Raja Ltd has sold entire engineering division to Vibha Ltd for ₹ 2,500 crore while retaining other remaining business of chemicals and fertilisers with it: Is this sale of engineering division slump sale ? How the gain/l

Section 2(42C) of the Income Tax Act, 1961 defines slump sale as a means of transfer of one or more undertakings by any means for a lump sum consideration without values being assigned to the Individual assets and liabilities in such transfer. The word any means now allows the transfer of a business undertaking not only 'by way of sale' but also 'by way of an exchange' or any other transfer structure defined in Section 2(47) of the Act to be included within its scope. Thus, sale of engineering division is considered as slump sale. As per section 50B of the Income Tax Act, 1961 any profits or gains arising from the slump sale effected in the previous year shall be chargeable to income-tax as capital gains from the transfer of long-term capital asset and shall be deemed to be the income of the previous year in which the transfer took place. The gain or loss resulting out of a slump sale shall be a Capital Gain/Loss under the Income Tax Act. The computation has been prescribed as follows: Amount of Full Value of Consideration - Expenses in relation to transfer =Net Consideration-Cost of Acquisition / net worth =Capital Gain or (Loss) Sale consideration to be calculated as per the Fair Market Value computation which includes monetary as well as non-monetary considerations. The capital gain or loss as computed above will be either long term or short-term depending upon the period for which the undertaking is held. If the undertaking is held for more than 36 months, the resulting capital gain or loss shall be long-term and if it is held for less than 36 months, the resulting capital gain or loss shall be short term. Further, there will be no indexation benefit available in the computation of the capital gains. Tax rates: The rates of tax applicable to the capital gain in a slump sale are as follows: Short Term Capital Gain: Normal Rates of taxation and Long Term Capital Gain: 20%. In computing the net worth of the entity, the following points need to be considered: The value of net worth should not take into account any change in the value of the asset or liability resulting from revaluation of such asset or liability. In case of depreciable assets under the Income Tax Act, the Written Down Value of Block of assets as per the Act shall be considered. In case of assets on which 100% deduction has been allowed under section 35AD (specified business), the value of such assets will not be considered. In case of any other asset, value as appearing in the books of accounts shall be considered. After considering the above points, if the resulting net worth is negative, then the cost of acquisition shall be taken as nil for the purpose of computation of capital gains. Value of goodwill of business or profession (other than goodwill acquired by purchase from a previous owner) would need to be taken as NIL.