Section 77 — Special provision for computation of capital gains in case of slump sale
Old Act equivalent: Section 50B of IT Act 1961 Sub-part: E.—Capital gains
Statutory Text
(1) Any profits or gains arising from the slump sale effected in the tax year shall be chargeable to income-tax as long-term capital gains and shall be deemed to be the income of the tax year in which the transfer took place, subject to the provisions of sub-section (2). (2) The profits and gains arising from a slump sale involving the transfer of a capital asset, being one or more undertakings or divisions owned and held by an assessee for thirty-six months or less, immediately before the date of its transfer, shall be treated as short-term capital gains. (3) In relation to capital assets, being an undertaking or division transferred by way of slump sale,— (a) the “net worth” of the undertaking or division shall be deemed to be the and (b) the fair market value of the capital assets on the date of transfer, calculated in such manner, as may be prescribed, shall be deemed to be the full value of the consideration received or accruing as a result of such transfer. (4) Every assessee, in the case of a slump sale, shall furnish in the prescribed form a report of an accountant, before the specified date referred to in section 63, and the report shall— (a) include the computation of the net worth of the undertaking or division; and (b) certify that the net worth has been correctly arrived at as per the provisions of this section. (5) For the purposes of this section,— (a) the “net worth” shall be the “aggregate value of total assets” of the undertaking or division, as reduced by the value of its liabilities as appearing in the books of account, and for computing net worth, any change in the value of assets due to revaluation shall be ignored; (b) the “aggregate value of total assets” shall,— (i) for depreciable assets, be the written down value of the block of assets determined under section 41(1)(c); (ii) for capital asset being goodwill of a business or profession, which was not acquired by the assessee by purchase from a previous owner, be nil; (iii) for capital assets for which the entire expenditure has been allowed or is allowable as a deduction under section 46, be nil; and (iv) for other assets, be the book value. Special provision for full value of consideration in certain cases.
Sub-sections
Sub-section (1)
Any profits or gains arising from the slump sale effected in the tax year shall be chargeable to income-tax as long-term capital gains and shall be deemed to be the income of the tax year in which the transfer took place, subject to the provisions of sub-section (2).
Sub-section (2)
The profits and gains arising from a slump sale involving the transfer of a capital asset, being one or more undertakings or divisions owned and held by an assessee for thirty-six months or less, immediately before the date of its transfer, shall be treated as short-term capital gains.
Sub-section (3)
In relation to capital assets, being an undertaking or division transferred by way of slump sale,— (a) the “net worth” of the undertaking or division shall be deemed to be the and (b) the fair market value of the capital assets on the date of transfer, calculated in such manner, as may be prescribed, shall be deemed to be the full value of the consideration received or accruing as a result of such transfer.
Sub-section (4)
Every assessee, in the case of a slump sale, shall furnish in the prescribed form a report of an accountant, before the specified date referred to in section 63, and the report shall— (a) include the computation of the net worth of the undertaking or division; and (b) certify that the net worth has been correctly arrived at as per the provisions of this section.
Sub-section (5)
For the purposes of this section,— (a) the “net worth” shall be the “aggregate value of total assets” of the undertaking or division, as reduced by the value of its liabilities as appearing in the books of account, and for computing net worth, any change in the value of assets due to revaluation shall be ignored; (b) the “aggregate value of total assets” shall,— (i) for depreciable assets, be the written down value of the block of assets determined under section 41(1)(c); (ii) for capital asset being goodwill of a business or profession, which was not acquired by the assessee by purchase from a previous owner, be nil; (iii) for capital assets for which the entire expenditure has been allowed or is allowable as a deduction under section 46, be nil; and (iv) for other assets, be the book value. Special provision for full value of consideration in certain cases.
Provisos
None.
Explanations
None.
Tables
Table 1:
cost of acquisition and the cost of improvement for sections 72 and 73;
Key Structure
- Applies to: Every assessee effecting a slump sale of one or more undertakings or divisions.
- Asset type: Capital asset being an undertaking or division transferred by way of slump sale (transfer of an undertaking as a going concern for a lump sum consideration without individual valuation of assets and liabilities).
- Conditions: Net worth of the undertaking or division is deemed to be the cost of acquisition and cost of improvement for sections 72 and 73; fair market value of capital assets on date of transfer (calculated as prescribed) is deemed to be the full value of consideration; assessee must furnish a prescribed-form accountant’s report certifying the net worth computation before the specified date under section 63.
- Time limits: Holding period of 36 months or less before transfer date results in short-term capital gains treatment; otherwise long-term. Accountant’s report must be furnished before the specified date referred to in section 63.
- Monetary limits: None specified in this section.
- Exceptions: Net worth computation: revaluation of assets is ignored; goodwill of business/profession not acquired by purchase has nil value; assets for which entire expenditure allowed or allowable under section 46 have nil value; depreciable assets valued at WDV of block of assets under section 41(1)(c); other assets at book value.
Cross-References
- s072-computation — net worth deemed as cost of acquisition and cost of improvement for computation under section 72.
- s073-cost-acquisition — net worth deemed as cost for purposes of section 73.
- Section 2(101) (not yet ingested) — definition of short-term capital asset; 36-month holding period test in sub-section (2).
- Section 41(1)(c) (not yet ingested) — written down value of block of assets used for depreciable assets in net worth computation.
- Section 46 (not yet ingested) — assets for which entire expenditure already allowed as deduction, valued at nil.
- Section 63 (not yet ingested) — specified date by which accountant’s report must be furnished.
Amendment Notes
None noted from the extracted pages.