Section 77 — Slump Sale | ITA 2025

Section 77 — - SLUMP SALE

Section 77 is the substantive equivalent of 1961 s. 50B -- the SLUMP SALE computation regime. SLUMP SALE = transfer of an undertaking / division as a GOING CONCERN for a LUMP-SUM CONSIDERATION without item-wise asset valuation (s. 2 / 1961 s. 2(42C) definition). The provision treats the lump-sum gain as CG (LTCG if undertaking held > 36 months; STCG if 36 months or less). Cost = NET WORTH (assets less liabilities at book value, with revaluation ignored). FVOC = FMV ON TRANSFER DATE per Rule 11UAE (FA 2021 watershed). FIVE sub-sections: (1) LTCG character / chargeability; (2) STCG carve-out for short-held undertakings (36-month test); (3) net-worth-as-cost + FMV-as-FVOC; (4) Form 3CEA accountant's certificate before s. 263 due date; (5) net-worth definition + aggregate-value-of-assets methodology including depreciable-asset WDV / self-generated-goodwill-NIL / s. 46-deductible-NIL / book-value-other-assets.

Statutory text — Income-tax Act, 2025

Marginal note -- Special provision for computation of capital gains in case of slump sale

(1) Any profits or gains arising from the slump sale effected in the tax year shall be chargeable to income-tax as long-term capital gains and shall be deemed to be the income of the tax year in which the transfer took place, subject to the provisions of sub-section (2).

(2) The profits and gains arising from a slump sale involving the transfer of a capital asset, being one or more undertakings or divisions owned and held by an assessee for thirty-six months or less, immediately before the date of its transfer, shall be treated as short-term capital gains.

(3) In relation to capital assets, being an undertaking or division transferred by way of slump sale,—

(a) the “net worth” of the undertaking or division shall be deemed to be the cost of acquisition and the cost of improvement for sections 72 and 73; and

(b) the fair market value of the capital assets on the date of transfer, calcu- lated in such manner, as may be prescribed, shall be deemed to be the full value of the consideration received or accruing as a result of such transfer.

(4) Every assessee, in the case of a slump sale, shall furnish in the prescribed form a report of an accountant, before the specified date referred to in section 63, and the report shall—

(a) include the computation of the net worth of the undertaking or division; and

(b) certify that the net worth has been correctly arrived at as per the provi- sions of this section.

(5) For the purposes of this section,—

(a) the “net worth” shall be the “aggregate value of total assets” of the under- taking or division, as reduced by the value of its liabilities as appearing in the books of account, and for computing net worth, any change in the value of assets due to revaluation shall be ignored;

(b) the “aggregate value of total assets” shall,—

(i) for depreciable assets, be the written down value of the block of assets determined under section 41(1)(c);

(ii) for capital asset being goodwill of a business or profession, which was not acquired by the assessee by purchase from a previous owner, be nil;

(iii) for capital assets for which the entire expenditure has been allowed or is allowable as a deduction under section 46, be nil; and

(iv) for other assets, be the book value.

Corresponding provision — 1961 regime

INCOME-TAX ACT, 2025	INCOME-TAX ACT, 1961
INCOME-TAX ACT, 2025 -- s. 77	INCOME-TAX ACT, 1961 -- s. 50B
Sub-s. (1) -- LTCG character (default)	1961 s. 50B(1)
Sub-s. (2) -- STCG for undertaking held <= 36 months	1961 s. 50B(1) Proviso
Sub-s. (3)(a) -- net worth = deemed cost	1961 s. 50B(2)
Sub-s. (3)(b) -- FMV as FVOC (FA 2021)	1961 s. 50B(2)(ii) [FA 2021]
Sub-s. (4) -- Form 3CEA accountant's report	1961 s. 50B(3)
Sub-s. (5)(a) -- net worth definition	1961 s. 50B Explanation 1
Sub-s. (5)(b) -- aggregate-value-of-assets methodology	1961 s. 50B Explanation 2

STATUTORY ARCHITECTURE

SLUMP SALE DEFINITION (s. 2 / 1961 s. 2(42C)): transfer of UNDERTAKING / DIVISION as a GOING CONCERN for a LUMP-SUM consideration without values being assigned to individual assets / liabilities. FA 2021 EXPANSION: 'transfer' for slump-sale purposes includes ANY MEANS of transfer (sale / exchange / relinquishment / extinguishment / similar). Pre-FA 2021 slump-exchange was contested; FA 2021 codified slump-exchange (transferee shares received in exchange for undertaking) as slump sale. CHARACTER (sub-ss. 1-2): (a) DEFAULT: LTCG (undertaking held > 36 months); (b) UNDERTAKING HELD <= 36 MONTHS: STCG. Note: the 36-month period is for the UNDERTAKING (collective business), not individual assets within. So a recently-formed undertaking sold as slump = STCG even if individual assets within are old. COST = NET WORTH (sub-s. 3(a)) -- definition in sub-s. 5(a): Net Worth = Aggregate Value of Total Assets MINUS Value of Liabilities (book-value basis); Revaluation IGNORED (anti-step-up). AGGREGATE VALUE OF TOTAL ASSETS (sub-s. 5(b)): (i) DEPRECIABLE ASSETS: WDV per s. 41(1)(c) -- block-of-assets WDV; (ii) SELF-GENERATED GOODWILL: NIL (codifies B.C. Srinivasa Setty SC); (iii) ASSETS WITH FULL DEDUCTION UNDER s. 46 (R&D etc.): NIL (anti-double-claim); (iv) OTHER ASSETS: BOOK VALUE. FVOC = FMV ON TRANSFER DATE (sub-s. 3(b), FA 2021 watershed): Pre-FA 2021: lump-sum-consideration-actually-received was FVOC; created scope for under-pricing. Post-FA 2021: Rule 11UAE prescribes FMV computation -- HIGHER OF book value (with adjustments) AND consideration. Effectively imposes minimum-FMV floor. FORM 3CEA (sub-s. 4): mandatory CA-certificate computing net worth + certifying correctness; before s. 263 due date.

FA 2021 EXPANSION -- SLUMP EXCHANGE

Pre-FA 2021 controversy: where undertaking transferred IN EXCHANGE for shares of transferee (no monetary consideration), was it a slump sale? Bharat Bijlee (Bom HC), Aerospace Engineering (Mum ITAT) had held 'NO' (slump-exchange outside s. 50B). FA 2021 retrospectively expanded definition to include ALL means of transfer; slump-exchange now squarely within s. 77. Implication: M&A demerger-style structures previously routed through slump-exchange as tax-shelter no longer effective; FMV-as-FVOC ensures CG charged on full economic value.

CASE LAW

(i) Bharat Bijlee Ltd v. ACIT (Bom HC) -- pre-FA 2021 slump-exchange held outside s. 50B; reversed by FA 2021. (ii) PNB Finance Ltd v. CIT (SC, 2008) -- slump sale character; lump-sum consideration test. (iii) CIT v. Aerospace Engineering Pvt Ltd (Mum ITAT) -- slump-exchange controversy. (iv) Triune Energy Services v. CIT (Del HC) -- net-worth methodology / book-value-vs-revaluation. (v) FA 2021 Memorandum -- legislative intent to override Bharat Bijlee.

PLANNING NOTES

(i) UNDERTAKING-VS-ASSET-SALE -- slump sale requires going-concern transfer with all assets-and-liabilities; selective asset sale not slump sale (item-wise CG instead). (ii) FORM 3CEA EARLY -- engage CA 60-90 days before due date; net-worth computation requires extensive book reconciliation. (iii) FMV DETERMINATION -- post-FA 2021, Rule 11UAE methodology applies; engage merchant banker / valuer; FMV often exceeds negotiated consideration in distressed-sale scenarios. (iv) SELF-GENERATED GOODWILL NIL -- preserve evidence of goodwill character; if purchased-goodwill, book value applies. (v) HOLDING PERIOD -- 36 months for UNDERTAKING; date of business commencement / formation, not individual asset acquisition. (vi) LTCG INDEXATION -- post FA 2024, indexation generally unavailable; flat 12.5% applies to slump-sale LTCG.

CROSS-REFERENCES

Section 2 -- Slump sale definition (s. 2(42C) of 1961 / s. 2 equivalent).
Section 41(1)(c) -- Block-of-assets WDV (referenced in sub-s. 5(b)(i)).
Section 46 -- Scientific research expenditure (sub-s. 5(b)(iii)).
Section 63 -- Specified date for accountant's report.
Section 67 -- CG charge.
Section 70(1)(e)/(j) -- Amalgamation / demerger (alternative tax-neutral pathway).
Section 72 -- Mode of computation.
Section 73 -- Cost in special modes.
Section 197 -- LTCG rates (post-FA 2024 12.5%).
Income-tax Rules, 2026 r. 11UAE -- FMV computation methodology.
Form 3CEA -- accountant's certificate.

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