Sale of business as a going concern does not generate taxable trading profit unless consideration can be traced to stock-in-trade.

Whether a slump sale of an entire business gives rise to taxable trading profit depends on whether any part of the lump-sum consideration can be fairly attributed to stock-in-trade as income; the legal principle treats whole-concern transfers as not generating trading profit unless a traceable portion represents realisation of stock. On the facts, transfer documents used book/cost figures and no contemporaneous market valuation or component-wise allocation existed, so no portion of the consideration could confidently be attributed to taxable profit on stock-in-trade and no tax arises on the asserted amount.

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Issues: Whether on the facts the sale of the entire business as a going concern resulted in a taxable profit of Rs. 2,50,000 attributable to stock-in-trade.

Analysis: The legal framework applies the principle that a sale of a whole concern as a slump transaction (sale of business as a going concern) does not ordinarily give rise to taxable trading profit unless a portion of the slump price can be traced to stock-in-trade so as to represent income. Precedent establishes that where the transfer is a realisation sale, only that part of the consideration which can be fairly attributed to stock sold (and shown to represent trading profit) is taxable. On the facts, the business involved acquisition, development and sale of land with development liabilities and no contemporaneous market valuation of land at the date of transfer; the schedule reflected book/cost figures rather than an attempt to value components of the slump price. Therefore no portion of the slump consideration can confidently be attributed to taxable profit on stock-in-trade.

Conclusion: The Rs. 2,50,000 is not taxable profit attributable to stock-in-trade; no taxable profit arises from the sale.

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