Slump sale’ has been defined under section 2(42C) of the Income-tax Act, 1961 (‘the Act’) as ‘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.’
Section 50B read with Section 48 of the Act provides that capital gains on slump sale will be the difference between the full value of the consideration received/ accruing as a result of transfer of capital asset and the net worth of the undertaking sold.
Finance Act 2021 had amended Section 50B(2) of the Act by inserting sub-clause (ii), which reads as under:
“fair market value of the capital assets as on the date of transfer, calculated in the prescribed manner, shall be deemed to be the full value of the consideration received or accruing as a result of the transfer of such capital asset.”
The Central Board of Direct Taxes (CBDT), in this regard, vide Notification No. 68/2021 dated 24th May 2021 has notified the rules for computation of the aforesaid FMV of capital assets in case of slump sale. As per the said notification, a new Rule 11UAE has been inserted and will apply with effect from Assessment year 2021-22. The Rule provides that the FMV of capital assets shall for higher of:
- FMV of the capital assets transferred by way of slump sale (FMV1) or
- FMV of the consideration received or accruing as a result of transfer by way of slump sale (FMV2) For this purpose:
FMV1 = A + B + C + D – L
A = book value of all the assets (other than jewellery, artistic work, shares, securities and immovable property) as appearing in the books of accounts of the undertaking or the division transferred by way of slump sale as reduced by the following amount which relate to such undertaking or the division:
i. any amount of income-tax paid, less the amount of income-tax refund claimed, if any; and
ii. any amount shown as asset including the unamortised amount of deferred expenditure which does not represent the value of any asset
B = the price which the jewellery and artistic work would fetch if sold in the open market on the basis of the valuation report obtained from a registered valuer
C = FMV of shares and securities as determined in the manner provided in Rule 11UA(1).
D = the stamp duty value adopted/ assessed/ assessable by any authority of the Government in respect
of immovable property.
L = book value of liabilities as appearing in the books of accounts of the undertaking or the division transferred by way of slump sale, but not including the following amounts which relates to such undertaking or division, namely:
i. the paid-up capital in respect of equity shares
ii. the amount set apart for payment of dividends on preference shares and equity shares where such dividends have not been declared before the date of transfer at a general body meeting of the company
iii. reserves and surplus, by whatever name called, even if the resulting figure is negative, other than those set apart towards depreciation
iv. any amount representing provision for taxation, other than amount of income-tax paid, if any, less the amount of income-tax claimed as refund, if any, to the extent of the excess over the tax payable with reference to the book profits in accordance with the law applicable thereto
v. any amount representing provisions made for meeting liabilities, other than ascertained liabilities
vi. any amount representing contingent liabilities other than arrears of dividends payable in respect of cumulative preference shares.
FMV2 = E + F + G + H
E = value of the monetary consideration received or accruing as a result of the transfer
F = FMV of non-monetary consideration received or accruing as a result of the transfer represented
by property referred to in Rule 11UA(1) determined in the manner provided in the said sub-rule
G = the price which the non-monetary consideration received or accruing as a result of the transfer represented by property, other than immovable property, which is not referred to in Rule 11UA(1), would fetch if sold in the open market on the basis of the valuation report obtained from a registered valuer, in respect of such property
H = the stamp duty value adopted/ assessed/ assessable by any authority of the Government in case the non-monetary consideration received or accruing as a result of the transfer is represented by the immovable property
FMV1 and FMV2 shall be determined on the date of slump sale and for this purpose, valuation date referred to in rule 11UA, shall also mean the date of slump sale.
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