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?
No. The Bombay High Court held that the basic test for a slump sale is continuity of business — whether there was a transfer of a business as a whole — and that on the facts the lump sum of Rs.210 crores was not apportionable to different assets and the individual values were not ascertainable. The buyer's later accounting entries could not be used, and the matter went back for a fresh computation on the footing of a slump sale.
Decided by the High Court (S.H. Kapadia J, speaking for a Division Bench; the second judge is not named in the text retrieved (that the judgment was delivered by a Division Bench is recorded by the Supreme Court in CIT v. Equinox Solution Pvt. Ltd., para 14)) on 2003-04-09, reported as (2003) 264 ITR 193 (Bom); appeal under s.260A against the order of the Tribunal dated 18 November 2002 in Income Tax Appeal No. 3580/MUM/99; Assessment Year 1995-96. It bears on section 45, section 50, section 2(42C), section 50B, section 32(1) of the Income Tax Act 1961, in Capital Gains, Evidence & Burden of Proof and How Tax Law Is Read matters.
This is the judgment the Supreme Court concurred with in Equinox Solution, and it is the most useful High Court statement of the test because it decides three separate attacks at once: that a due diligence exercise proves itemisation, that a recital about 'some of its assets' means less than a whole business was sold, and that the transferee's post-transaction book entries fix the values. All three were rejected. The Court's reasoning that a due diligence exercise is undertaken for several reasons, and that valuing thousands of assets would have taken years, is the practical answer to the Assessing Officer who treats a data room as a price allocation. Two limits: the year is AY 1995-96, so the case was decided before s.50B existed and the fight was over short-term versus long-term under the then provisions; and the consequence of winning was a remand, not a deletion — the Court noted that on a slump sale footing depreciation and indexation would have to be reworked.
Binding within that High Court's jurisdiction. Persuasive elsewhere.
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Premier Automobiles Ltd manufactured two cars, the Padmini at Kurla and the Premier 118 NE at Kalyan, with plant and machinery for the 118 NE at Kalyan, at Kurla (gear box) and at Pune (machining), collectively the Kalyan Undertaking. On 11 March 1993 it entered into a Memorandum of Understanding with Automobile Peugeot to establish a joint venture, Kalyan Motors Co. Ltd, for the manufacture and distribution of 60,000 Peugeot cars in India, under which PAL was to contribute to the equity of the joint venture to the extent of its 118 NE business, with the assets valued at Rs.210 crores. A Supplemental MOU followed on 17 May 1994, a Deed of Declaration of Trusteeship on 29 September 1994 by which PAL agreed to sell and transfer the Kalyan Undertaking as a going concern on an 'as is where is' basis, a Joint Venture Agreement on 19 October 1994, and a Slump Sale Agreement on 6 January 1995 transferring the Kalyan Undertaking as a going concern on that basis. The consideration was Rs.210 crores plus the value of net current assets as on 29 September 1994. For AY 1995-96 the Assessing Officer treated the transaction as an itemised sale, allocating values to building, plant and machinery and the paint shop, and computed short-term capital gains of Rs.91.28 crores. The Tribunal upheld that view by order dated 18 November 2002, holding that the lump sum was apportionable, that the value of individual assets was ascertainable, and that the transferee's own accounting apportionment should be adopted for working out depreciation. PAL appealed under s.260A.
The appeal was allowed, the Tribunal's order of 18 November 2002 was set aside, and the matter was remanded to the Assessing Officer on the footing that there was a slump sale of the Kalyan Undertaking by PAL to KMCL for Rs.210 crores, with a direction to decide whether any capital gains liability arises on that footing and, if so, to compute it under sections 45 to 50. The Court did not itself decide whether the slump sale was chargeable. All three questions were answered No: the Tribunal was not justified in holding that the transaction was not a slump sale; it was not justified in holding that the lump sum consideration of Rs.210 crores was apportionable to different assets and that the value of individual assets was ascertainable; and it was not justified in holding that the apportionment made by the transferee company for its accounting purposes should be taken by the Assessing Officer for working out the depreciation allowable to the assessee.
The Court held that the basic test for ascertaining whether a slump sale existed is continuity of business, the question being whether there was a transfer of a business as a whole, and found on the facts that there was continuity, PPL having continued to manufacture 118 NE cars and Peugeot cars after the sale date of 29 September 1994. It found that the MOU had fixed Rs.210 crores as a lump sum price for the entire Kalyan business, including licences, quotas, intellectual property and the workforce, without separate itemisation. The verification clause in the Supplemental MOU was directed at identifying assets for the purpose of assessing capacity to produce 60,000 cars a year, not at valuation, and the blank columns in the due diligence reports reflected that purpose rather than any suppression; a due diligence exercise is undertaken for several reasons, and valuing thousands of assets would have taken years. The recital in the Joint Venture Agreement referring to 'some of its assets' described only the Kalyan Undertaking as a subset, the Padmini manufacture continuing as a residual business, and the assets at Kalyan, Kurla and Pune were unified for 118 NE production. The transferee's later allocations in its own books were post-transaction accounting adjustments, not values known to the parties on 11 March 1993. The Court also noted that on a slump sale footing the depreciation allowances and indexation would require reassessment, with the possibility of a long-term rather than a short-term gain.
Under the said Law, the basic test which one must apply to ascertain whether there existed a slump sale is continuity of business.
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Handle my notice → Ask a CA on WhatsAppNo. The Bombay High Court held that the basic test for a slump sale is continuity of business — whether there was a transfer of a business as a whole — and that on the facts the lump sum of Rs.210 crores was not apportionable to different assets and the individual values were not ascertainable. The buyer's later accounting entries could not be used, and the matter went back for a fresh computation on the footing of a slump sale. This was decided by the High Court (S.H. Kapadia J, speaking for a Division Bench; the second judge is not named in the text retrieved (that the judgment was delivered by a Division Bench is recorded by the Supreme Court in CIT v. Equinox Solution Pvt. Ltd., para 14)) and bears on section 45, section 50, section 2(42C), section 50B, section 32(1) of the Income Tax Act 1961. It is reported as (2003) 264 ITR 193 (Bom); appeal under s.260A against the order of the Tribunal dated 18 November 2002 in Income Tax Appeal No. 3580/MUM/99; Assessment Year 1995-96. This is the judgment the Supreme Court concurred with in Equinox Solution, and it is the most useful High Court statement of the test because it decides three separate attacks at once: that a due diligence exercise proves itemisation, that a recital about 'some of its assets' means less than a whole business was sold, and that the transferee's post-transaction book entries fix the values. All three were rejected. The Court's reasoning that a due diligence exercise is undertaken for several reasons, and that valuing thousands of assets would have taken years, is the practical answer to the Assessing Officer who treats a data room as a price allocation. Two limits: the year is AY 1995-96, so the case was decided before s.50B existed and the fight was over short-term versus long-term under the then provisions; and the consequence of winning was a remand, not a deletion — the Court noted that on a slump sale footing depreciation and indexation would have to be reworked. If it applies to you, the first step is this: Frame the question the way the Court did: was there a transfer of the business as a whole, and was there continuity of that business in the transferee's hands after the transfer date? Collect the evidence of continuity — production continuing, employees moved, licences and quotas transferred.
Premier Automobiles Ltd manufactured two cars, the Padmini at Kurla and the Premier 118 NE at Kalyan, with plant and machinery for the 118 NE at Kalyan, at Kurla (gear box) and at Pune (machining), collectively the Kalyan Undertaking. On 11 March 1993 it entered into a Memorandum of Understanding with Automobile Peugeot to establish a joint venture, Kalyan Motors Co. Ltd, for the manufacture and distribution of 60,000 Peugeot cars in India, under which PAL was to contribute to the equity of the joint venture to the extent of its 118 NE business, with the assets valued at Rs.210 crores. A Supplemental MOU followed on 17 May 1994, a Deed of Declaration of Trusteeship on 29 September 1994 by which PAL agreed to sell and transfer the Kalyan Undertaking as a going concern on an 'as is where is' basis, a Joint Venture Agreement on 19 October 1994, and a Slump Sale Agreement on 6 January 1995 transferring the Kalyan Undertaking as a going concern on that basis. The consideration was Rs.210 crores plus the value of net current assets as on 29 September 1994. For AY 1995-96 the Assessing Officer treated the transaction as an itemised sale, allocating values to building, plant and machinery and the paint shop, and computed short-term capital gains of Rs.91.28 crores. The Tribunal upheld that view by order dated 18 November 2002, holding that the lump sum was apportionable, that the value of individual assets was ascertainable, and that the transferee's own accounting apportionment should be adopted for working out depreciation. PAL appealed under s.260A. The matter was decided on 2003-04-09 by the High Court (S.H. Kapadia J, speaking for a Division Bench; the second judge is not named in the text retrieved (that the judgment was delivered by a Division Bench is recorded by the Supreme Court in CIT v. Equinox Solution Pvt. Ltd., para 14)). On those facts the High Court held as follows. The appeal was allowed, the Tribunal's order of 18 November 2002 was set aside, and the matter was remanded to the Assessing Officer on the footing that there was a slump sale of the Kalyan Undertaking by PAL to KMCL for Rs.210 crores, with a direction to decide whether any capital gains liability arises on that footing and, if so, to compute it under sections 45 to 50. The Court did not itself decide whether the slump sale was chargeable. All three questions were answered No: the Tribunal was not justified in holding that the transaction was not a slump sale; it was not justified in holding that the lump sum consideration of Rs.210 crores was apportionable to different assets and that the value of individual assets was ascertainable; and it was not justified in holding that the apportionment made by the transferee company for its accounting purposes should be taken by the Assessing Officer for working out the depreciation allowable to the assessee.
The Court held that the basic test for ascertaining whether a slump sale existed is continuity of business, the question being whether there was a transfer of a business as a whole, and found on the facts that there was continuity, PPL having continued to manufacture 118 NE cars and Peugeot cars after the sale date of 29 September 1994. It found that the MOU had fixed Rs.210 crores as a lump sum price for the entire Kalyan business, including licences, quotas, intellectual property and the workforce, without separate itemisation. The verification clause in the Supplemental MOU was directed at identifying assets for the purpose of assessing capacity to produce 60,000 cars a year, not at valuation, and the blank columns in the due diligence reports reflected that purpose rather than any suppression; a due diligence exercise is undertaken for several reasons, and valuing thousands of assets would have taken years. The recital in the Joint Venture Agreement referring to 'some of its assets' described only the Kalyan Undertaking as a subset, the Padmini manufacture continuing as a residual business, and the assets at Kalyan, Kurla and Pune were unified for 118 NE production. The transferee's later allocations in its own books were post-transaction accounting adjustments, not values known to the parties on 11 March 1993. The Court also noted that on a slump sale footing the depreciation allowances and indexation would require reassessment, with the possibility of a long-term rather than a short-term gain. In the words reproduced by the source cited on this page: "Under the said Law, the basic test which one must apply to ascertain whether there existed a slump sale is continuity of business."
It was decided by the High Court on 2003-04-09 and is reported as (2003) 264 ITR 193 (Bom); appeal under s.260A against the order of the Tribunal dated 18 November 2002 in Income Tax Appeal No. 3580/MUM/99; Assessment Year 1995-96. Binding within that High Court's jurisdiction. Persuasive elsewhere. A High Court decision binds the assessing officer, the Commissioner (Appeals) and the Income Tax Appellate Tribunal within that state, and is persuasive elsewhere. If your assessment is in a different jurisdiction, check whether your own High Court has taken the same view before relying on it. On section 45, section 50, section 2(42C), section 50B, section 32(1), 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. The appeal was allowed, the Tribunal's order of 18 November 2002 was set aside, and the matter was remanded to the Assessing Officer on the footing that there was a slump sale of the Kalyan Undertaking by PAL to KMCL for Rs.210 crores, with a direction to decide whether any capital gains liability arises on that footing and, if so, to compute it under sections 45 to 50. The Court did not itself decide whether the slump sale was chargeable. All three questions were answered No: the Tribunal was not justified in holding that the transaction was not a slump sale; it was not justified in holding that the lump sum consideration of Rs.210 crores was apportionable to different assets and that the value of individual assets was ascertainable; and it was not justified in holding that the apportionment made by the transferee company for its accounting purposes should be taken by the Assessing Officer for working out the depreciation allowable to the assessee. It arises in Capital Gains, Evidence & Burden of Proof and How Tax Law Is Read matters, on section 45, section 50, section 2(42C), section 50B, section 32(1) of the Income Tax Act 1961, and was decided by S.H. Kapadia J, speaking for a Division Bench; the second judge is not named in the text retrieved (that the judgment was delivered by a Division Bench is recorded by the Supreme Court in CIT v. Equinox Solution Pvt. Ltd., para 14). 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. If the Revenue relies on a due diligence report, show what the exercise was for; here the verification was directed at confirming the capacity of the plant, and blank columns in the reports reflected that purpose. If the Revenue relies on the buyer's books, point out that those allocations were made after the transaction and were not values known to the parties when the price was fixed. Do not over-read a recital: a reference to 'some of its assets' may simply describe the undertaking being carved out where a residual business continues, as the Padmini business did here. Expect a remand rather than a deletion, and be ready with the recomputation — under current law that means s.50B with the deemed consideration under Rule 11UAE, net worth as cost, and no indexation.
Still good law. Expressly concurred with by the Supreme Court in CIT v. Equinox Solution Pvt. Ltd., decided 18 April 2017, at para 14, where the Court said the legal position had been aptly explained and correctly summarised — that judgment was retrieved and read for this batch. Relied on by the CIT(Appeals) whose order was before the Tribunal in Avaya Global Connect, also read. The year is AY 1995-96, before s.50B was inserted by the Finance Act 1999, so the computation in the judgment is not a guide to a current year: s.50B(2) as substituted by the Finance Act 2021 deems the fair market value under Rule 11UAE to be the full value of consideration from AY 2021-22. 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.
Retrieved from indiankanoon ?type=print in two passes. The first returned a narrative rendering with embedded quotations and was not relied on for wording; the second returned the opening of the judgment and its concluding paragraph verbatim, including the three questions and the answers, and that is the basis of the 'held' field. The quoted sentence was separately confirmed through /docfragment/. The header as rendered gives the case number as 'Appeal No. 260A/2002', which is a garbled rendering of an appeal under section 260A; the judgment's own opening text identifies the appeal as being against the Tribunal's order dated 18 November 2002 in Income Tax Appeal No. 3580/MUM/99. The citation 264 ITR 193 (Bom) is taken from two other judgments read for this batch, Equinox Solution (SC) para 14 and the Avaya Global Connect order, both of which cite it; the first ?type=print pass also displayed '[2003]129TAXMAN289(BOM)', which is a citation string appearing in the report itself. On independent verification the ?type=print channel truncated this document mid-judgment on every attempt, before the disposal, and four /docfragment/ probes failed to reach the concluding paragraph; only question 3 could be re-read verbatim. The description of the disposal in this entry is accordingly supported by the Mumbai Tribunal's account of it in Bharat Bijlee, para 43, read verbatim for this batch, which records that the High Court remanded the matter to the Assessing Officer to decide whether any capital gains liability arises and if so to compute it under sections 45 to 50, and that the High Court rendered no verdict on chargeability. The stages recorded omit cita because the retrieved text does not identify a first appellate order, although the appeal to the Tribunal implies one. 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.
The appeal was allowed, the Tribunal's order of 18 November 2002 was set aside, and the matter was remanded to the Assessing Officer on the footing that there was a slump sale of the Kalyan Undertaking by PAL to KMCL for Rs.210 crores, with a direction to decide whether any capital gains liability arises on that footing and, if so, to compute it under sections 45 to 50. The Court did not itself decide whether the slump sale was chargeable. All three questions were answered No: the Tribunal was not justified in holding that the transaction was not a slump sale; it was not justified in holding that the lump sum consideration of Rs.210 crores was apportionable to different assets and that the value of individual assets was ascertainable; and it was not justified in holding that the apportionment made by the transferee company for its accounting purposes should be taken by the Assessing Officer for working out the depreciation allowable to the assessee.
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