Salsy Limited has two units one engaged in manufacture of textile goods and the other involved in manufacturing of chemicals. As a restructuring…

CA Final · Direct Tax Laws and International Taxation · PYQS · November 2024
Salsy Limited has two units one engaged in manufacture of textile goods and the other involved in manufacturing of chemicals. As a restructuring drive, the company sold its chemical unit as a going concern by way of slump sale for 242 lakhs on 01.10.2023. The balance sheet of Salsy limited as on 01 October 2023, being the date on which chemical unit has been transferred, is given here under – Balance Sheet as on 1.10.2023 Liabilities ₹ Assets ₹ Paid up Share Capital 2,50,00,000 Land Textile Unit 60,00,000 Chemical Unit 70,00,000 General Reserve 1,35,00,000 Building Share Premium 60,00,000 Textile Unit 90,00,000 Revaluation reserve 20,00,000 Chemical Unit 70,00,000 Trade Creditors Machinery Textile Unit 90,00,000 Textile Unit 40,00,000 Chemical unit 47,00,000 Chemical unit 52,00,000 Investment in Equity Share (1,00,000) shares of ABC Ltd, a listed company at 35 per share Chemical Unit 35,00,000 Inventories Textile Unit 82,00,000 Chemical unit 60,00,000 Licenses and Franchises Textile Unit 20,00,000 6,02,00,000 Chemical unit 23,00,000 6,02,00,000 The following information have been furnished by the management: (i) The Chemical unit was established in July, 2020 during the COVID period. (ii) Land of Chemical unit includes revaluation reserve of 20lacs. The Land was purchased at 50 lakhs in May 2020 and revalued at 70 lakhs as on October 1,2023. The stamp duty value on 01.10.2023 is 62 lakhs. (iii) The Building and Machinery have been shown in the balance sheet at its written down value as per section 43(6)(c) of the Income-tax Act, 1961. (iv) License and Franchises were acquired on 01.06.2022 and shown in the balance sheet at its original purchase price. (v) Equity shares were acquired by the company through National stock exchange on 01.04.2021 and value recorded for shares of ABC Limited as on 01.10.2023 at NSE is 42 per share. You are required to Compute the Taxable capital gain to Salsy Limited for A.Y.2024-25.

Suggested Answer and Working Notes:

(i) Computation of Taxable Capital gain in the hands of Salsy Limited for A.Y.2024-25 Particulars ₹ Full value of consideration [See Note 1 below] 2,62,00,000 Less: Net worth [See Note 2 below] 2,37,25,000 Long-term capital gain [Since the Unit is held for more than 36 months] 24,75,000 No indexation benefit is allowed in slump sale. Note 1: Computation of Full value of consideration Fair market value of the capital assets transferred by way of slump sale [FMV1] Land, being an immovable property [stamp duty value on 1.10.2023, being the date of slump sale] 62,00,000 Building, being an immovable property [Assuming the stamp duty value on 1.10.2023, being the date of slump sale is the same as the book value appearing in the books of accounts] 70,00,000 Machinery [Book value as appearing in the books of accounts] 52,00,000 Investment in listed equity shares of ABC Limited [Fair market value as on 1.10.23] [1,00,000 x 42] 42,00,000 Inventories [book value as appearing in the books of accounts] 60,00,000 Licenses and Franchises [Book value as appearing in the books of accounts] 23,00,000 3,09,00,000 Less: Liabilities of Chemical Unit – Trade Creditors 47,00,000 Fair market value of the capital assets transferred by way of slump sale [FMV1] 2,62,00,000 Fair market value of the consideration received or accruing as a result of transfer by way of slump sale [value of the monetary consideration received] [FMV2] 2,42,00,000 Full value of consideration [Higher of FMV1 or FMV2] 2,62,00,000 Note 2 – Computation of Net worth Land (excluding 20lakhs on account of revaluation) 50,00,000 Building 70,00,000 Machinery 52,00,000 Investment in Equity Shares of ABC Ltd. 35,00,000 Inventories 60,00,000 Licenses and Franchises 17,25,000 Cost as on 1.6.2022 23,00,000 Less: Depreciation @ 25% for Financial Year 2022-23 5,75,000 WDV as on 1.4.2023 17,25,000 Total assets 2,84,25,000 Less: Trade Creditors 47,00,000 Net worth 2,37,25,000

Topics: Capital Gains

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