Income Tax 01 Feb,2020
859 Views
Amendment to Section 50B should reduce litigation
S.KrishnanCA

Introduction

1. Section 50B of the Income-tax Act (the Act) being special provision for computation of capital gains in case of slump sale was inserted by the Finance Act 1999 with effect from 01-04-2000 i.e. from the assessment year 2000-2001.

The term slump sale is defined in section 2(42C) of the Act to mean 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. To put it simply "slump sale" is nothing but transfer of a whole or part of business concern as a going concern with lock, stock and barrel.

As per Explanation 1 to section 2(42C) of the Act the term 'Undertaking' has the same meaning as in Explanation 1 to section 2(19AA) of the Act defining 'demerger'. As per Explanation 1 to section 2(19AA) of the Act, 'undertaking' shall include any part of an undertaking or a unit or division of an undertaking or a business activity taken as a whole, but does not include individual assets or liabilities or any combination thereof not constituting a business activity.

Explanation 2 to section 2(42C) of the Act clarifies that the determination of value of an asset or liability for the payment of stamp duty, registration fees, similar taxes, etc. shall not be regarded as assignment of values to individual assets and liabilities. Thus, if value is assigned to land for stamp duty purposes, the transaction will be a qualifying slump sale under section 2(42C) of the Act.

With a view to enable the assessee to claim the benefit of section 50B of the Act the assessee under rule 6H of the Income-tax Rules 1962 was required to furnish a certificate under Form 3CEA "along with the return of income, a report of an accountant as defined in the Explanation below sub-section (2) of section 288 of the Act"

Need for an amendment to Section 50B

2. The certificate obtained from a Chartered Accountant has been found to be inadequate on account of its simplicity and this gave raise to number of disputes. This would have made the Government think about obtaining a comprehensive report from a Chartered Accountant and to furnish the same one month prior to the due date for filing return of income under sub-section (1) of section 139 of the Act and with this good idea in mind the Government has thought of a proposal to substitute the present section in a more comprehensive way.

Proposed amendment

3. The proposed amendment is best explained in clause 26 of the Finance Bill 2020 in the following words

"Sub-section (1) of the said section provides that any profits or gains arising from the slump sale effected in the previous year shall be chargeable to income-tax as capital gains arising from the transfer of long-term capital assets and shall be deemed to be the income of the previous year in which the transfer took place.

Sub-section (3) of the said section provides that every assessee, in the case of slump sale, shall furnish in the prescribed form along with the return of income, a report of an accountant as defined in the Explanation below sub-section (2) of section 288 indicating the computation of the net worth of the undertaking or division, as the case may be, and certifying that the net worth of the undertaking or division, as the case may be, has been correctly arrived at in accordance with the provisions of this section. It is proposed to amend the said sub-section (3) so as to provide that every assessee, in the case of slump sale, shall furnish in the prescribed form a report of an accountant as defined in the Explanation below sub-section (2) of section 288 before the specified date as referred to in section 44AB (i.e. one month prior to the due date for filing return of income under sub-section (1) of section 139) indicating the computation of the net worth of the undertaking or division, as the case may be, and certifying that the net worth of the undertaking or division, as the case may be, has been correctly arrived at in accordance with the provisions of this section.

This amendment will take effect from 1st April, 2020 and will, accordingly, apply in relation to the assessment year 2020-2021 and subsequent assessment years".

Expectation

4. It is hoped that the "prescribed form" would be more comprehensive in nature and would bring out the "net worth" of the assessee more precisely in order to enable the Assessing Officer to arrive at the correct conclusion and unnecessary litigation is thus avoided.