Facts of the Case

The appellant-assesse, a private limited company having business of design, engineering and consultancy in the oil and gas (both onshore and offshore), petroleum refinery and allied sector. On 22.09.2006 it entered into a Slump Sale Agreement with Triune Energy Services Pvt. Ltd. (hereafter referred to as ‘buyer’). Effect of the same was, All tangible assets and liabilities (excluding two assets i.e. one in the form of bad debt and another shown to be written off ) together with goodwill were conveyed for a lump sum consideration of `45.85 crores. The net book value of the assets so transferred was `5.27 crores. since its undertaking had been in existence for more than three years it computed long term capital gains under Section 50B and offered 20% of it as tax.

The Assessing Officer (AO) rejected the assessee’s claim holding that the slump sale tax claim was a “sham transaction” designed to avoid tax liability by artificially inflating assets value and that the assets so transferred were short term in nature. The AO decided that the considerations, i.e., lump sum amount received was income from other sources and directed a higher rate of tax.

The aforesaid matter pending before

Question before Delhi High Court

Whether the said transaction of sale of Assets was Slump sale liable to tax under the head Capital gain and not sham?


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