We left some written-off assets out of the business transfer. Does that stop it being a slump sale?
No. The definition of 'undertaking' does not require every asset on the transferor's books to pass. If the business activity taken as a whole moves — live contracts, employees, tangible assets and know-how — leaving out bad debts and assets already written off does not take the transaction outside s.2(42C) read with s.50B.
Decided by the High Court (High Court of Delhi — S. Ravindra Bhat J and Najmi Waziri J) on 2016-11-22, reported as [2017] 77 taxmann.com 40 (Delhi) / [2017] 291 CTR 268 (Delhi); IT Appeal No. 448 of 2016 with CM Appl. No. 26426 of 2016; judgment pronounced 22 November 2016. It bears on section 2(42C), section 50B, section 2(19AA) of the Income Tax Act 1961, in Capital Gains and How Tax Law Is Read matters.
This answers the officer who refuses slump-sale treatment because some assets were retained, calls the deal a sham and assesses the receipt as income from other sources instead of capital gains. It also answers the related objection that a large gap between net book value and price proves the transaction is artificial — here the gap was explained by the intangibles, technical knowledge and know-how that were transferred. The working test is whether the transferee can carry on the business without the assets that did not move.
Binding within that High Court's jurisdiction. Persuasive elsewhere.
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Triune Projects carried on design, engineering and consultancy work for the oil and gas, petroleum refinery and allied sectors. On 22 September 2006 it transferred its business undertaking as a going concern to Triune Energy Services (then Saipem Triune Engineering), all tangible assets and liabilities together with goodwill passing for a lump sum of Rs 45.85 crore against a net book value of Rs 5.27 crore. What passed included ongoing service contracts, employment contracts, tangible assets and intangibles such as technical know-how. Two items were retained by the seller - one a bad debt and one already written off. In its return of 10 November 2007 the assessee computed long-term capital gains under s.50B and offered 20 per cent as tax. The Assessing Officer held the claim a sham transaction designed to avoid tax by artificially inflating asset values, treated the lump sum as income from other sources and taxed it at a higher rate; the Commissioner (Appeals) agreed. In a parallel appeal by the buyer, the Tribunal accepted the genuineness of the same agreement, and this Court upheld that in Triune Energy Services (P.) Ltd. v. Dy. CIT [2016] 65 taxmann.com 288 / 237 Taxman 230 (Delhi). In the seller's own appeal the Tribunal then rejected the Commissioner (Appeals)'s finding that the sale was not genuine but, instead of deciding the matter, set it aside to the Assessing Officer for fresh factual verification. It was against that remand that the assessee appealed.
The appeal was allowed and the question of law - whether the Tribunal erred in holding the sale not a genuine slump sale qualifying under s.50B - was answered in favour of the assessee (paras 13-14). The Tribunal had misdirected itself in reading the earlier judgment in the buyer's case: this Court having affirmed that the transaction was not a sham or a colourable device, the same finding had to be maintained in the seller's hands unless there were exceptional facts to the contrary, so there was nothing left to remit (para 10). The retention of two assets - a bad debt and an item already written off - did not take the transaction outside s.2(42C): expecting a purchaser to pay for defunct or superfluous assets makes no commercial sense, and buying every asset is not a precondition on the definition of 'undertaking' which s.2(42C) adopts by reference; assets may be left out where their inclusion would cause inconvenience or trouble for the purchaser (paras 10-11). The slump sale accordingly qualified for treatment under s.50B (para 13).
Two grounds, in that order. The first is consistency. The genuineness of the very same agreement of 22 September 2006 had already been litigated in the buyer's appeal and this Court, in Triune Energy Services (P.) Ltd. v. Dy. CIT, had affirmed the Tribunal's finding that it was not a sham or colourable device. A transaction held genuine in one party's hands cannot become suspect in the other's, and absent exceptional facts to the contrary that finding had to be maintained for the seller - which meant the Tribunal had no reason to remit (para 10). The second answers the Revenue's remaining point, that the whole undertaking had not been transferred because a bad debt and a written-off item were retained. The Court called that insubstantial. What was sold was a going concern - ongoing service contracts, employment contracts, tangible assets and intangibles such as technical know-how - and to expect a purchaser to buy and pay value for defunct or superfluous assets flies in the face of commercial sense. The Revenue's premise, that in a going concern the buyer must pay good money for bad and irrecoverable debts, is contrary to common and commercial understanding and is not even a precondition on the statutory definition of 'undertaking', which is engrafted into s.2(42C) by reference; assets or properties may be left out where their inclusion would cause inconvenience or trouble for the purchasing party (paras 10-11).
To expect a purchaser to buy and pay value for defunct or superfluous assets flies in the face of commercial sense.
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Handle my notice → Ask a CA on WhatsAppNo. The definition of 'undertaking' does not require every asset on the transferor's books to pass. If the business activity taken as a whole moves — live contracts, employees, tangible assets and know-how — leaving out bad debts and assets already written off does not take the transaction outside s.2(42C) read with s.50B. This was decided by the High Court (High Court of Delhi — S. Ravindra Bhat J and Najmi Waziri J) and bears on section 2(42C), section 50B, section 2(19AA) of the Income Tax Act 1961. It is reported as [2017] 77 taxmann.com 40 (Delhi) / [2017] 291 CTR 268 (Delhi); IT Appeal No. 448 of 2016 with CM Appl. No. 26426 of 2016; judgment pronounced 22 November 2016. This answers the officer who refuses slump-sale treatment because some assets were retained, calls the deal a sham and assesses the receipt as income from other sources instead of capital gains. It also answers the related objection that a large gap between net book value and price proves the transaction is artificial — here the gap was explained by the intangibles, technical knowledge and know-how that were transferred. The working test is whether the transferee can carry on the business without the assets that did not move. If it applies to you, the first step is this: Establish the date of the transfer first: this was decided on the pre-2021 text of s.2(42C), which then required a 'sale', and the Finance Act 2021 replaced that with transfer 'by any means', so arguments built on the old sale-versus-exchange distinction no longer hold for later years.
Triune Projects carried on design, engineering and consultancy work for the oil and gas, petroleum refinery and allied sectors. On 22 September 2006 it transferred its business undertaking as a going concern to Triune Energy Services (then Saipem Triune Engineering), all tangible assets and liabilities together with goodwill passing for a lump sum of Rs 45.85 crore against a net book value of Rs 5.27 crore. What passed included ongoing service contracts, employment contracts, tangible assets and intangibles such as technical know-how. Two items were retained by the seller - one a bad debt and one already written off. In its return of 10 November 2007 the assessee computed long-term capital gains under s.50B and offered 20 per cent as tax. The Assessing Officer held the claim a sham transaction designed to avoid tax by artificially inflating asset values, treated the lump sum as income from other sources and taxed it at a higher rate; the Commissioner (Appeals) agreed. In a parallel appeal by the buyer, the Tribunal accepted the genuineness of the same agreement, and this Court upheld that in Triune Energy Services (P.) Ltd. v. Dy. CIT [2016] 65 taxmann.com 288 / 237 Taxman 230 (Delhi). In the seller's own appeal the Tribunal then rejected the Commissioner (Appeals)'s finding that the sale was not genuine but, instead of deciding the matter, set it aside to the Assessing Officer for fresh factual verification. It was against that remand that the assessee appealed. The matter was decided on 2016-11-22 by the High Court (High Court of Delhi — S. Ravindra Bhat J and Najmi Waziri J). On those facts the High Court held as follows. The appeal was allowed and the question of law - whether the Tribunal erred in holding the sale not a genuine slump sale qualifying under s.50B - was answered in favour of the assessee (paras 13-14). The Tribunal had misdirected itself in reading the earlier judgment in the buyer's case: this Court having affirmed that the transaction was not a sham or a colourable device, the same finding had to be maintained in the seller's hands unless there were exceptional facts to the contrary, so there was nothing left to remit (para 10). The retention of two assets - a bad debt and an item already written off - did not take the transaction outside s.2(42C): expecting a purchaser to pay for defunct or superfluous assets makes no commercial sense, and buying every asset is not a precondition on the definition of 'undertaking' which s.2(42C) adopts by reference; assets may be left out where their inclusion would cause inconvenience or trouble for the purchaser (paras 10-11). The slump sale accordingly qualified for treatment under s.50B (para 13).
Two grounds, in that order. The first is consistency. The genuineness of the very same agreement of 22 September 2006 had already been litigated in the buyer's appeal and this Court, in Triune Energy Services (P.) Ltd. v. Dy. CIT, had affirmed the Tribunal's finding that it was not a sham or colourable device. A transaction held genuine in one party's hands cannot become suspect in the other's, and absent exceptional facts to the contrary that finding had to be maintained for the seller - which meant the Tribunal had no reason to remit (para 10). The second answers the Revenue's remaining point, that the whole undertaking had not been transferred because a bad debt and a written-off item were retained. The Court called that insubstantial. What was sold was a going concern - ongoing service contracts, employment contracts, tangible assets and intangibles such as technical know-how - and to expect a purchaser to buy and pay value for defunct or superfluous assets flies in the face of commercial sense. The Revenue's premise, that in a going concern the buyer must pay good money for bad and irrecoverable debts, is contrary to common and commercial understanding and is not even a precondition on the statutory definition of 'undertaking', which is engrafted into s.2(42C) by reference; assets or properties may be left out where their inclusion would cause inconvenience or trouble for the purchasing party (paras 10-11). In the words reproduced by the source cited on this page: "To expect a purchaser to buy and pay value for defunct or superfluous assets flies in the face of commercial sense." The decision followed or applied Triune Energy Services (P.) Ltd. v. Dy. CIT [2016] 65 taxmann.com 288 / 237 Taxman 230 (Delhi) - the buyer's appeal on the same agreement; relied on as concluding the genuineness question (paras 5, 10); CIT v. Smifs Securities Ltd. [2012] 348 ITR 302 / 24 taxmann.com 222 (SC) - referred to, as the basis of the goodwill holding in the earlier Triune Energy decision (para 6); Applied later in Dy. CIT, Circle-8(1) v. East India Petroleum Ltd. [2025] 171 taxmann.com 692 (Hyderabad - Trib.), IT Appeal No. 1087 (Hyd) of 2024, 6 February 2025, which said of this decision and one other that 'These decisions bind us' and held the transaction could not be treated as a colourable device (paras 13-14).
It was decided by the High Court on 2016-11-22 and is reported as [2017] 77 taxmann.com 40 (Delhi) / [2017] 291 CTR 268 (Delhi); IT Appeal No. 448 of 2016 with CM Appl. No. 26426 of 2016; judgment pronounced 22 November 2016. 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 2(42C), section 50B, section 2(19AA), 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 and the question of law - whether the Tribunal erred in holding the sale not a genuine slump sale qualifying under s.50B - was answered in favour of the assessee (paras 13-14). The Tribunal had misdirected itself in reading the earlier judgment in the buyer's case: this Court having affirmed that the transaction was not a sham or a colourable device, the same finding had to be maintained in the seller's hands unless there were exceptional facts to the contrary, so there was nothing left to remit (para 10). The retention of two assets - a bad debt and an item already written off - did not take the transaction outside s.2(42C): expecting a purchaser to pay for defunct or superfluous assets makes no commercial sense, and buying every asset is not a precondition on the definition of 'undertaking' which s.2(42C) adopts by reference; assets may be left out where their inclusion would cause inconvenience or trouble for the purchaser (paras 10-11). The slump sale accordingly qualified for treatment under s.50B (para 13). It arises in Capital Gains and How Tax Law Is Read matters, on section 2(42C), section 50B, section 2(19AA) of the Income Tax Act 1961, and was decided by High Court of Delhi — S. Ravindra Bhat J and Najmi Waziri 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. Put on record exactly what passed — contracts, the employment relationships of the workforce, tangible plant and property, and intangibles — so that the transfer of a business activity as a whole is documented rather than asserted. Record the commercial reason for each exclusion in writing; the sham allegation failed once it was accepted that a purchaser is entitled to decline defunct or superfluous items. If the officer relies on the difference between book value and consideration, address it directly by identifying the intangibles transferred rather than arguing about valuation methodology.
Still good law. Applied by the Hyderabad Bench of the Tribunal in Dy. CIT, Circle-8(1) v. East India Petroleum Ltd. [2025] 171 taxmann.com 692 (Hyderabad - Trib.), IT Appeal No. 1087 (Hyd) of 2024, decided 6 February 2025, which relied on it for the principle that once the department has accepted the capital gains in the seller's hands the transaction cannot be doubted in the purchaser's, said 'These decisions bind us', and rejected the colourable-device finding. No reversal and no special leave petition outcome disturbing this judgment was recorded on the report, which carries no citator banner. 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 decision rests on the earlier Delhi decision in the buyer's appeal, Triune Energy Services (P.) Ltd. v. Dy. CIT [2016] 65 taxmann.com 288 / 237 Taxman 230 (Delhi), and cannot be read apart from it: because the same agreement had already been held not to be a sham in the buyer's hands, that finding had to hold in the seller's hands too. Cite the two together. The order under appeal was a Tribunal remand for factual verification, which the Court set aside as unnecessary - so this is authority for deciding the point rather than sending it back. Note one oddity in the report: the Court refers to the definition of 'undertaking' in 'Explanation (1) to Section 2(19)(A)', which is evidently a reference to Explanation 1 to s.2(19AA), the provision s.2(42C) adopts. Section 2(42C) has since been widened from 'sale' to 'transfer by any means'. The report does not record whether the Revenue took this judgment to the Supreme Court, and carries no citator banner either way. The judgment as reported cites the definition of 'undertaking' as 'Explanation (1) to Section 2(19)(A)', a provision which does not exist in those terms; the reference is to Explanation 1 to s.2(19AA). 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 and the question of law - whether the Tribunal erred in holding the sale not a genuine slump sale qualifying under s.50B - was answered in favour of the assessee (paras 13-14). The Tribunal had misdirected itself in reading the earlier judgment in the buyer's case: this Court having affirmed that the transaction was not a sham or a colourable device, the same finding had to be maintained in the seller's hands unless there were exceptional facts to the contrary, so there was nothing left to remit (para 10). The retention of two assets - a bad debt and an item already written off - did not take the transaction outside s.2(42C): expecting a purchaser to pay for defunct or superfluous assets makes no commercial sense, and buying every asset is not a precondition on the definition of 'undertaking' which s.2(42C) adopts by reference; assets may be left out where their inclusion would cause inconvenience or trouble for the purchaser (paras 10-11). The slump sale accordingly qualified for treatment under s.50B (para 13).
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