Sale of a Running Business with all Assets and Liabilities is a Slump Sale, would not attract Sec 50(2) of Income Tax Act: SC [Read Judgment]

Revised Return - Share Application Money - Supreme Court of India - Taxscan

In CIT v. Equinox Solution Pvt. Ltd, the two-judge bench of the Supreme Court held that the sale of a running business with all its assets and liabilities would not be covered by section 50(2) of the Income Tax Act since such transactions are slump sale of a “long term capital asset” within the ambit of section 48(2) of the Income Tax Act.

The factual settings of the case are that the assessee-Company sold its entire business- a running concern to another Company. For the year under consideration, the assessee filed return claiming deduction under section 48 of the IT Act stating that the sale is in the nature of “slump sale” of the going concern being in the nature of long term capital gain in the hands of the assessee.

The assessing officer rejected the contention of the assessee and denied the claim by invoking section 50(2). He was of the view that the transaction was in the nature of short term capital gain as specified in Section 50 (2) of the Act.

Assessee successfully appealed the impugned order before the first appellate authority. Though the order was challenged before the ITAT and High Court, the Revenue couldn’t secure any relief. Dissatisfied by the orders of the appellate authorities and the High Court, the Revenue carried the matter before the Apex Court.

Concurring with the orders of the lower authorities, the bench comprising Justice R.K agarwal and Justice Ajay Manohar Sapre held that the transaction was rightly treated as slum sale under section 48. “Section 50 (2) applies to a case where any block of assets are transferred by the assessee but where the entire running business with assets and liabilities is sold by the assessee in one go, such sale, in our view, cannot be considered as “short-term capital assets”. In other words, the provisions of Section 50 (2) of the Income Tax Act would apply to a case where the assessee transfers one or more block of assets, which he was using in running of his business. Such is not the case here because in this case, the assessee sold the entire business as a running concern.”

Read the full text of the Judgment below.

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