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The Income tax Act, 1961 only recognize two types of sale transactions of business assets of business. One type of sale is known as slump sale (sale of going concern) and the other could be sale of individual or block assets of the business against stipulated price. The decision of any Court would rest on the finding of the Tribunal in this regard of the type of sale transaction.

On to the difference in the two types of transaction the law is fairly settled by the decision of the Supreme Court in CIT v. Artex Manufacturing Co. [1997] 227 ITR 260 but the application of the judgment again may come under fierce fighting. In this case there was a sale of the entire business as a going concern by a firm to a company formed for the purpose of such take over. The question was whether the provisions of section 41(2) (now substituted by section 50) were applicable. The Supreme
Court held that though in the agreement there was no reference of the
value of the plant, machinery and dead stock, on the basis of the information that was furnished by the assessee before the Income-tax Officer, it became evident that the amount of Rs. 11,50,400 had been arrived at by taking into consideration the value of the plant, machinery and dead stock as assessed by the valuer at Rs. 15,87,296. The Supreme Court held that it was not a case in which it could not be said that the price attributed to the items transferred was not indicated and hence section 41(2) of the Income-tax Act, 1961, could not be applied.

Thus the guiding principle is the finding, if any as to the mention of any stipulated price of the depreciable asset in the working of total sale price either as part of any agreement or from an insight in the valuation report in the custody of the revenue authorities, in which case section 41(2) or section 50 will find of any interest, else not.

In case the Tribunal holds that section 50 is inapplicable the type of sale will be known as slump sale with no tax liability until incorporation of section 50B in the statute w.e.f. 01.04.1999.

However on the issue of computation of cost of acquisition the Delhi High Court in the case of PNB Finance Ltd. v. CIT (2001) 117TAX586 while referring to the Supreme Court ruling in CIT v. Artex Mfg. Co. (1997) 227ITR260 and in CIT v. Electric Control Gear Mfg. Co. (1997) (227ITR278) held that even in the case of a slump transaction when the business is sold as a going concern, it is not impossible to determine the actual cost, viz, the cost of acquisition, even though, in a given case, it may be a self generated assets. It may be a difficult exercise but certainly is capable of evaluation on the basis of settled principles of valuation.

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