In simple words, ‘slump sale’ is nothing but a transfer of a whole or part of a business concern as a going concern. As per section 2(42C) of 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.
Vide notification dated 24th May, 2021, CBDT has prescribed the following method for Computation of Fair Market Value of Capital Assets for the purposes of Slump Sale under section 50B of the Income Tax Act, 1961
Fair Market Value of Capital Assets = Higher of FMV-1 or FMV-2
FMV-1 = shall be the fair market value of the capital assets transferred by way of slump sale determined in accordance with the formula A+B+C+D – L, where,
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 any amount of income-tax paid, if any, net of refund claimed, if any; and 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 = fair market value of shares and securities as determined in the manner provided in sub-rule (1) of rule 11UA;
D = the value adopted or assessed or assessable by any authority of the Government for the purpose of payment of stamp duty in respect of the 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: —
- the paid-up capital in respect of equity shares;
- 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;
- reserves and surplus, by whatever name called, even if the resulting figure is negative, other than those set apart towards depreciation;
- 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;
- any amount representing provisions made for meeting liabilities, other than ascertained liabilities;
- any amount representing contingent liabilities other than arrears of dividends payable in respect of cumulative preference shares.
FMV-2 = the fair market value of the consideration received or accruing as a result of transfer by way of slump sale determined in accordance with the formula- E+F+G+H, where,
E = value of the monetary consideration received or accruing as a result of the transfer;
F = fair market value of non-monetary consideration received or accruing as a result of the transfer represented by property referred to in sub-rule (1) of rule 11UA determined in the manner provided in sub-rule (1) of rule 11UA for the property covered in that 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 sub-rule (1) of rule 11UA would fetch if sold in the open market on the basis of the valuation report obtained from a registered valuer, in respect of property;
H = the value adopted or assessed or assessable by any authority of the Government for the purpose of payment of stamp duty in respect of the immovable property in case the non-monetary consideration received or accruing as a result of the transfer is represented by the immovable property.
The fair market value of the capital assets shall be determined on the date of slump sale and for this purpose, the valuation date referred to in rule 11UA shall also mean the date of slump sale.
For the purposes of this rule, the expression “registered valuer” and “securities” shall have the same meanings as respectively assigned to them in rule 11U of the Income Tax Rules.
For queries, you may connect on incometax@rmpsco.com.
