My client moved its finance division to a subsidiary under a scheme of arrangement sanctioned by the Company Court, not under a sale deed. The Settlement Commission has taxed it under s.50B. Can a statutory scheme be a slump sale at all?
Yes. The Delhi High Court held that the word 'sale' inside the expression 'slump sale' does not cut down the wide meaning of 'transfer' in s.2(47), so any transfer of an undertaking for a lump sum without values being assigned to individual assets falls within s.2(42C) and s.50B — including a transfer effected by a scheme sanctioned under ss.391-394 of the Companies Act 1956. The writ petition was dismissed.
Decided by the High Court (Sanjiv Khanna J and R.V. Easwar J (judgment by Sanjiv Khanna J)) on 2012-03-30, reported as Writ Petition (Civil) No. 1592/2012 (Delhi High Court); reserved 20 March 2012, decided 30 March 2012. It bears on section 50B, section 2(42C), section 2(47), section 47, section 245D of the Income Tax Act 1961, in Capital Gains and How Tax Law Is Read matters.
This is the Revenue's leading authority for taxing scheme-based business transfers, and it is now reinforced by statute: the Finance Act 2021 substituted s.2(42C) so that slump sale means transfer of an undertaking 'by any means', with Explanation 3 importing the s.2(47) meaning of transfer. For AY 2021-22 onwards there is no argument left that a court or NCLT scheme escapes s.50B because it is not a 'sale'. For earlier years the position was genuinely contested — the Mumbai Tribunal took the opposite view in Bharat Bijlee and in Avaya Global Connect, and the transferor there escaped tax altogether. Note also what the Court expressly did not decide: it recorded that the petitioner had not relied on s.47 and that no opinion was expressed on it, so the s.47(vi)/(vib)/(vid) exemption route for a genuine amalgamation or demerger is untouched by this judgment.
Binding within that High Court's jurisdiction. Persuasive elsewhere.
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SREI Infrastructure Finance Ltd, a public limited company in project financing and leasing, declared a loss of over Rs.76 crores for AY 2009-10 and filed no return for AY 2010-11. It applied to the Settlement Commission under s.245C(1) on 19 July 2010 disclosing additional MAT income for both years; the application was admitted on 23 July 2010. By final order dated 16 December 2011 the Settlement Commission held that Rs.375 lacs received by SREI from its subsidiary SREI Infrastructure Development Finance Ltd (SIDFL), on transfer of its project finance business and asset-based financing business including its shareholding in SREI Insurance Broking Pvt Ltd, was taxable under s.50B as a slump sale, and computed the capital gain. The transfer had been effected under a Scheme of Arrangement sanctioned by the High Court of Calcutta under ss.391-394 of the Companies Act 1956. SREI challenged that finding by writ, arguing that s.2(42C) covers only sales in the narrow sense and that a statutory scheme is not a sale. It relied on Madhu Intra Ltd, Sadanand S. Varde and J.K. (Bombay) (P) Ltd.
The writ petition was dismissed, with no costs. Any type of transfer that is in the nature of a slump sale — that is, where a lump sum consideration is paid without values being assigned to individual assets and liabilities — is covered by s.2(42C) and therefore by s.50B; the word 'sale' in the expression 'slump sale' does not narrow the concept of 'transfer' as defined in s.2(47). Sub-section (1) of s.50B and its proviso read harmoniously show that the section applies to all types of transfers that can be categorised as a slump sale (para 11). A scheme sanctioned under ss.391-394 of the Companies Act 1956 is binding and statutory for company law purposes, but that is no ground to escape tax on the transfer of a capital asset under the Income-tax Act (para 18).
The Court began from the reason s.50B was enacted: the Finance Act 1999 inserted it because slump sales had been held not taxable as capital gains for want of a computable cost of acquisition, on the PNB Finance and B.C. Srinivasa Setty line (para 9), and because a going-concern sale made it impossible to break up and compute gains asset by asset, as Artex Manufacturing shows (para 10). Against that background the legislative intention was to plug a gap and bring slump sales into the net, not to leave them out (para 11). The word 'transfer' in s.2(42C) is used with reference to the transaction, and the natural grammatical reading is that any transfer in the nature of a slump sale is caught; it would be wrong to read 'slump sale' as an antithesis of 'transfer' in s.2(47), which is an inclusive definition of wide import covering sale, exchange, relinquishment, extinguishment of rights and compulsory acquisition. The Court recorded that senior counsel for the petitioner had not contended that the transaction fell outside s.2(47) at all (para 11). It relied on Grace Collis, where the Supreme Court held that shares in an amalgamating company stood extinguished on amalgamation and that this was a transfer within s.2(47) (paras 13-14), and on Hindustan Lever v. State of Maharashtra, where an order under s.394 was held to be an instrument transferring property, being founded on a compromise between the companies (para 17). Sadanand S. Varde was distinguished because it turned on the special definition of transfer in s.269UA(f) for Chapter XX-C, and Madhu Intra because it concerned stamp duty on a sanction order (paras 15-16). J.K. (Bombay) was distinguished on the ground that the Companies Act serves a different purpose from a taxing statute (para 18). The Court expressly recorded that no other contention was raised, that s.47 had not been relied on and that no opinion was expressed on it (para 19).
Use of word 'sale' in the term 'slump sale' does not and is not intended to narrow down the concept of 'transfer' as defined and understood in Section 2(47) of the Act.
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Handle my notice → Ask a CA on WhatsAppYes. The Delhi High Court held that the word 'sale' inside the expression 'slump sale' does not cut down the wide meaning of 'transfer' in s.2(47), so any transfer of an undertaking for a lump sum without values being assigned to individual assets falls within s.2(42C) and s.50B — including a transfer effected by a scheme sanctioned under ss.391-394 of the Companies Act 1956. The writ petition was dismissed. This was decided by the High Court (Sanjiv Khanna J and R.V. Easwar J (judgment by Sanjiv Khanna J)) and bears on section 50B, section 2(42C), section 2(47), section 47, section 245D of the Income Tax Act 1961. It is reported as Writ Petition (Civil) No. 1592/2012 (Delhi High Court); reserved 20 March 2012, decided 30 March 2012. This is the Revenue's leading authority for taxing scheme-based business transfers, and it is now reinforced by statute: the Finance Act 2021 substituted s.2(42C) so that slump sale means transfer of an undertaking 'by any means', with Explanation 3 importing the s.2(47) meaning of transfer. For AY 2021-22 onwards there is no argument left that a court or NCLT scheme escapes s.50B because it is not a 'sale'. For earlier years the position was genuinely contested — the Mumbai Tribunal took the opposite view in Bharat Bijlee and in Avaya Global Connect, and the transferor there escaped tax altogether. Note also what the Court expressly did not decide: it recorded that the petitioner had not relied on s.47 and that no opinion was expressed on it, so the s.47(vi)/(vib)/(vid) exemption route for a genuine amalgamation or demerger is untouched by this judgment. If it applies to you, the first step is this: Identify the assessment year first. For AY 2021-22 onwards, do not run the 'a scheme is not a sale' argument — s.2(42C) as substituted covers transfer by any means and Explanation 3 imports s.2(47).
SREI Infrastructure Finance Ltd, a public limited company in project financing and leasing, declared a loss of over Rs.76 crores for AY 2009-10 and filed no return for AY 2010-11. It applied to the Settlement Commission under s.245C(1) on 19 July 2010 disclosing additional MAT income for both years; the application was admitted on 23 July 2010. By final order dated 16 December 2011 the Settlement Commission held that Rs.375 lacs received by SREI from its subsidiary SREI Infrastructure Development Finance Ltd (SIDFL), on transfer of its project finance business and asset-based financing business including its shareholding in SREI Insurance Broking Pvt Ltd, was taxable under s.50B as a slump sale, and computed the capital gain. The transfer had been effected under a Scheme of Arrangement sanctioned by the High Court of Calcutta under ss.391-394 of the Companies Act 1956. SREI challenged that finding by writ, arguing that s.2(42C) covers only sales in the narrow sense and that a statutory scheme is not a sale. It relied on Madhu Intra Ltd, Sadanand S. Varde and J.K. (Bombay) (P) Ltd. The matter was decided on 2012-03-30 by the High Court (Sanjiv Khanna J and R.V. Easwar J (judgment by Sanjiv Khanna J)). On those facts the High Court held as follows. The writ petition was dismissed, with no costs. Any type of transfer that is in the nature of a slump sale — that is, where a lump sum consideration is paid without values being assigned to individual assets and liabilities — is covered by s.2(42C) and therefore by s.50B; the word 'sale' in the expression 'slump sale' does not narrow the concept of 'transfer' as defined in s.2(47). Sub-section (1) of s.50B and its proviso read harmoniously show that the section applies to all types of transfers that can be categorised as a slump sale (para 11). A scheme sanctioned under ss.391-394 of the Companies Act 1956 is binding and statutory for company law purposes, but that is no ground to escape tax on the transfer of a capital asset under the Income-tax Act (para 18).
The Court began from the reason s.50B was enacted: the Finance Act 1999 inserted it because slump sales had been held not taxable as capital gains for want of a computable cost of acquisition, on the PNB Finance and B.C. Srinivasa Setty line (para 9), and because a going-concern sale made it impossible to break up and compute gains asset by asset, as Artex Manufacturing shows (para 10). Against that background the legislative intention was to plug a gap and bring slump sales into the net, not to leave them out (para 11). The word 'transfer' in s.2(42C) is used with reference to the transaction, and the natural grammatical reading is that any transfer in the nature of a slump sale is caught; it would be wrong to read 'slump sale' as an antithesis of 'transfer' in s.2(47), which is an inclusive definition of wide import covering sale, exchange, relinquishment, extinguishment of rights and compulsory acquisition. The Court recorded that senior counsel for the petitioner had not contended that the transaction fell outside s.2(47) at all (para 11). It relied on Grace Collis, where the Supreme Court held that shares in an amalgamating company stood extinguished on amalgamation and that this was a transfer within s.2(47) (paras 13-14), and on Hindustan Lever v. State of Maharashtra, where an order under s.394 was held to be an instrument transferring property, being founded on a compromise between the companies (para 17). Sadanand S. Varde was distinguished because it turned on the special definition of transfer in s.269UA(f) for Chapter XX-C, and Madhu Intra because it concerned stamp duty on a sanction order (paras 15-16). J.K. (Bombay) was distinguished on the ground that the Companies Act serves a different purpose from a taxing statute (para 18). The Court expressly recorded that no other contention was raised, that s.47 had not been relied on and that no opinion was expressed on it (para 19). In the words reproduced by the source cited on this page: "Use of word 'sale' in the term 'slump sale' does not and is not intended to narrow down the concept of 'transfer' as defined and understood in Section 2(47) of the Act." The decision followed or applied CIT, Cochin v. Grace Collis (Mrs.) & Ors., (2001) 3 SCC 430 — relied on; Hindustan Lever v. State of Maharashtra, (2004) 9 SCC 438 — relied on; PNB Finance Ltd v. CIT, (2008) 307 ITR 75 (SC) — referred to for why s.50B was enacted; CIT v. Artex Manufacturing Co., [1997] 227 ITR 260 (SC) — referred to; Sadanand S. Varde v. State of Maharashtra, (2001) 247 ITR 609 (Bom) — distinguished; Madhu Intra Ltd v. Registrar of Companies, [2006] 130 Comp Cases 510 (Cal) — distinguished; J.K. (Bombay) (P) Ltd v. New Kaiser-I-Hind Spinning and Weaving Co. Ltd., (1970) 40 Comp Cases 689 (SC) — distinguished.
It was decided by the High Court on 2012-03-30 and is reported as Writ Petition (Civil) No. 1592/2012 (Delhi High Court); reserved 20 March 2012, decided 30 March 2012. 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 50B, section 2(42C), section 2(47), section 47, section 245D, 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 department, and it appears in this library for that reason — you need to know what the Assessing Officer will cite against you. The writ petition was dismissed, with no costs. Any type of transfer that is in the nature of a slump sale — that is, where a lump sum consideration is paid without values being assigned to individual assets and liabilities — is covered by s.2(42C) and therefore by s.50B; the word 'sale' in the expression 'slump sale' does not narrow the concept of 'transfer' as defined in s.2(47). Sub-section (1) of s.50B and its proviso read harmoniously show that the section applies to all types of transfers that can be categorised as a slump sale (para 11). A scheme sanctioned under ss.391-394 of the Companies Act 1956 is binding and statutory for company law purposes, but that is no ground to escape tax on the transfer of a capital asset under the Income-tax Act (para 18). It arises in Capital Gains and How Tax Law Is Read matters, on section 50B, section 2(42C), section 2(47), section 47, section 245D of the Income Tax Act 1961, and was decided by Sanjiv Khanna J and R.V. Easwar J (judgment by Sanjiv Khanna J). 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 years up to AY 2020-21, plead Bharat Bijlee and Avaya Global Connect if the consideration was non-monetary, and cite this judgment only to distinguish it — SREI involved a money consideration of Rs.375 lacs. Check whether the scheme in fact satisfies s.2(19AA) demerger conditions or s.47(vi)/(vib); if it does, the exemption route is a complete answer and this judgment says nothing against it, because s.47 was never argued (para 19). Check whether values were assigned to individual assets and liabilities in the scheme itself; if they were, s.2(42C) is not attracted and the computation is asset by asset. Where the scheme is sanctioned by the NCLT under ss.230-232 of the Companies Act 2013, treat the reasoning as applying with equal force — the Court's point was that the Companies Act serves a different purpose and cannot be a ground to escape tax on a transfer (para 18).
Still good law. Its construction of s.2(42C) has since been enacted: the Finance Act 2021 substituted the definition to read 'transfer of one or more undertaking, by any means', and added Explanation 3 giving 'transfer' the s.2(47) meaning, with effect from AY 2021-22. That is the section as it now stands. For AY 2021-22 onwards there is therefore no room left for the argument the petitioner made here, and this judgment matters only for earlier years and for its reasoning. For years up to AY 2020-21 the point was genuinely contested. The Mumbai Tribunal held the opposite in Bharat Bijlee Ltd (ITA 6410/Mum/2008, pronounced 11 March 2011) and in Avaya Global Connect Ltd (order dated 29 July 2008), both of which have been read for this entry, and in each the transferor escaped tax altogether. Note the factual difference that makes those orders distinguishable: the consideration there was non-monetary, whereas SREI involved a money consideration of Rs.375 lacs. Secondary sources report that the Bombay High Court affirmed Bharat Bijlee in 2014 (365 ITR 258) and that the Madras High Court took the same contrary view in Areva T&D India Ltd v. CIT (TCA 673 of 2018, 8 September 2020). NEITHER of those judgments has been read, so this entry does not state what they decided, and neither should be cited on the strength of this page. No decision doubting SREI itself has been located, and later treatment of it has not been exhaustively checked. What would displace it for the years it governs: a Supreme Court decision on whether a transfer under a sanctioned scheme, for a non-monetary consideration, is a slump sale on the pre-2021 definition. The amendment has removed the question for later years but not for those already assessed. 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.
A NUMBERING WARNING. Copies of this judgment in circulation do not agree on the paragraph numbers. The extract from Grace Collis appears as paragraph 12 in some and as paragraph 13 in others, and the passage carrying the sentence quoted on this page is not the passage that some copies print as paragraph 11. Paragraph numbers are therefore asserted in this entry only for paragraphs 15 to 20, which are stable. A pinpoint below paragraph 15 should be made by the opening words of the passage, not by the number. The key quotation has been confirmed word for word. A TEXT WARNING, and it is the more important of the two. The judgment reproduces the PRE-2021 text of s.2(42C) and of s.50B. That is correct for the year before the Court, and it is wrong for a modern year. The Finance Act 2021 substituted s.2(42C) so that slump sale means the transfer of one or more undertakings 'by any means', and added Explanation 3 giving 'transfer' the s.2(47) meaning. A reader who takes the definition from this judgment will be working with a definition that has since been widened — in the direction the judgment itself reasoned towards, but by words that were not there when it was decided. Two things about what the judgment decides and does not decide. It is a writ judgment on an order of the Settlement Commission under s.245D, so the Court was reviewing that order rather than hearing an appeal on the merits of the computation; nothing in it bears on how the net worth was worked out. And the Court recorded expressly, at paragraph 19, that no other contention was raised, that s.47 had not been relied on, and that no opinion was expressed on it. The exemption route under s.47(vi), (vib) and (vid) for a genuine amalgamation or demerger is therefore entirely untouched by this judgment, and a practitioner whose scheme satisfies s.2(19AA) is not answered by it at all. Two figures fix the case. The consideration was Rs.375 lacs, received by SREI from its subsidiary on the transfer of the project finance and asset-based financing businesses including the shareholding in an insurance broking company. That it was a money consideration is what distinguishes the case from Bharat Bijlee and Avaya Global Connect, where the consideration was non-monetary, and a practitioner relying on those orders should make the distinction himself before the department does. 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 writ petition was dismissed, with no costs. Any type of transfer that is in the nature of a slump sale — that is, where a lump sum consideration is paid without values being assigned to individual assets and liabilities — is covered by s.2(42C) and therefore by s.50B; the word 'sale' in the expression 'slump sale' does not narrow the concept of 'transfer' as defined in s.2(47). Sub-section (1) of s.50B and its proviso read harmoniously show that the section applies to all types of transfers that can be categorised as a slump sale (para 11). A scheme sanctioned under ss.391-394 of the Companies Act 1956 is binding and statutory for company law purposes, but that is no ground to escape tax on the transfer of a capital asset under the Income-tax Act (para 18).
TaxSphere, “SREI Infrastructure Finance Ltd v Income Tax Settlement Commission”, https://taxnotice.vittsphere.com/caselaw/case/srei-infrastructure-v-itsc-court-scheme-is-slump-sale/ (validity last checked 2026-09-08)
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