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CS Professional · Goods and Services Tax (GST) and Corporate Tax Planning · Tax Planning and Business Restructuring

Aarav Textiles Ltd transfers a division by slump sale for a lump sum. The division's net worth computed under section 77 is Rs 6 crore. For computing capital gains on this sale, how is the net worth treated?

Net worth is deemed to be the cost of acquisition and the cost of improvement. Section 77(3)(a) provides this for the undertaking transferred by slump sale. The full value of consideration is a different figure, namely the fair market value of the capital assets on the transfer date.

  1. ADeemed to be the full value of consideration
  2. BDeemed to be the cost of acquisition and cost of improvementCorrect
  3. CIgnored, and the book value of each asset is used as cost
  4. DDeemed to be the indexed cost of acquisition only

Explanation

Section 77(3)(a) deems the net worth of the undertaking to be both the cost of acquisition and the cost of improvement. The full value of consideration is separately the fair market value of the capital assets under 77(3)(b), so the first option is wrong.

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