SREI Infrastructure Finance Ltd vs. ITSC (Delhi High Court)

DATE: (Date of pronouncement)
DATE: April 18, 2012 (Date of publication)

Click here to download the judgement (srei_infrastructure_slump_sale_capital_gains.pdf)

S. 50B: “Slump Sale” Need Not Be A “Sale”. All Slump Transfers Are Covered

The assessee entered into a scheme of arrangement u/s 391-394 of the Companies Act, 1956 pursuant to which it transferred its project finance business and assets based financing business to another company for a lumpsum consideration of Rs. 375 lakhs. The assessee filed a settlement application in which it claimed that the said consideration on transfer of the project finance business was not chargeable to tax as it was not by way of “sale” and there was no cost of acquisition for the same. However, the Settlement Commission that the said transfer, though effected through an order of the Court was a “slump sale” and was chargeable to tax u/s 50B. The assessee filed a Writ Petition to challenge the Settlement Commission’s order. HELD by the High Court dismissing the Petition:

The assessee’s argument that a “transfer” under a scheme of arrangement u/s 391-394 of the Companies Act is not a “slump sale” for purposes of s. 50B is not acceptable. S. 50B was inserted to supercede decisions which held that a slump sale (i.e. transfer of business as a going concern) was not taxable for want of cost of acquisition. The term ‘slump sale’ is defined in s. 2(42C) to mean the “transfer” of an undertaking as a result of a “sale”. The use of the word ‘transfer’ in s. 2(42C) is significant and any type of “transfer” which is in nature of slump sale i.e. when lump sum consideration is paid without values being assigned to individual assets and liabilities is covered by s. 2(42C) and s. 50B. This is the reasonable, plausible and natural grammatical meaning which has to be given to the definition of ‘slump sale’. It is not correct to construe the word ‘slump sale’ to mean that it applies to ‘sale’ in a narrow sense and as an antithesis to the word ‘transfer’ as used in s. 2(47). The intention of the legislature was to plug in the gap and tax slump sales and not to leave them out of the tax net. The term ‘slump sale’ has been used in the enactment to describe a particular and specific type of transfers called slump sales. The use of the word ‘sale’ in the term ‘slump sale’ does not narrow down the concept of ‘transfer’ as defined and understood in s. 2(47). All transfers in the nature of ‘sales’ i.e. ‘slump sales’ are covered by s. 2 (42C).

Note: See the contra view in Avaya Global Connect 122 TTJ 300 (Mum) & Bharat Bijilee Limited (ITAT Mumbai) that transfers u/s 391-394 of the Companies Act are not covered by s. 50B

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