The officer says our business transfer was not a slump sale because the schedule carried values, has taxed the depreciable assets separately, and has in the alternative substituted a fair market value of Rs 58,70,00,000 for the price - which of those can he do?
The client is a closely held company making auto components, assessed in Pune, with two divisions. Under a business transfer agreement dated 12 May 2023 it transferred its electronics division to an unrelated buyer as a going concern for a lump sum of Rs 46,00,00,000, employees and live contracts included, leaving behind two written-off debtor balances and a piece of plant already scrapped. The schedule to the agreement carried a figure of Rs 6,20,00,000 for the factory building, put in for stamp duty on the conveyance, and the agreement separately recorded Rs 3,00,00,000 for a five-year non-compete covenant. The accountant's report in Form 3CEA was not uploaded with the return filed on 31 October 2024 but was filed on 9 January 2026 during the assessment. Net worth was computed at Rs 21,40,00,000 and a long-term capital gain of Rs 24,60,00,000 was offered for AY 2024-25. The order under s.143(3) read with s.144B dated 28 February 2026 holds that values were assigned to individual assets so the transaction is outside s.2(42C), taxes Rs 8,90,00,000 as short-term gain under s.50 on the depreciable block and Rs 3,00,00,000 under s.28(va); in the alternative it applies Rule 11UAE and substitutes Rs 58,70,00,000 as the full value of consideration; and it holds the division was owned only from a 2019 internal reorganisation, so the gain is short-term. The appeal is due.
Put the business transfer agreement, the closing statement and the buyer's completion certificate side by side and establish what actually moved on 12 May 2023 - contracts, employees, licences, the customer list, the going concern - before touching a single number. Whether this is a slump sale is decided by what was transferred and whether the lump sum is apportionable at all, not by whether a schedule to the deed carries a figure for one asset. Every other issue on the order, including the fair market value substitution and the holding period, is downstream of that characterisation, and the alternative computations in the order are inconsistent with each other.
A slump sale is the transfer of one or more undertakings for a lump sum consideration without values being assigned to individual assets and liabilities, and since the 2021 amendment it covers a transfer by any means. A High Court has held that the basic test is continuity of business - whether the business as a whole moved - and that a lump sum which is not apportionable to different assets is not to be broken up on the strength of the buyer's later accounting entries. Another High Court has held that 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, with live contracts, employees, tangible assets and know-how, leaving out bad debts and assets already written off does not take it outside the definition. Both answer the objections on this file directly.
This is the pivot of the order, and the library marks the line sharply. The Supreme Court has held that a slump sale does not by itself keep the balancing charge out - what matters is whether a price can be attributed to the depreciable assets, and where the assessee had itself told the officer that the consideration was arrived at by taking plant, machinery and dead stock at a valuer's figure, a value was attributable even though the agreement did not mention one. In the companion decision of the same date it held the converse: where there is nothing to indicate the price attributable to machinery, plant or building out of the total consideration, the charge cannot be applied, and the mere fact that a known sum had been allowed as depreciation does not make that sum the excess. An older Supreme Court decision supplies the test itself - whether any part of the slump price is in truth attributable to a particular asset - and held that a figure in a schedule which was only the cost as it stood in the books did not make the price apportionable.
A sum received under an agreement for not carrying on an activity in relation to a business is charged as business income by s.28(va), which was inserted with effect from 1 April 2003, and the library's statement of that section records the proviso that takes out of the charge a sum received on transfer of the right to manufacture, produce or process an article, or the right to carry on a business, where that sum is chargeable as capital gains. That proviso is the argument here: if the Rs 3,00,00,000 is part of what was paid for the undertaking, it belongs in the capital gains computation and not in s.28(va).
Net worth is deemed to be the cost of acquisition and of improvement, and the indexation machinery is shut out. It is the aggregate value of total assets less the value of liabilities as appearing in the books, ignoring any change on revaluation, with asset values fixed as written-down value for depreciable assets, nil for self-generated goodwill and nil for assets on which a s.35AD deduction was allowed, and book value for everything else. That is where the officer's additions to net worth have to be tested item by item, and it is also where the seller's provisions and revaluation surpluses come out.
From AY 2021-22 the full value of consideration is deemed to be the fair market value of the capital assets on the date of transfer, calculated in the prescribed manner, and Rule 11UAE prescribes that manner: the higher of FMV1, an asset-based value of the undertaking, and FMV2, the fair market value of the consideration actually received including non-monetary consideration. The agreed price no longer controls. What is open is the officer's computation - which assets went into his FMV1, at what values, and whether he has taken the higher of the two figures or simply the one that produced more tax. The general rule the amendment displaces is worth stating in the ground so the scope of the deeming is clear: the Supreme Court has held that the full value of the consideration is the whole price bargained for, with no necessary reference to market value, and that market value can be substituted only where a deeming provision says so.
The character of the gain is fixed by s.50B(1): if the undertaking was owned and held for not more than thirty-six months immediately preceding the transfer, the gain is short-term, otherwise long-term. That test sits in the section's own text and is not the general holding period for other assets, which the Finance (No. 2) Act 2024 rewrote to twelve and twenty-four months for transfers made on or after 23 July 2024. This transfer is dated 12 May 2023 in any event. The officer's finding therefore stands or falls on whether an internal reorganisation in 2019 started a fresh period of ownership of the undertaking, or merely rearranged assets within a business that had been carried on since 2011.
The report was filed during the assessment and not with the return, and the order treats that as an independent ground of disallowance. A High Court has dismissed the Revenue's appeal on exactly that point and answered the question against it: furnishing the accountant's report within the due date for the return is not a mandatory condition, and a report produced during the assessment proceedings, before the final order is passed, is sufficient compliance. It applied a Supreme Court decision on a comparable reporting requirement elsewhere in the Act, which is what gives the reasoning its reach. The entry is marked good law. Deal with it now, in the grounds, rather than letting it become a second and independent reason for the same disallowance in the appellate order.
If the transaction is broken up, the short-term computation under s.50 does not carry the consequences the officer assumes. A Tribunal Bench, since upheld by the High Court above it, held that the fiction in s.50 is spent once the gain is computed: an asset held for more than thirty-six months keeps its long-term character for the set-off provisions, and the Supreme Court and a High Court have held the same fiction confined to the mode of computation so that the reinvestment exemptions survive. On the buyer's side the position is worth knowing before the officer takes it in the buyer's own assessment: a Tribunal order in this library treats a slump sale of a going concern as a succession to business, so that depreciation on the assets taken over is computed on the transferor's written-down value rather than on the buyer's allocation. Set-off is the last piece - a long-term loss, if the recomputation produces one, can go only against a long-term gain, in the year and on carry forward.
Characterisation is usually won where the business genuinely moved as a whole and the schedule figure was a stamping value; it is usually lost where the parties themselves allocated the price and said so in writing. The non-compete sum, separately priced in the agreement, more often than not stays charged as business income for a year after 2003. The fair market value substitution is the issue with the least law behind it and the most money in it, and in practice it turns into a valuation contest that is remanded rather than decided. The holding-period finding normally goes with the going-concern evidence. Form 3CEA objections rarely survive. Expect a remand for fresh computation as the commonest outcome, two to four years out, and expect the buyer's depreciation to be examined in its own assessment whichever way this one goes.
