For s. 50B “Slump Sale”, liabilities reflected in “negative net worth” cannot be treated as “consideration” but the resultant “negative net worth” has to be added to the “consideration”

DCIT vs. Summit Securities Ltd (ITAT Mumbai Special Bench)

 

Pursuant to a scheme of arrangement u/s 391 & 394 of the Companies Act, the assessee transferred its “Power Transmission Business” to KEC International Ltd for a total consideration of Rs. 143 crores. The assessee claimed this transaction to be a “slump sale” u/s 50B. The “net worth of the undertaking” was computed at a negative figure of Rs.157.19 crores, being the excess of liabilities over assets. The assessee treated the net worth as Nil and offered the entire sale consideration of Rs. 143 crore as LTCG. The AO held that as the purchaser had taken over liabilities of Rs. 157.19 crores, the same had to be added to the consideration of Rs. 143 crores to arrive at the “full value of consideration” of Rs. 300 crores. The CIT (A), relying on Zuari Industries 105 ITD 569 (Mum) & Paper Base Co 19 SOT 163 (Del), held that the “net worth’ in s. 50B could not be a negative figure and if it was so because of the liabilities exceeding the assets, the net worth had to taken at Nil. The Special Bench had to consider two issues (i) whether the excess of liabilities over assets could be treated as “consideration” in the hands of the assessee & (ii) whether the resultant “negative net worth” could be treated as Nil or had to be added to the “consideration”? HELD by the Special Bench: