taxable @ 20% (plus surcharge and education cess), even though there may be some assets held
only for a few months. Further, long-term capital gains are eligible for deduction u/s.54EC and
u/s.54F. Since S. 50B overrides the Sections which provide the mode of computation of capital
gains on sale of an asset, S. 50C, providing for substitution of sale consideration of land/building
by its value as per valuation of stamp valuation authority, is not applicable where land/building
is part of the undertaking. Thus, the effective rate of long-term gains may turn out to be much
lower than 20%.

Disadvantages

No indexation benefit is available. Also, where the undertaking comprises plots of land acquired

prior to 1-4-1981, whose value has appreciated, cost cannot be substituted by the FMV as on 1-4-
1981. In case the undertaking is a short-term capital asset, capital gains made on slump sale are
taxable at normal rates of tax, without availability of exemption.
!
Caution An assessee may select what is most appropriate for him — an itemised sale or
a slump sale, so as to minimise the capital gains tax liability. Where itemised sale is more
beneficial, one can simply break up the sale consideration by assigning values to individual

assets and liabilities. Since sale consideration of an undertaking is expected to be sizable,
determining sale consideration appropriately can save huge tax liability.

Self Assessment

Fill in the blanks:

9. ……………….. is transferring of whole or part (capable of carrying out operations
independently) of a business undertaking as a going concern.
10. ………………….. 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.

11. …………… is a process of determining the value of assets and liabilities of business.
12. Transaction costs involved in slump sale can go up to ..................................... of deal size.

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