The Bangalore bench of the Income Tax Appellate Tribunal (ITAT) has held that the sale of an Entire business amounts to a slump sale and is taxable under capital gain.
Lifestyle International Pvt. Ltd, the Assessee is a private limited company engaged in the business of retail trade of apparel and accessories, toys, baby basics, footwear, leather products, furniture and household, and other accessories. It operates stores across India under the brand name “Lifestyle” and “Max”.
During the year, Splash, a division of the Assessee which was engaged in retailing apparel to the youth segment was moved to a separate legal entity i.e, Splash Fashions India Private Limited (“Splash India”) w.e.f. 01.10.2012. This transfer of the business of the assessee carried under the “Splash” brand as a going concern was on a ‘slump sale’ basis to Splash India.
The assessee entered into a business transfer agreement with Splash Fashions India Pvt. Ltd. on 29.12.2012 with effect from 01.10.2012 for the sale of its “Splash” division, on a going concern and slump sale basis.
It was contended that the difference between the book value of the division and the net worth of the division as per section 50B of the Income Tax Act,1961 is due to the computation of the written down value (“WDV”) of the assets. He submitted that to determine the book value, the WDV of the assets was calculated as per the provisions of section 43(6)(c)(ii) of the Act, while the WDV to determine the net worth, the provisions of section 43(6)(c)(i)(C) was applied.
The AO in the assessment order held the transaction of sale of ‘Splash’ as itemized sale and not a slump sale by stating that the transfer was only for the brand and not an undertaking or division. The AO further held that the provisions of section 43(6)(c)(ii) were applicable for determining the WDV against section 43(6)(c)(i)(C) which has been applied by the assessee.
It was noted that to determine the book value, the WDV of the assets has been calculated as per the provisions of section 43(6)(c)(ii) of the Act and the WDV to determine the net worth section 43(6)(c)(i)(C) has been applied. The intention to buy the splash brand was on a going concern basis.
A Coram comprising of Smt Beena Pillai, Judicial Member and Shri Laxmi Prasad Sahu, Accountant member concluded that a transaction is a slum sale or not is not only based on the interpretation of terms and conditions of the entire agreement but is also based on how the gains have been accounted by the assessee in its books of accounts.
While allowing the appeal, the Tribunal directed the AO to compute the quantum of capital gains by law as a slump sale. The AO was directed to decide the cost of undertaking for purpose of computing capital gains that are arisen on the transfer of assets as a going concern and are directed to value it as per section 55 of the act.To Read the full text of the Order CLICK HERE
Lifestyle International Pvt. Ltd. Vs Deputy Commissioner of Income Tax,
Case Number: ITA No. 50/Bang/2020
Date of Judgement: 18-11-2022
CITATION: 2022 TAXSCAN (ITAT) 1951
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