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CA Final · Integrated Business Solutions (Multidisciplinary Case Study with Strategic Management) · Direct Tax Laws & International Taxation

Case: Sahyadri Foods Ltd sells its dairy undertaking, held for 5 years, as a going concern for a lump sum of Rs 12 crore, without assigning values to individual assets. Depreciable assets have a tax written down value of Rs 3 crore (book value Rs 4 crore). Other assets stand at Rs 7 crore in the books, and liabilities of the undertaking are Rs 2 crore. What is the long-term capital gain on this slump sale?

The long-term capital gain is Rs 4 crore. Net worth is tax WDV of depreciable assets Rs 3 crore plus other assets at book Rs 7 crore, less liabilities Rs 2 crore, giving Rs 8 crore. Deducting this from the Rs 12 crore consideration leaves Rs 4 crore.

  1. ARs 4 croreCorrect
  2. BRs 3 crore
  3. CRs 2 crore
  4. DRs 12 crore

Explanation

Net worth for a slump sale uses the tax WDV for depreciable assets and book value for others, less liabilities: 3 + 7 - 2 = Rs 8 crore. Gain = 12 - 8 = Rs 4 crore, long-term as the undertaking was held over 36 months. Using book value of Rs 4 crore for depreciable assets gives Rs 3 crore, which is wrong.

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