Ascertainment of Income

[SUDHAKAR SIVARAMAN]

Dear friends,

My client was doing Tanishq franchise showroom. In the month of June 2022, Tanishq company tookover the francise business and paid the following amount.

1. For assets (furniture, computer, interior etc) 1 crore

2. For business loss made by franchise from beginning- Rs.1.5 crore

3. Other service charges paid-Rs.1 crore

Now my question is point no.1- the differance between wdv at the beginning of the year 01.04.2022 and Rs.1 crore, can be treated as either profit/ loss. Is it correct?

For point no.2- How to account in books, whether i have to pay income tax for entire amount of this Rs.1.5 crore.

For point no.3- Whether i can treat it as goodwill and for this also whether i have to pay income tax full?

Kindly clarify

[Padmanathan KV]

Kindly clarify if this is taking over of business as whole on going concern basis? if so, wouldnt provisions of slump sale be applicable.

[SUDHAKAR SIVARAMAN]

YES SIR, Company tookover entire business and firm got dissolved. With this situation, pls clarify how to ascertain income tax?

[Padmanathan KV]

A. Transfer of business as a whole:-

A.1. "slump sale" means the transfer of one or more undertaking, by any means, for a lump sum consideration without values being assigned to the individual assets and liabilities in such transfer.

A.2. If the amount of 1 crore is not specifically allocated towards individual assets, it will be covered under the slump sale. It shall be treated as LTCG/ STCG (depending on how long business has been run). Pls refer to section 50B for computation of capital gains.

A.3. No GST on the above as it is exempt supply of service.

B. service charge etc-

B.1. The remaining amount such as other service charges etc maybe treated as business income and you can set off the carry forward loss.

B.2. GST has to be collected and Tanishq can claim ITC.

Pls consult an expert for the same as tax planning is involved as above is only a rough idea. Full documentations, terms and conditions etc has to be reviewed.

Regards

AI Summary

Slump sale treatment may convert asset consideration into capital gains while other payments treated as business income. If the lump-sum consideration is not allocated to individual assets, the transfer qualifies as a slump sale and the consideration for the business transfer is taxable as capital gains under the capital-gains computation regime; slump sales are outside GST (exempt). Separate amounts labeled as compensation for business losses or as service charges should be treated as business income and may be set off against carry-forward losses, while service charges can attract GST with input tax credit implications for the purchaser.