Capital gain: Slump sale or exchange: S/s. 2(42C) and 50B: A. Y. 2005-06: Transfer of division of undertaking in exchange for issue of preference shares and bonds: No monetary consideration: Exchange and not a sale: Not a slump sale:

In the relevant year, the asessee transferred its lift field operations undertaking to one T under the scheme of arrangement as approved by the Court in exchange for issue of preference shares and bonds. The assessee claimed that it is a case of exchange and not a case of slump sale attracting the provisions of section 50B of the Income-tax Act, 1961. The Assessing Officer rejected the claim of the assessee and held that the transaction squarely fell within the definition of “slump sale” in section 2(42C) and was taxable in terms of section 50B of the Act. The Tribunal held that a reading of the clauses in the scheme of arrangement showed that the transfer of the undertaking had taken place in exchange for issue of preference shares and bonds. The scheme did not refer to any monetary consideration for the transfer. It was a case of exchange and not a sale. Therefore, section 2(42C) was inapplicable and section 50B was also inapplicable.

On appeal by the Revenue, the Bombay High Court upheld the decision of the Tribunal and held as under:

“i) I n the given facts and circumstances and going by the clauses of the scheme of arrangement and reading them harmoniously and together, the Tribunal had held that the transfer of the lift division came within the purview of section 2(47) but could not be termed as a slump sale.

ii) This finding of fact could not be said to be perverse or based on no material. It also could not be said to be vitiated by an error of law apparent on the face of the record.

iii) We do not find any merit in the appeal. It is accordingly dismissed.”