By TIOL News Service

CHENNAI, AUG 07, 2018: THE ISSUE IS - Whether if sale consideration of slum sale is to be received in two or more parts in different AYs, the capital gains should be computed on entire sale consideration in the relevant year in which agreement is executed. YES IS THE ANSWER.

Facts of the case

The assessee company engaged in the business of manufacturing and selling home appliances, had through a slump sale agreement with M/s. Preethi Kitchen Appliances Pvt. Ltd, transferred its division at Thazhambur Road, Navalur Village & Post, Kancheepuram along with plant & machinery, furniture & fixtures, computers, inventories etc. Though the total consideration agreed was Rs 18,31,00,000/-, what was received during the relevant year was only Rs 16,02,00,000/- and the balance sum of Rs. 2,29,00,000/- was received in subsequent FY. Further, assessee had computed capital gains on the sum of Rs.16,02,00,000/- in relevant year and the balance sum of Rs 2,29,00,000/- was offered in the subsequent AY. During assessment, the AO held the date of actual receipt of consideration was irrelevant since the slump sale agreement was entered in relevant year so the capital gains should be computed on one go on entire sale consideration in relevant year only. On appeal, CIT(A) upheld the order of AO.

On appeal, Tribunal held that,

++ what is chargeable to tax is profits or gains arising from the slump sale. Profits or gains arising from a slump sale can be correctly computed only if the total consideration arising to an assessee on account of sale is reckoned. There is no provision which allows the assessee to segregate the consideration as per slump sale agreement in accordance with the year of receipt. Amount of sale consideration was transferred in escrow account. Release of the amount lying in the escrow account is subject to issue of a letter from seller and purchaser to the escrow agent. No doubt, release of the escrow amount, is dependent on satisfaction of various responsibilities undertaken by the assessee in relation to the slump sale. This by itself would not be a reason to hold that consideration for the slump sale was not Rs.18,31,00,000/-. Consideration is clearly mentioned in the slump sale agreement as Rs.18,31,00,000/-. Segregating such consideration to two parts, for computing capital gains in not correct. The ground raised by assessee stands dismissed.

(See 2018-TIOL-1226-ITAT-MAD)