Section 77: special provision for computation of capital gains in case of slump sale

Long-term or short-term, based on holding period

Section 77(1) charges profits or gains from a slump sale as long-term capital gains, as income of the year of transfer, subject to Section 77(2).

Section 77(2) treats the gains as short-term capital gains instead if the undertaking or division transferred was owned and held by the assessee for thirty-six months or less immediately before the date of transfer.

Computing the gain - net worth as cost

Section 77(3) deems the "net worth" of the undertaking or division to be the cost of acquisition and cost of improvement for purposes of Sections 72 and 73, and deems the fair market value of the capital assets on the transfer date (calculated in the prescribed manner) to be the full value of consideration.

Section 77(5) defines "net worth" as the aggregate value of total assets, reduced by the value of liabilities as per the books of account, ignoring any revaluation of assets. The "aggregate value of total assets" is: for depreciable assets, the written down value of the block under Section 41(1)(c); for goodwill not acquired by purchase from a previous owner, nil; for assets whose entire cost was already deducted under Section 46, nil; and for other assets, the book value.

Mandatory accountant's report

Section 77(4) requires every assessee in a slump sale to furnish, in the prescribed form, a report from an accountant before the specified date referred to in Section 63, including the computation of net worth and certifying that it has been correctly arrived at as per this section.

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