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Unit 14: Restructuring: Conversion and Slump Sale

If the transfer is on a going concern basis, even though no specific exemption is spelt out, Notes

the firm shall not be taxable since there can be no inference of a sale of any specifi c item
comprised therein.

The Income tax Act, 1961 (‘IT Act’) defines Slump Sale as ‘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’.

Slump Sale is one of the widely accepted ways of conducting business transfers.
‘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.

An assessee has to choose what is best suitable for him — an itemised sale or a slump
sale.
A Holding Company is one which controls another company either by means of holding
shares in that company or by having power to appoint the whole or majority directors of
that company.

A “member” is any person that is entered into a company’s register of members. In most
cases a holding company will hold the majority of the voting rights in its subsidiary.

14.6 Keywords

Capital Gains: An increase in the value of a capital asset (investment or real estate) that gives it
a higher worth than the purchase price.
Company: A voluntary association formed and organised to carry on a business.

Memorandum of understanding (MOU): A memorandum of understanding (MoU) is a document
describing a bilateral or multilateral agreement between parties.

Net worth: 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.
Partners: A person who takes part in an undertaking with another or others, esp. in a business or
company with shared risks and profi ts.
Share Capital: Share capital is the money invested in a company by the shareholders.
Slump sale: It 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.

Sole Proprietor: The sole proprietor is an unincorporated business with one owner who pays

personal income tax on profits from the business.

Takeover: Assumption of control of another (usually smaller) firm through purchase of 51 percent
or more of its voting shares or stock.

Transfer: A changing of ownership, such as real estate, a security or a financial account, from one
party to another.
Valuation: Valuation is a process of determining the value of assets and liabilities of business.

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