Definition of Slump Sale
As per S. 2(42C), of Finance Act, 1999, ‘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.
As per Sect 180 of Companies Act, 2013-
“180. (1) The Board of Directors of a company shall exercise the following powers only with the consent of the company by a special resolution, namely:—
(a) to sell, lease or otherwise dispose of the whole or substantially the whole of the undertaking of the company or where the company owns more than one undertaking, of the whole or substantially the whole of any of such undertakings.
Explanation.—For the purposes of this clause,—
(i) “undertaking” shall mean an undertaking in which the investment of the company exceeds twenty per cent. of its net worth as per the audited balance sheet of the preceding financial year or an undertaking which generates twenty per cent. of the total income of the company during the previous financial year;
(ii) the expression “substantially the whole of the undertaking” in any financial year shall mean twenty per cent. or more of the value of the undertaking as per the audited balance sheet of the preceding financial year;”
Difference between Slump Sale and Asset purchase
|Consideration for transfer is a lump sum consideration.||Consideration may be in part payment or as specified in the Agreement|
|In Slump sale value is not assigned to individual units or liabilities, but sometimes land/building where separate value is assigned to it under the relevant stamp duty legislation, the slump sale will not be adversely affected||In contract the values may or may not be assigned to individual units like plants, machinery.|
|In slump sale includes not only transfer of asset but also includes transfer of liabilities or obligations.||In Asset purchase transfer of asset may or may not include liabilities/obligations.|
|Illustration:In Weikfield Products Co. (I) (P.) Ltd. v. DCIT, [71 TTJ 518 (Pune)], the Tribunal observed that-“In our opinion, the transfer of a going concern means transfer by lock, stock and barrel, where nothing is left with the vendor. It includes not only the transfer of each asset, tangible or intangible, but also the transfer of each debt and liability including any obligation”||Illustration:Where the sale deed mentioned ‘sale deed in respect of sale of movable properties’ and separate prices were agreed for different assets, the transaction was not treated as a slump sale is comes under asset purchase.In Mahindra Sintered Products Ltd. v. DCIT, [95 ITD 380 (Mum.)], it was held that-
“Where price was fixed beforehand in respect of identifiable assets of the undertaking and no liability was transferred to the buyer, transfer of undertaking would not be regarded as a slump sale.”
Author: Kaushik Babu
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