“slump sale”
The decision most relied on for slump sale is CIT v. Smifs Securities Ltd. (348 ITR 302), cited in 540 judgments on BharatTax.
Leading authorities on slump sale
Goodwill, whether arising from an amalgamation or a slump sale, is an intangible asset eligible for depreciation under Section 32(1) of the Income-tax Act. While the assessee must prove the existence and valuation of such goodwill, it is recognized as a depreciable asset.
Business contracts and commercial rights of similar nature qualify as intangible assets under Section 32(1)(ii) and are eligible for depreciation. The decision also affirms that goodwill is an intangible asset eligible for depreciation.
A non-compete fee paid as part of a business acquisition or transaction constitutes an intangible asset, eligible for depreciation under Section 32(1)(ii) of the Income-tax Act.
Depreciation is allowable on goodwill acquired through the slump sale of a business. When an assessee claims depreciation on the enhanced cost of an asset supported by a registered valuer's report, tax authorities must produce countervailing evidence, such as a departmental valuation report, to challenge it, rather than simply disregarding the expert opinion.
A deduction for interest expense on borrowed funds used for interest-free advances to group companies is permissible only if the assessee establishes these advances were from surplus funds. The decision further clarifies eligibility for depreciation on intangible assets like non-compete fees, software, goodwill, and commercial rights under section 32(1)(ii), often arising from a slump sale.
When a business is purchased as a going concern, the consideration paid in excess of the value of its tangible assets is classified as goodwill, which is an intangible asset eligible for depreciation without needing a separate valuation.
In a slump sale, the slump purchase price cannot be apportioned among individual assets for claiming depreciation, as there is no indication of the price attributable to specific assets out of the total sale consideration.
Specified intangible assets like business claims, information, records, contracts, employees, and know-how acquired under a slump sale are considered 'business or commercial rights' eligible for depreciation under section 32(1)(ii).
