M/s Excel Private Limited, sold one of its two plants under a slump sale to M/s. Pixel Private Limited on 31-10-2023 for a sales consideration of ₹ 45 lakhs due to continuous losses being occurred. The balance sheet of t

For the purpose of section 50B of Income Tax Act, 1961, the profit or gains on slump sale will be difference of Full value of consideration less Cost of acquisition and cost of improvement. Where full value of consideration is the fair market value of the capital assets computed as per Rule 10 UAE and the cost of acquisition and cost of improvement will be the "net worth" of the undertaking or division sold. For the purpose of Rule 11 UAE read with section 50B(2) (ii) of income Tax Act, the fair market value of the capital assets shall be FMV 1 (determined under sub section 2) or FMV2 (determined under sub section 3) whichever is higher. 1. Computation of Net Worth of the plant [Section 50B(2)] Particulars Amount Amount Book value of fixed assets 21,70,000 Less: Revaluation reserve (82,000) 20,88,000 Book value of current assets 4,08,000 Goodwill Nil Deferred Revenue Expenditure Nil Income Tax refund claimed for AY 2023-24 55,200 Aggregate value of assets (A) 25,51,200 Book value of all liabilities: Bank Loan 7,42,000 Current Liabilities 14,72,800 Book value of all liabilities (B) 22,14,800 Net Worth (A-B) 3,36,400 2. Computation of Fair Market Value of capital assets of the plant (Rule 11 UAE): Particulars Amount FMV 1: Book value of assets reduced by book value of liabilities: Book value of assets: Stamp duty value of land 12,00,000 Book value of other Fixed Assets (₹ 21,70,000 less cost of land ₹ 7,52,000 14,18,000 Book value of Current assets 4,08,000 IT Refund due 55,200 Total (A) 30,81,200 Book value of all liabilities: Bank Loan 7,42,000 Current Liabilities 14,72,800 Total (B) 22,14,800 FMV 1 (A-B) 8,66,400 FMV2: Value of the Monetary Consideration Received = ₹ 45,00,000 3. Computation of Capital Gains on slump sale of the plant [Section 50B(1)] Higher of FMV 1 or FMV 2 (8,66,400 or 45,00,000) = ₹ 45,00,000 Less: Net worth = ₹ 3,36,400 Long term Capital Gains on Slump Sale = ₹ 41,63,600 Since the land was purchased in 2016-17, it can be inferred that the unit which is transferred in slump sale was in existence for more than 36 months and therefore, the resultant capital gains is Long Term Capital Gains. However, benefit of indexation is not available while computing Long Term Capital Gains under section 50B of the Income Tax Act.