Facts of the Case: UTV Software held 49% stake in its subsidiary UHEL, while two other shareholders held 50%and 1% in UHEL.
All the three shareholders independently transferred their entire equity independently to Walt Disney.
In 2010, the tax department had mistakenly levied Short-Term capital gain tax under section 50B for the transactions held between UTV Software Communication and The Walt Disney Company (South-east Asia) by considering it as a slump sale.
Relevant point to be considered:
As per section 2(42C) of the Income Tax Act, 1961, Slump Sale means the transfer of one or more undertakings as a result of sale for a lump sum monetary consideration without values being assigned to the individual assets and liabilities in such sales.
Furthermore, Section 50B of the Income Tax Act, 1961 deals with the manner of computation of capital gain for slump sale.
Now, Observations made by the tax tribunal were that
- UTV Software had only sold its shares in UHEL not the undertaking as it did not hold 100 per cent stake in the company.
- To qualify the definition of slump sale there must be transfer of undertaking not the share.
- Also, there was only a change in the pattern of the company’s shareholding, which would not make it a slump sale as the undertaking.
In the case of “Vodafone International vs Union of India; and Bacha Guzdar vs tax tribunal” also it was held that sale of shares of a company did not tantamount to sale of assets of the company.
Conclusion : Bombay High Court & ITAT ruled out that the transfer of a subsidiary’s share cannot be ‘slump sale’ of an undertaking. Merely transfer of shares of a subsidiary can’t be qualify in terms of Slump Sale for charging Capital Gain as per section 50B of the Income Tax Act, 1961.