Sale Of Entire Business As Running Concern Can’t Be Considered ‘Short-Term Capital Assets’: SC [Read Judgment]

Section 50 (2) of the Income Tax Act would apply to a case where the assessee transfers one or more block of assets, the bench held.

The Supreme Court, in Commissioner of Income Tax, Ahmedabad, vs Equinox Solution Pvt Ltd, has held that Section 50 (2) of the Income Tax Act will not apply to a case where the entire running business with assets and liabilities is sold by the assessee in one go, as such sale cannot be considered as “short-term capital assets”.

Dismissing the Revenue’s appeal against a Gujarat High Court ruling, the bench held that provisions of Section 50 (2) of the Act would apply to a case where the assessee transfers one or more block of assets, which he was using in running of his business, and not when the entire business, as a running concern, is sold by the assessee.

Equinox Solution had sold their entire running business in one go with all its assets and liabilities to a Company called Amtrex Appliances Ltd.

While filing IT returns, the assessee had claimed deduction under Section 48 (2) of the Act, as it stood then, by treating the sale to be in the nature of "slump sale" of the going concern being in the nature of long term capital gain in the hands of the assessee.

According to the assessing officer, the case of the assessee was covered under Section 50 (2) of the Act, because it was in the nature of short-term capital gain, as specified in Section 50 (2) of the Act and, hence, did not fall under Section 48 (2) of the Act, as claimed by the assessee.

The high court upheld the CIT (appeal) order that the entire running business with all assets and liabilities having been sold in one go by the respondent-assessee, it was a slump sale of a “long-term capital asset” and therefore, required to be taxed accordingly.

Read the Judgment here.