Section 77 — Special provision for computation of capital gains in case of slump sale. Successor to s.50B of the 1961 Act.
Section 77 is in Chapter IV — Computation of Total Income, which runs from section 13 to section 95.
Sub-section (1) charges profits or gains from a slump sale effected in the tax year as long-term capital gains, deemed income of the year of transfer, subject to sub-section (2), which treats them as short-term where the undertaking or division was owned and held for thirty-six months or less immediately before the date of transfer.
Sub-section (3) supplies both ends of the computation: net worth is deemed to be the cost of acquisition and the cost of improvement for sections 72 and 73, and the fair market value of the capital assets on the date of transfer, calculated in such manner as may be prescribed, is deemed to be the full value of the consideration. Sub-section (4) requires every assessee in a slump sale to furnish a report of an accountant in the prescribed form before the specified date referred to in section 63, including the computation of net worth and certifying that it has been correctly arrived at.
Sub-section (5) defines net worth as the aggregate value of total assets reduced by the value of liabilities as appearing in the books, any change in value due to revaluation being ignored. The aggregate value of total assets is the block written down value under section 41(1)(c) for depreciable assets; nil for goodwill not acquired by purchase from a previous owner; nil for capital assets whose entire expenditure has been allowed or is allowable under section 46; and book value for other assets.
A slump sale transfers an undertaking for a lump sum with no values assigned to individual assets, so the ordinary capital gains machinery has neither a cost nor an itemised consideration to work from. The section supplies both by statute and fixes the character of the gain by how long the undertaking was held rather than each asset within it. The nil valuations and the exclusion of revaluation stop net worth being inflated by amounts that never carried a tax cost.
| What | Figure | The condition on it | Where |
|---|---|---|---|
| Holding period below which the gain is short-term | Thirty-six months or less | The undertaking or division must have been owned and held by the assessee for that period immediately before the date of its transfer | Sub-section (2) |
| Value of self-generated goodwill in net worth | Nil | Goodwill of a business or profession not acquired by the assessee by purchase from a previous owner | Sub-section (5)(b)(ii) |
| Value of assets fully deducted under section 46 | Nil | Capital assets for which the entire expenditure has been allowed or is allowable as a deduction under section 46 | Sub-section (5)(b)(iii) |
| Date for the accountant's report | Before the specified date referred to in section 63 | Applies to every assessee in the case of a slump sale | Sub-section (4) |
The consideration you agreed is not the consideration you are taxed on — sub-section (3)(b) substitutes the prescribed fair market value of the capital assets on the date of transfer, so a lump sum below that value does not reduce the gain. Net worth is equally statutory, not accounting: block written down value for depreciable assets, nil for self-generated goodwill and section 46 assets, book value for the rest, and revaluation ignored. Because net worth is deemed to be both cost of acquisition and cost of improvement, there is nothing further to add to cost. The thirty-six month test applies to the undertaking as the capital asset, so a young division holding old assets still yields a short-term gain.
A company sells a manufacturing division for a lump sum of Rs. 50 crore. Its assets are plant at a block written down value of Rs. 18 crore, other assets at book value of Rs. 12 crore, and self-generated goodwill carried at Rs. 6 crore, against liabilities of Rs. 8 crore. Net worth is 18 + 12 + 0 – 8, that is Rs. 22 crore, the goodwill entering at nil. If the prescribed fair market value of the capital assets on the date of transfer is Rs. 55 crore, the gain is Rs. 33 crore and not Rs. 28 crore, and it is long-term unless the division was held for thirty-six months or less.
You meet this section through the accountant's report on net worth that sub-section (4) makes compulsory in every slump sale, furnished in the prescribed form before the specified date referred to in section 63. It surfaces again when an Assessing Officer tests the prescribed fair market value or the composition of net worth certified in that report.
the fair market value of the capital assets on the date of transfer, calculated in such manner, as may be prescribed, shall be deemed to be the full value of the consideration received or accruing as a result of such transfer
for computing net worth, any change in the value of assets due to revaluation shall be ignored
See the full 1961 to 2025 concordance.
All of them are in the Rules 2026 index.
See the notifications index.
