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The Tax Publishers Divestment of ventilator division of assessee at zero value with negative net-worth of INR 1.83 crores on slump sale -- Computation of capital gains on under Section 50B *Facts:* Assessee was consistently incurring losses out of their ventilator division which was divested on as is where is basis at zero consideration. The net-worth of the divested division in the books was reading negative as accumulated losses/liabilities were more than the assets for an amount of INR 1.83 crores. Assessment was completed under Section 143(3) treating that there was no capital gain arising out of the slump sale due to zero consideration and negative net-worth. PCIT chose to reopen the case under his powers of revision under Section 263 on grounds that the negative net-worth should go to increase the value of slump sale thus the order reading the slump sale was to be the equivalent of INR 1.83 crores. Since this was not considered the order of the assessing officer was erroneous and prejudicial to the interests of the revenue. The basis of opinion of PCIT stemmed from the Special bench decision of DCIT v. Summit Securities Ltd., (2012) 135 ITD 99 (Mumbai) (SB) : 2012 TaxPub(DT) 1833 (Mum-Trib). Aggrieved by the PCIT's reopening assessee went in appeal to ITAT - Held in favour of the assessee, though the verdict of Summit securities Ltd. case held that negative net-worth should increase the sale consideration in slump sale, since there was no consideration first involved in this slump sale as it happened at zero value, the reopening was wrong as revenue has failed to prove how the order of the assessing officer was prejudicial to the interests of the revenue especially when the sale consideration was zero. *Ed. Note:* The issue in Summit securities was that the slump sale happened for 143 crore and the negative net-worth was 157 crore, so the Special bench gave in to view of the revenue that computation as per Section 50B was to be done as - Sale consideration minus net-worth hence, 143 - (-157) = 300 crores was held to be taxable as per Section 50B in that case. In this case it was held 0 - (-1.83) = 0 and not 1.83 crores as consideration was first zero. The issue is not free from doubt and the final verdict on DCIT v. Summit Securities Ltd., (2012) 135 ITD 99 (Mumbai) (SB) : 2012 TaxPub(DT) 1833 (Mum-Trib) before the Apex court is pending. Detailed commentary on this topic can be read by article titled -- Negative consideration in a slump sale published by Tax Publishers way back in 2015. *Case:* Pricol Engineering Industries Ltd. v. ACIT 2023 TaxPub(DT) 251 (Chen-Trib)

The Tax Publishers

Divestment of ventilator division of assessee at zero value with negative net-worth of INR 1.83 crores on slump sale -- Computation of capital gains on under Section 50B

Facts:

Assessee was consistently incurring losses out of their ventilator division which was divested on as is where is basis at zero consideration. The net-worth of the divested division in the books was reading negative as accumulated losses/liabilities were more than the assets for an amount of INR 1.83 crores. Assessment was completed under Section 143(3) treating that there was no capital gain arising out of the slump sale due to zero consideration and negative net-worth. PCIT chose to reopen the case under his powers of revision under Section 263 on grounds that the negative net-worth should go to increase the value of slump sale thus the order reading the slump sale was to be the equivalent of INR 1.83 crores. Since this was not considered the order of the assessing officer was erroneous and prejudicial to the interests of the revenue. The basis of opinion of PCIT stemmed from the Special bench decision of DCIT v. Summit Securities Ltd., (2012) 135 ITD 99 (Mumbai) (SB) : 2012 TaxPub(DT) 1833 (Mum-Trib). Aggrieved by the PCIT's reopening assessee went in appeal to ITAT -

Held in favour of the assessee, though the verdict of Summit securities Ltd. case held that negative net-worth should increase the sale consideration in slump sale, since there was no consideration first involved in this slump sale as it happened at zero value, the reopening was wrong as revenue has failed to prove how the order of the assessing officer was prejudicial to the interests of the revenue especially when the sale consideration was zero.

Ed. Note: The issue in Summit securities was that the slump sale happened for 143 crore and the negative net-worth was 157 crore, so the Special bench gave in to view of the revenue that computation as per Section 50B was to be done as -

Sale consideration minus net-worth hence, 143 - (-157) = 300 crores was held to be taxable as per Section 50B in that case.

In this case it was held 0 - (-1.83) = 0 and not 1.83 crores as consideration was first zero.

The issue is not free from doubt and the final verdict on DCIT v. Summit Securities Ltd., (2012) 135 ITD 99 (Mumbai) (SB) : 2012 TaxPub(DT) 1833 (Mum-Trib) before the Apex court is pending.

Detailed commentary on this topic can be read by article titled -- Negative consideration in a slump sale published by Tax Publishers way back in 2015.

Case: Pricol Engineering Industries Ltd. v. ACIT 2023 TaxPub(DT) 251 (Chen-Trib)