The aforesaid includes spin off and sale of a semi autonomous divisions or units of a company either for lump sum consideration or for break up prices. Here, unlike a demerger, there is no allotment of shares of the buyer in favour of the selling company or its shareholders since the consideration is in money.
Either hiving off business division is a slump sale when the price is lump sum consideration or rate contract when break up prices are fixed for the individual assets separately.
Under 2(42C) of the IT Act ‘slump sale’ means the transfer of one or more undertakings or divisions for a lump sum consideration without assigning values for individual assets and liabiltities.
Under the provisions of Section 50B of the Income Tax (IT) Act any profit from lump sum transfer of a division or an undertaking shall be chargeable to income tax as capital gains.
According to Sections 48 and 49 of the IT Act for computation of such capital gains in the hands of the transferor , the cost of the transferred division or undertaking shall be its ‘net worth’, which is the excess of the total book value of the assets of the undertaking over and above the book value of its liabilities. Here non depreciable assets like land etc. are taken at original cost. Block of depreciable assets including plant and machinery are taken at written down value arrived after providing for depreciation as per Income Tax Rules. Not only improvement costs are ignored but also indexation benefits for inflation, pursuant to Section 48, are not allowed.
If the above conditions are satisfied the accumulated business loss and unabsorbed depreciation of the amalgamating company shall be deemed to be business loss and depreciation of the loss of the amalgamated company of the previous year of amalgamation.
In default, the portion of the brought forward losses and unabsorbed depreciation which has already been set off by the amalgamated company shall be treated as income of the amalgamated company of the year in which the failure to fulfill the condition occurs.
