Section 54EC Deduction Allowed on Slump Sale Involving Land | ITAT

Case Details: Net Matrix Corp Care (P.) Ltd. vs. Deputy Commissioner of Income-tax - [2025] 176 taxmann.com 504 (Hyderabad - Trib.)

Judiciary and Counsel Details

• Ravish Sood, Judicial Member and MADHUSUDAN SAWDIA, Accountant Member.
• Jaydeep, C.A. for the Appellant. B. Bala Krishna, CIT-DR for the Respondent.

The assessee, a company, was engaged in the business of manufacturing crop protection chemicals. During the relevant year, the assessee entered into a slump sale of its manufacturing unit situated at the SEZ.
While furnishing the return of income, the assessee claimed a deduction under section 54EC against the profits arising from the slump sale. Dissatisfied with the claim, the Principal Commissioner of Income Tax (PCIT) exercised his power under Section 263 and held that the claim was invalid.
According to him, the assessee had sold its ongoing business concern, i.e., the SEZ unit, as a slump sale, attracting the provisions of Section 50B. Therefore, it was not entitled to claim a deduction under section 54EC. The PCIT directed the Assessing Officer (AO) to pass a fresh assessment order after affording the assessee an opportunity to be heard. Aggrieved by the order, the assessee filed an appeal to the Hyderabad Tribunal.

Tribunal Held

The Tribunal held that a claim for deduction under Section 54EC presupposes a capital gain arising from the transfer of a long-term capital asset, i.e., land or a building. On the other hand, the profits/gains arising from the slump sale are chargeable to income tax as capital gains arising from the long-term capital asset, except for a case where the capital asset, i.e., undertaking, is owned and held by the assessee for not more than 36 months immediately preceding the date of transfer.
In the instant case, the sale of the SEZ unit by the assessee as a slump sale included land of Rs. 7,00,10,000/- (book value). Thus, the profits/gains from the slump sale, though restricted to the extent of the book value of the land, were to be allowed as a deduction to the assessee under section 54EC. Therefore, the Tribunal held that the PCIT was not justified in declining the assessee’s claim for deduction under section 54EC.