In case of slump sale, should we consider the actual cost of assets bought by the person or the written down value of the assets in the hands of transferor while accounting in the books of transferee?
What is the cost of the asset to be shown in the books of transferee i.e. buyer after slump sale?
Is it the actual cost at which assets were bought or the written down value of the assets which would have been accounted in the books of transferor if there were no slump sale?
14 May 2009
Incase of Slump sale, the Transferee should record the transaction at the price at which he bought the assets. ie.e actual price paid by him for the said transaction.
14 May 2009
Slump sales has been defined by section 2(42C) of the Income Tax Act 1961 as following. “slump sale" means 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. Thus from the plane reading of the above definition it is very clear that the a slump sales is a transfer of one or more an undertaking in which no values are assigned to the individual assets the liabilities. Thus the first and the foremost condition for qualifying as a slump sale all the asset and liabilities are to be transferred at a lump sump price or to simplify at a basket price. Thus in the case when the assets are acquired at a lump sump price, the buyer is not in position to identify the price of individual assets for the purposed of recoding it in the books. Thus recoding the assets purchased in a slump sales is the books of the buyer, it is not possible to record them at the books values / purchase value of the seller as this will tantamount to assigning the individual values to the assets in slump sale. The Practical solution to this problem is that the buyer should get the valuation dome for the assets purchased in slump sale by a chartered engineer or an approved valuer and record the purchase price at the values provided by such expert in his report. This is not treated as an assigning of the values to assets as the valuation is a post sale event. The total valuation price of the assets purchased in slump sale may be lower or higher then the price paid. In that case the difference will be treated either goodwill or capital reserve. In case of any further clarification, please let me know. Section 50B of the income tax deals with the taxation of the slump sale. For any query relating the section 50B also you are welcome.
15 May 2009
I agree that in books the value at which slump sale is bought should be accounted. But how the same should be treated while computing depreciation during tax audit. Should i consider the cost of acquisition? or WDV to previous owner or as per Rajesh Dua, the revalued amount to be considered for providing tax as per taxation law
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