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CS Professional · Corporate Restructuring, Valuation and Insolvency · Taxation and Stamp Duty Aspects of Corporate Restructuring

Sagar Textiles Ltd sold its weaving division, owned and held for 48 months, to Kaveri Mills Pvt Ltd for a single lump sum of Rs 9 crore without assigning values to individual assets and liabilities. How is the profit from this slump sale chargeable under the Income-tax Act, 2025?

The gain is long-term capital gains. Section 77 treats slump sale profits as long-term unless the division was held for thirty-six months or less. The division here was held for 48 months, so the short-term exception does not apply, and the lump sum price is irrelevant to the character.

  1. AAs long-term capital gains, because the division was held for more than thirty-six monthsCorrect
  2. BAs short-term capital gains, because a lump sum price was paid
  3. CAs business income, because a division is stock-in-trade
  4. DAs long-term capital gains only if values are assigned to each asset

Explanation

Under section 77, profits from a slump sale are chargeable as long-term capital gains, unless the undertaking or division was owned and held for thirty-six months or less, in which case they are short-term. Here the holding is 48 months, which exceeds 36, so the gain is long-term. The lump sum price is the defining feature of a slump sale and does not make the gain short-term.

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