For an old year still under appeal, my client transferred a division under a scheme and was paid in preference shares and bonds, not money. The Assessing Officer has applied s.50B. Was that right for a pre-2021 year?
For a year before AY 2021-22, no. The Mumbai Tribunal held that s.2(42C) as it then stood required a transfer 'as a result of the sale', that a sale needs money consideration, and that a transfer of an undertaking in exchange for preference shares and bonds was an exchange and not a sale, so s.2(42C) and s.50B did not apply and the computation provisions failed. For AY 2021-22 onwards this is no longer the law, because s.2(42C) now covers transfer 'by any means'.
Decided by the ITAT (N.V. Vasudevan, Judicial Member and J. Sudhakar Reddy, Accountant Member) on 2011-03-11, reported as ITA No.6410/MUM/2008, Assessment Year 2005-06, ITAT Mumbai Bench 'B'; pronounced 11 March 2011 (some indexes carry an earlier date; the pronouncement date is 11 March 2011). It bears on section 50B, section 2(42C), section 45, section 48 of the Income Tax Act 1961, in Capital Gains and How Tax Law Is Read matters.
Every slump exchange structured before the 2021 amendment turned on this reasoning, and old appeals are still running. The point is worth taking for those years, and it is worth knowing that the Delhi High Court went the other way on the same question in SREI Infrastructure Finance, so an assessee outside Maharashtra faced a real contest. What must not happen is the reasoning being carried into a current year. The Finance Act 2021 substituted s.2(42C) to read 'the transfer of one or more undertaking, by any means, for a lump sum consideration without values being assigned to the individual assets and liabilities in such transfer', with Explanation 3 giving 'transfer' the s.2(47) meaning; and s.50B(2)(ii) now deems the fair market value under Rule 11UAE to be the full value of consideration, which is precisely designed to price a non-monetary consideration. A slump exchange after 31 March 2021 is squarely taxable.
Binding on the AO and CIT(A) within the Tribunal's jurisdiction. Persuasive elsewhere.
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For AY 2005-06 the assessee transferred its lift division under a scheme of arrangement. The consideration was not money: the undertaking was transferred in exchange for the issue of preference shares and bonds. The Assessing Officer treated the transaction as a slump sale and computed capital gains under s.50B; grounds 3 and 4 before the Tribunal challenged that and, in the alternative, claimed indexation.
Ground 3 was allowed. Because the transfer of the undertaking took place in exchange for the issue of preference shares and bonds, it was a case of exchange and not sale, so s.2(42C) did not apply and s.50B was therefore not applicable (para 41). The computation provisions failed and no capital gain could be brought to tax (para 44). The alternative plea in ground 4 on indexation did not call for adjudication.
The Tribunal read s.2(42C) as it then stood — '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' — and held that only a transfer that is the result of a sale can be a slump sale, so that any transfer of an undertaking otherwise than as a result of sale falls outside it (paras 37 and 38). It took the meaning of sale from the Supreme Court in Motor General Stores Pvt. Ltd., that sale is a transfer of property for a money consideration and that the presence of money consideration is an essential element, so that if the consideration is some other valuable consideration the transaction may be an exchange or barter but is not a sale (para 39). It also recorded the principle that where the person carrying on the business transfers the assets to a company in consideration of allotment of shares it is an exchange and not a sale, and that the true nature is not altered because for stamp duty or other reasons the value of the assets transferred is shown as equivalent to the face value of the shares allotted. Reading the clauses of the scheme of arrangement, it found that the undertaking had been transferred in exchange for the issue of preference shares and bonds (para 41). It had earlier clarified that had the transfer been a sale, s.2(42C) would apply and s.50B would supply a machinery so that the gain could be computed and charged (para 22) — the converse being that with s.50B out of the way the ordinary computation provisions had to be applied and they failed.
Thus it was a case of exchange and not sale. Consequently, the provisions of section 2(42C) of the Act did not apply.
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Handle my notice → Ask a CA on WhatsAppFor a year before AY 2021-22, no. The Mumbai Tribunal held that s.2(42C) as it then stood required a transfer 'as a result of the sale', that a sale needs money consideration, and that a transfer of an undertaking in exchange for preference shares and bonds was an exchange and not a sale, so s.2(42C) and s.50B did not apply and the computation provisions failed. For AY 2021-22 onwards this is no longer the law, because s.2(42C) now covers transfer 'by any means'. This was decided by the ITAT (N.V. Vasudevan, Judicial Member and J. Sudhakar Reddy, Accountant Member) and bears on section 50B, section 2(42C), section 45, section 48 of the Income Tax Act 1961. It is reported as ITA No.6410/MUM/2008, Assessment Year 2005-06, ITAT Mumbai Bench 'B'; pronounced 11 March 2011 (some indexes carry an earlier date; the pronouncement date is 11 March 2011). Every slump exchange structured before the 2021 amendment turned on this reasoning, and old appeals are still running. The point is worth taking for those years, and it is worth knowing that the Delhi High Court went the other way on the same question in SREI Infrastructure Finance, so an assessee outside Maharashtra faced a real contest. What must not happen is the reasoning being carried into a current year. The Finance Act 2021 substituted s.2(42C) to read 'the transfer of one or more undertaking, by any means, for a lump sum consideration without values being assigned to the individual assets and liabilities in such transfer', with Explanation 3 giving 'transfer' the s.2(47) meaning; and s.50B(2)(ii) now deems the fair market value under Rule 11UAE to be the full value of consideration, which is precisely designed to price a non-monetary consideration. A slump exchange after 31 March 2021 is squarely taxable. If it applies to you, the first step is this: Confirm the previous year. If it ends on or before 31 March 2021 the argument is available; if it ends later it is not, and running it invites a penalty exposure for an unsustainable claim.
For AY 2005-06 the assessee transferred its lift division under a scheme of arrangement. The consideration was not money: the undertaking was transferred in exchange for the issue of preference shares and bonds. The Assessing Officer treated the transaction as a slump sale and computed capital gains under s.50B; grounds 3 and 4 before the Tribunal challenged that and, in the alternative, claimed indexation. The matter was decided on 2011-03-11 by the ITAT (N.V. Vasudevan, Judicial Member and J. Sudhakar Reddy, Accountant Member). On those facts the ITAT held as follows. Ground 3 was allowed. Because the transfer of the undertaking took place in exchange for the issue of preference shares and bonds, it was a case of exchange and not sale, so s.2(42C) did not apply and s.50B was therefore not applicable (para 41). The computation provisions failed and no capital gain could be brought to tax (para 44). The alternative plea in ground 4 on indexation did not call for adjudication.
The Tribunal read s.2(42C) as it then stood — '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' — and held that only a transfer that is the result of a sale can be a slump sale, so that any transfer of an undertaking otherwise than as a result of sale falls outside it (paras 37 and 38). It took the meaning of sale from the Supreme Court in Motor General Stores Pvt. Ltd., that sale is a transfer of property for a money consideration and that the presence of money consideration is an essential element, so that if the consideration is some other valuable consideration the transaction may be an exchange or barter but is not a sale (para 39). It also recorded the principle that where the person carrying on the business transfers the assets to a company in consideration of allotment of shares it is an exchange and not a sale, and that the true nature is not altered because for stamp duty or other reasons the value of the assets transferred is shown as equivalent to the face value of the shares allotted. Reading the clauses of the scheme of arrangement, it found that the undertaking had been transferred in exchange for the issue of preference shares and bonds (para 41). It had earlier clarified that had the transfer been a sale, s.2(42C) would apply and s.50B would supply a machinery so that the gain could be computed and charged (para 22) — the converse being that with s.50B out of the way the ordinary computation provisions had to be applied and they failed. In the words reproduced by the source cited on this page: "Thus it was a case of exchange and not sale. Consequently, the provisions of section 2(42C) of the Act did not apply." The decision followed or applied CIT v. Motor & General Stores (P) Ltd. — relied on for the meaning of 'sale'.
It was decided by the ITAT on 2011-03-11 and is reported as ITA No.6410/MUM/2008, Assessment Year 2005-06, ITAT Mumbai Bench 'B'; pronounced 11 March 2011 (some indexes carry an earlier date; the pronouncement date is 11 March 2011). Binding on the AO and CIT(A) within the Tribunal's jurisdiction. Persuasive elsewhere. A Tribunal decision binds the assessing officer and the Commissioner (Appeals) within that Tribunal's jurisdiction, and is persuasive before other benches. It is not binding on a High Court, and a contrary co-ordinate bench decision will be argued against you, so check whether the point has been taken the other way before you build a reply around it. On section 50B, section 2(42C), section 45, section 48, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. Ground 3 was allowed. Because the transfer of the undertaking took place in exchange for the issue of preference shares and bonds, it was a case of exchange and not sale, so s.2(42C) did not apply and s.50B was therefore not applicable (para 41). The computation provisions failed and no capital gain could be brought to tax (para 44). The alternative plea in ground 4 on indexation did not call for adjudication. It arises in Capital Gains and How Tax Law Is Read matters, on section 50B, section 2(42C), section 45, section 48 of the Income Tax Act 1961, and was decided by N.V. Vasudevan, Judicial Member and J. Sudhakar Reddy, Accountant Member. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. For an eligible year, show from the scheme documents that the consideration was wholly non-monetary — shares, bonds, debentures — and that no money passed. Plead the fall-back in the same order: even if s.50B is out, s.45 read with s.48 must still be applied, and the assessee must be ready to argue that the computation fails on the B.C. Srinivasa Setty line because the cost of the undertaking as a whole cannot be identified. Expect the Revenue to rely on the Delhi High Court in SREI Infrastructure Finance; distinguish it on the ground that the consideration there was Rs.375 lacs in money. For any current transaction where the price is to be discharged in securities, compute FMV2 under Rule 11UAE(3) — the fair market value of the non-monetary consideration — and compare it with FMV1 before signing.
Superseded by amendment. The Finance Act 2021 substituted s.2(42C) with effect from AY 2021-22 so that slump sale means the transfer of one or more undertaking 'by any means' for a lump sum consideration, and added Explanation 3 giving 'transfer' the meaning in s.2(47). The same Act substituted s.50B(2) so that the fair market value computed in the prescribed manner is deemed to be the full value of consideration, which supplies the machinery for a non-monetary consideration. This order therefore states the law only for years up to AY 2020-21. Even for those years the Delhi High Court took the contrary view in SREI Infrastructure Finance Ltd v. ITSC (W.P.(C) 1592/2012, 30 March 2012),. The Bombay High Court is reported to have dismissed the Revenue's appeal against this order in 2014 (365 ITR 258); that judgment has not been examined here, so nothing in this entry rests on it. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
This order is dated differently in different places, and the point matters for anyone citing it. Indian Kanoon lists the document under 25 July 2008. The order's own header carries no date of hearing, and the only date in the document itself is in the signature block, 'Mumbai, Dated. 11th March, 2011'. That pronouncement date is the one used here; the 25 July 2008 date comes from the database's own catalogue entry and is not vouched for by this entry. The order reproduces the pre-2021 text of s.2(42C), and the paragraph locators given on this page are the Tribunal's own numbering, running to para 44. Because the section was substituted with effect from AY 2021-22, the reasoning is authority for years up to AY 2020-21 only, and the order decides nothing about how a slump exchange is to be computed under the substituted s.50B(2). This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
Ground 3 was allowed. Because the transfer of the undertaking took place in exchange for the issue of preference shares and bonds, it was a case of exchange and not sale, so s.2(42C) did not apply and s.50B was therefore not applicable (para 41). The computation provisions failed and no capital gain could be brought to tax (para 44). The alternative plea in ground 4 on indexation did not call for adjudication.
TaxSphere, “Bharat Bijlee Ltd v Addl CIT”, https://taxnotice.vittsphere.com/caselaw/case/bharat-bijlee-slump-exchange-not-a-slump-sale-pre-2021/ (validity last checked 2026-09-08)
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I sold an undertaking as a slump sale and its net worth worked out to a negative figure. Do I compute capital gain on the price alone, or does the negative net worth get added to it?
We have done a slump sale and the Assessing Officer says the consideration we recorded is not the full value of the consideration. How is the fair market value computed under s.50B, and from when does that apply?
The Assessing Officer says that because depreciation of a known amount was allowed on the assets over the years, that figure must be the excess over written down value and can be taxed. Nothing in our documents allocates the price. Can he do that?
The Assessing Officer has broken our lump sum into building, plant and paint shop and charged short-term capital gains, relying on the values the buyer later put in its own books. Can he apportion a slump price like that?
