{"id":392931,"date":"2026-08-11T09:00:02","date_gmt":"2026-08-11T03:30:02","guid":{"rendered":"https:\/\/www.scconline.com\/blog\/?p=392931"},"modified":"2026-08-10T18:10:13","modified_gmt":"2026-08-10T12:40:13","slug":"slump-sale-section-2-42c-pre-2021-analysis","status":"publish","type":"post","link":"https:\/\/www.scconline.com\/blog\/post\/2026\/08\/11\/slump-sale-section-2-42c-pre-2021-analysis\/","title":{"rendered":"Parliamentary Supremacy versus Judicial Expansion: The Definitive Scope of Slump Sale Prior to 1 April 2021"},"content":{"rendered":"
\n

An analysis of the scope of “slump sale” under Section 2(42-C)<\/a> of the Income-tax Act, 1961<\/a> prior to 1 April 2021, arguing that the Finance Act, 2021<\/a> prospectively expanded the definition to include all forms of transfer and that its retrospective application would undermine parliamentary intent and settled principles of tax law.<\/p>\n

Slump sale in income tax has been a heavily litigated issue since 1999 when the section of slump sale was introduced for the second time as the first time it was introduced by the Direct Tax Laws (Second Amendment) Act, 1989<\/a> with effect from 1 April 1990 but was later on omitted by the Finance Act, 1990<\/a> with effect from 1 April 1990. In the past few years before the amendments in 2021 and 2022 were introduced, the majority of the litigation was based upon what constitutes “slump sale” and what does not. As the definition given in Section 2(42-C) pre-2021 only mentioned the word “sale”. This led to innumerable instances over the years where the Revenue Authorities started holding exchange, scheme of arrangement, etc. as taxable in the hands of the assessee. Therefore, expanding the scope of legislation arbitrarily and thus challenging the parliamentary supremacy to include something in the legislation which was never enacted nor was it the intention of Parliament. There were several numbers of rulings including in which the court’s opined that such expanding the scope of Section 2(42-C) by including other transfers was bad in law including but not limited to CIT<\/span> v. Bharat Bijlee Ltd.<\/span><\/a>1<\/sup><\/a> and some courts opined on the contrary like in SREI Infrastructure Finance Ltd.<\/span> v. ITSC<\/span><\/a>2<\/sup><\/a>. It is our considered view that such expansion of the section’s scope prior to the amendment was bad in law, a position that the subsequent legislative amendments have now crystallised.<\/span><\/p>\n

The core controversy revolves around the erroneous conflation of a statutory “exchange” under a scheme of arrangement with a “sale”. The legislative history of Section 2(42-C) definitively proves the Revenue wrong. When introduced by the Finance Act, 1999<\/a>, a slump sale was strictly defined as a transfer of an undertaking “as a result of the sale”. It was only through the Finance Act, 2021<\/a> that the legislature expanded this definition to mean a transfer “by any means”. The 2021 Explanatory Memorandum explicitly acknowledged that prior to this amendment, courts rightly interpreted the provision to exclude other means of transfer listed in Section 2(47), such as exchanges. Because these amendments are strictly applicable from 1 April 2021, the Revenue’s and on some occasion the court’s artificial expansion of the word “sale” to include all forms of “transfer” for Assessment Years (AYs) 2009—2010 and 2010—2011 is fundamentally legally flawed and contrary to legislative intent.<\/p>\n

To support our contention, we will take support from statutory provisions and precedents.<\/p>\n

Section 2(42-C) pre-Amendment read as under<\/p>\n

(42-C) “slump sale” means the transfer of one or more undertakings as a result of the sale for a lump sum consideration without values being assigned to the individual assets and liabilities in such sales.<\/p>\n

Explanation 1<\/span>.—For the purposes of this clause, “undertaking” shall have the meaning assigned to it in Explanation 1 to clause (19-AA).<\/p>\n

Explanation 2<\/span>.—For the removal of doubts, it is hereby declared that the determination of the value of an asset or liability for the sole purpose of payment of stamp-duty, registration fees or other similar taxes or fees shall not be regarded as assignment of values to individual assets or liabilities.<\/p>\n

Section 2(42-C) post-Amendment<\/p>\n

(42-C) “slump sale” means the transfer of one or more 3<\/sup><\/a>[undertaking, by any means,] for a lump sum consideration without values being assigned to the individual assets and liabilities in such 4<\/sup><\/a>[transfer].<\/p>\n

Explanation 1<\/span>.—For the purposes of this clause, “undertaking” shall have the meaning assigned to it in Explanation 1 to clause (19-AA).<\/p>\n

Explanation 2<\/span>.—For the removal of doubts, it is hereby declared that the determination of the value of an asset or liability for the sole purpose of payment of stamp duty, registration fees or other similar taxes or fees shall not be regarded as assignment of values to individual assets or liabilities;]<\/p>\n

5<\/sup><\/a>[Explanation 3<\/span>.—For the purposes of this clause, “transfer” shall have the meaning assigned to it in clause (47);]<\/p>\n

As is quite evident from going through the above amendment in such section that the scope of this section was expanded through the amendment from being only applicable on sale to including all types of transfers and borrowing the same definitions of transfers from Section 2(47) of the Act. Section 2(47) is also reproduced herewith for ready reference—<\/p>\n

(47) “transfer”, in relation to a capital asset, includes,<\/p>\n

(i<\/span>) the sale, exchange or relinquishment of the asset; or<\/p>\n

(ii<\/span>) the extinguishment of any rights therein; or<\/p>\n

(iii<\/span>) the compulsory acquisition thereof under any law; or<\/p>\n

(iv<\/span>) in a case where the asset is converted by the owner thereof into, or is treated by him as, stock-in-trade of a business carried on by him, such conversion or treatment; or<\/p>\n

[(iv-<\/span>a<\/span>) the maturity or redemption of a zero coupon bond; or]<\/p>\n

(v<\/span>) any transaction involving the allowing of the possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in Section 53-A<\/a> of the Transfer of Property Act, 1882 (4 of 1882)<\/a> ; or<\/p>\n

(vi<\/span>) any transaction (whether by way of becoming a member of, or acquiring shares in, a cooperative society, company or other association of persons or by way of any agreement or any arrangement or in any other manner whatsoever) which has the effect of transferring, or enabling the enjoyment of, any immovable property.<\/p>\n

Now it can be easily deduced that such definition of slump sale, as envisaged in Section 2(42-C) did not include all types of transfers, but transfers limited to sale. Exceptions were there, like amalgamation or demerger, under Sections 391 to 394 of the old Companies Act, 1956<\/a>, exchange or relinquishment and many more. This contention is supported by the following precedents:<\/p>\n

Areva T & D India Ltd.<\/span> v. CIT<\/span><\/span><\/a>6<\/sup><\/a><\/p>\n

By going through the above case laws, it is clearly evident that transfers other than sale did not come under the ambit of Section 2(42-C) before 1 April 2021. And such expansion of the scope of the section as done by different courts, in our opinion, is bad in law and contrary to the provisions of the Income-tax Act, 1961<\/a>. May it be expansion by applying ejusdem generis or taking a liberal view, that such act clearly challenged parliamentary supremacy.<\/p>\n

We would also like to draw support from the memorandum and notes on clauses supporting such memorandum.<\/p>\n

All relevant Finance Bill, memorandum of explanation and notes on clauses<\/p>\n

Memorandum of Explanation 2021<\/p>\n

Rationalisation of the provision of slump sale (Clauses 154—158): Section 50-B of the Act contains a special provision for computation of capital gains in case of slump sale. Sub-section (42-C) of Section 2 of the Act defines — slump sale to mean the transfer of one or more undertakings as a result of sale for lump sum consideration without value being assigned to individual assets and liabilities in such cases. This has been interpreted by some courts that other means of transfer listed in sub-section (47) of Section 2 of the Act, in relation to definition of the word — transfer in relation to capital asset like exchange, relinquishment, etc., are excluded.<\/span><\/p>\n

Thus, a transfer which — in effect and substance is by way of sale is also currently covered in the definition of slump sale under Section 50-C of the Act, as interpreted by various courts. However, it is still seen that tax avoidance schemes are drawn to defeat the intent of this provision and courts can always intervene to find the true substance of the transaction and purpose of Section 50-C of the Act.<\/p>\n

In order to make the intention clear, it is proposed to amend the scope of the definition of the term — slump sale by amending the provision of clause (42-C) of Section 2 of the Act, so that all types of — transfer as defined in clause (47) of Section 2 of the Act are included within its scope.<\/p>\n

This amendment will take effect from 1 April 2021 and shall accordingly apply to the AY 2021—2022 and subsequent assessment years.<\/span><\/p>\n

[Clause 3]<\/p>\n

Notes on Clauses 2021<\/p>\n

It is also proposed to amend clause (42-<\/span>C) of the said section which defines the expression<\/span> “<\/span>slump sale<\/span>”<\/span> as the transfer of one or more undertakings as a result of the sale for a lump sum consideration without values being assigned to the individual assets and liabilities in such sales.<\/span><\/p>\n

It is proposed to expand the scope of the definition of the term<\/span> “<\/span>slump sale<\/span>”<\/span> so as to mean the transfer of one or more undertakings, by any means, for lump sum consideration without value being assigned to individual assets and liabilities in such cases.<\/span><\/p>\n

It is also proposed to insert an Explanation to the said clause so as to provide that the word<\/span> “<\/span>transfer<\/span>”<\/span> shall have the meaning assigned to it in clause (47) of the said section.<\/span><\/p>\n

These amendments will take effect from 1st April, 2021 and will, accordingly, apply in relation to the assessment year 2021—2022 and subsequent assessment years.<\/span><\/p>\n

Memorandum of Explanation 2022<\/p>\n

Definition of the term “slump sale”:<\/p>\n

Slump sale is defined in clause (42-C) of Section 2 of the Act, as the transfer of one or more undertaking, by any means, for a lump sum consideration without values being assigned to individual assets and liabilities in such sales. Vide the Finance Act, 2021<\/a>, the definition of<\/span> “<\/span>slump sale<\/span>”<\/span> was amended to expand its scope to cover all forms of transfer under slump sale. However, inadvertently, in the last sentence there is reference to the word<\/span> “<\/span>sales<\/span>”<\/span> instead of<\/span> “<\/span>transfer<\/span>”<\/span>.<\/span><\/p>\n

2. Therefore, it is proposed to carry out consequential amendment by amending the provision of clause (42-<\/span>C) of Section 2 of the Act, to substitute the word<\/span> “<\/span>sales<\/span>”<\/span> with the word<\/span> “<\/span>transfer<\/span>”<\/span>.<\/span><\/p>\n

3. This amendment will take effect retrospectively from the 1 April 2021 and will accordingly apply in relation to the AY 2021—2022 and subsequent assessment years.<\/span><\/p>\n

[Clause 3]<\/p>\n

Notes on Clauses 2022<\/p>\n

Clause 3 seeks to amend Section 2 of the Income-tax Act relating to definitions.<\/p>\n

Clause (42C) of the said section defines the expression<\/span> “<\/span>slump sale<\/span>”<\/span> as 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 sales.<\/span> <\/span><\/p>\n

It is proposed to amend the said clause to substitute the word<\/span> “<\/span>sales<\/span>”<\/span>, with the word<\/span> “<\/span>transfer<\/span>”<\/span>.<\/span><\/p>\n

This amendment will take effect retrospectively from 1st April, 2021 and, will, accordingly, apply in relation to the assessment year 2021—2022 and subsequent assessment years.<\/span><\/p>\n

Therefore, by going through the history and evolution of this section these points can be deduced—<\/p>\n

1. Admission in the explanatory memorandum<\/span>: The memorandum to the Finance Bill, 2021 categorically noted that the pre-amended definition “has been interpreted by some courts that other means of transfer listed in sub-section (47) of Section 2 of the Act, in relation to definition of the word ‘transfer’ in relation to capital asset like exchange, relinquishment, etc., are excluded”. This constitutes a binding legislative admission that prior to 2021, a non-monetary exchange was not a slump sale.<\/p>\n

2. Prospective application of the expanded scope<\/span>: The expanded scope of “slump sale” to include all types of transfers was deliberately made effective only from 1 April 2021, and applies to AY 2021—2022 and subsequent years. The Finance Act, 2022<\/a> further reinforced this by retrospectively (from 1 April 2021) amending the last word of the clause to substitute “sales” with “transfer”. The expanded definition simply cannot be applied retroactively to the assessee’s detriment to cases before AY 2021—2022.<\/p>\n

3. Legislative admission<\/span>: The explanatory memorandum to the Finance Bill, 1999 (which originally introduced the concept) defined a “slump sale” strictly as a transfer “as a result of the sale”. It was only via the Finance Act, 2021<\/a>, and corrected by the Finance Act, 2022<\/a> (Circular No. 23\/2022), that the definition under Section 2(42-C) was expanded to mean a transfer “by any means” to overcome judicial rulings that excluded non-monetary exchanges.<\/p>\n

4. Reliance on<\/span> CIT<\/span> v. Vatika Township (P) Ltd.<\/span><\/span><\/a><\/span>7<\/sup><\/a>:<\/span> As settled by the Constitution Bench in the Vatika Township case<\/span><\/a>, an amendment made to a taxing statute that creates a new liability or expands the scope of a charge is substantive and strictly prospective in operation, unless an explicit retrospective intention to benefit the assessee is shown.<\/span><\/p>\n

5. Application<\/span>: The Notes on Clauses 2022 explicitly state that the substitution of the word “sales” with “transfer” takes effect retrospectively only from 1 April 2021 (for AY 2021—2022 onwards). The courts committed a grave error of law by artificially reading the expanded 2021 definition into the assessment years pre-AY 2021—2022, thereby illegally imposing a retrospective tax burden on the assessee.<\/p>\n

6. Sale requires monetary consideration<\/span>: It is a well-settled principle established by this Court in CIT<\/span> v. Motors & General Stores (P) Ltd.<\/span><\/span><\/a><\/span>8<\/sup><\/a> that the presence of money consideration is an essential element of a “sale”. If the consideration is not money, but some other valuable consideration (such as the issuance of shares or bonds), it is an “exchange” or “barter”. Since Section 50-B strictly applies only to a “slump sale”, an “exchange” under a scheme of arrangement cannot be taxed under this provision. The Bombay High Court in the Bharat Bijlee Ltd.<\/a> case<\/span><\/span>9<\/sup><\/a> specifically dealt with an identical issue; the Bombay High Court held that a transfer of an undertaking under a scheme of arrangement in exchange for preference shares\/bonds is an “exchange” and not a “sale”, thus falling outside Section 50-B. A transfer under a court-approved scheme of arrangement where consideration is discharged via the issuance of shares\/bonds is legally an “exchange”, not a sale. As noted in the 2021 Memorandum itself, citing the Supreme Court in CIT<\/span> v. R.R. Ramakrishna Pillai<\/span><\/span><\/a><\/span>10<\/sup><\/a>, distinguishing between a sale and an exchange is vital; a sale strictly requires a monetised consideration. Because the petitioner transferred the undertaking for non-monetary consideration under the scheme, it falls entirely outside the unamended definition of a “slump sale”.<\/span><\/p>\n

Therefore, the intent of the law is quite clear.<\/p>\n

A call for administrative finality: The need for an SOP on pre-2021 slump sale litigation<\/p>\n

While the legal and constitutional arguments firmly establish that the expanded definition of a “slump sale” under Section 2(42-C) cannot be applied retrospectively to non-monetary exchanges executed prior to 1 April 2021, the practical reality is that numerous assessees remain entangled in protracted, vexatious litigation. It is a cornerstone of the National Litigation Policy that the Government must not act as a compulsive litigant, particularly when the legislative intent is unambiguous. The Central Board of Direct Taxes (CBDT) has, on several occasions, demonstrated commendable administrative wisdom by issuing standard operating procedures (SOPs) and clarificatory circulars directing field officers to withdraw or gracefully concede appeals. We have witnessed this proactive approach following definitive the Supreme Court rulings — such as in the controversies surrounding software royalty [Engineering Analysis Centre of Excellence (P) Ltd.<\/span> v. CIT<\/span><\/a>11<\/sup><\/a>] and the taxability of loan waivers under Section 28(iv<\/span>) (CIT<\/span> v. Mahindra and Mahindra Ltd.<\/span><\/a>12<\/sup><\/a>) — where the Board rightly instructed the withdrawal of infructuous Revenue appeals to decongest the appellate dockets.<\/p>\n

Given the unequivocal admission in the explanatory memorandum to the Finance Act, 2021<\/a>, which formally acknowledged that courts previously excluded alternative modes of transfer like exchanges from the ambit of a slump sale, the Revenue’s continued prosecution of pre-AY 2021—2022 matters is an exercise in futility and a direct affront to parliamentary intent. We strongly urge the Ministry of Finance and the CBDT to immediately promulgate a specific, binding SOP or circular. This directive must instruct assessing officers and departmental representatives to unconditionally withdraw all pending appeals, special leave petitions (SLPs), and revisionary proceedings that seek to artificially thrust the expanded, post-2021 definition onto pre-amendment non-monetary corporate reorganisations. Issuing such an SOP would not merely be an act of administrative grace; it is an absolute necessity to align the Revenue’s conduct with the constitutional mandate against retrospective taxation affirmed in the Vatika Township case<\/span><\/a>13<\/sup><\/a>. It would restore commercial certainty, honour the deliberate prospective application of the Finance Act, 2021<\/a>, and spare the courts from adjudicating disputes that the Parliament itself has already put to rest.<\/p>\n

Conclusion<\/p>\n

In conclusion, the legislative journey and judicial evolution of Section 2(42-C) of the Income-tax Act<\/a>, 1961<\/span> unequivocally demonstrate that prior to 1 April 2021, a “slump sale” was strictly confined to a transfer executed exclusively by way of a “sale” involving monetary consideration. The arbitrary expansion of this definition by Revenue Authorities — and occasionally by the courts — to include non-monetary exchanges, demergers, or court-approved schemes of arrangement under the umbrella of “slump sales” was fundamentally contrary to the prevailing statutory language and the established principles of commercial law.<\/p>\n

As reinforced by landmark rulings such as Motors & General Stores case<\/span><\/a>14<\/sup><\/a> and Bharat Bijlee Ltd.<\/a> case<\/span>15<\/sup><\/a>, the legal distinction between a “sale” (requiring monetary consideration) and an “exchange” (barter of assets\/shares) is impermeable. While the Supreme Court in CIT<\/span> v. Grace Collis<\/span><\/span><\/a><\/span>16<\/sup><\/a> correctly held that the extinguishment of rights during amalgamation constitutes a “transfer” under Section 2(47), it is crucial to recognise that pre-2021, Section 2(42-C) did not borrow the broad definition of “transfer”. It deliberately restricted itself to a “sale”.<\/span><\/p>\n

The Finance Act, 2021<\/a>, followed by the corrective Finance Act, 2022<\/a>, finally bridged this gap by amending the text to “transfer… by any means”. However, the explanatory memorandums and notes on clauses act as a binding legislative admission that prior to AY 2021—2022, the law did not cover exchanges and other alternative modes of transfer. The CBDT cannot use curative or clarificatory language in subsequent years to impose a new tax burden retrospectively on assessment years prior to AY 2021—2022, as strictly prohibited under the constitutional principles affirmed in the Vatika Township case<\/span><\/a>17<\/sup><\/a>.<\/span><\/p>\n

Legal opinion<\/p>\n

Therefore, in our humble opinion, any attempt by the Revenue to retrospectively apply the amended, expanded definition of Section 2(42-C) to assess pre-2021 corporate restructuring transactions — where undertakings were transferred in exchange for shares or bonds rather than cash — is bad in law, legally unsustainable, and a direct violation of parliamentary supremacy. While the 2021 Amendment has indeed put the controversy to rest for future transactions, the unamended provision remains a definitive shield for taxpayers defending legitimate, non-monetary business reorganisations executed prior to 1 April 2021.<\/p>\n<\/div>\n\n

*CA. Author can be reached at: satyaandsatya4@gmail.com<\/a>.<\/span><\/strong><\/p>\n

**Advocate. Author can be reached at: satyaandsatyas@gmail.com<\/a>.<\/span><\/strong><\/p>\n

1.<\/a> (2014) 365 ITR 258<\/a>SCC : 2014 SCC OnLine Bom 572.<\/span><\/p>\n

2.<\/a> (2014) 2 ITR-OL 474 : 2012 SCC OnLine Del 1935<\/a>.<\/p>\n

3.<\/a> Subs.<\/span> for “undertakings as a result of the sale” by Act 13 of 2021, S. 3(v<\/span>)(I) (w.e.f. 1-4-2021).<\/p>\n

4.<\/a> Subs.<\/span> for “sales” by Act 6 of 2022, S. 3(b<\/span>) (w.r.e.f. 1-4-2021).<\/p>\n

5.<\/a> Ins.<\/span> by Act 13 of 2021, S. 3(v<\/span>)(II) (w.e.f. 1-4-2021).<\/p>\n

6.<\/a> (2020) 428 ITR 1<\/a> : 2020 SCC OnLine Mad 19399.<\/span><\/p>\n

7.<\/a> (2015) 1 SCC 1<\/a> : (2014) 367 ITR 466.<\/p>\n

8.<\/a> (1967) 66 ITR 692<\/a> : 1967 SCC OnLine SC 48.<\/span><\/p>\n

9.<\/a> CIT<\/span> v. Bharat Bijlee Ltd.<\/span><\/a>,<\/span> (2014) 365 ITR 258<\/a> : 2014 SCC OnLine Bom 572.<\/span><\/p>\n

10.<\/a> (1967) 66 ITR 725<\/a> : 1967 SCC OnLine SC 223.<\/span><\/p>\n

11.<\/a> (2022) 3 SCC 321<\/a> : (2021) 432 ITR 471 : (2021) 1 IPLR 86.<\/p>\n

12.<\/a> (2018) 16 SCC 79<\/a>: (2018) 404 ITR 1.<\/span><\/p>\n

13.<\/a> CIT<\/span> v. Vatika Township (P) Ltd.<\/span><\/a><\/span>,<\/span> (2015) 1 SCC 1<\/a> : (2014) 367 ITR 466.<\/p>\n

14.<\/a> CIT<\/span> v. Motors & General Stores (P) Ltd.<\/span><\/a>,<\/span> <\/span>(1967) 66 ITR 692<\/a> : 1967 SCC OnLine SC 48.<\/span><\/p>\n

15.<\/a> CIT<\/span> v. Bharat Bijlee Ltd.<\/span><\/a>,<\/span> (2014) 365 ITR 258<\/a> : 2014 SCC OnLine Bom 572.<\/span><\/p>\n

16.<\/a> (2001) 3 SCC 430<\/a> : (2001) 248 ITR 323.<\/p>\n

17.<\/a> CIT<\/span> v. Vatika Township (P) Ltd.<\/span><\/a><\/span>,<\/span> (2015) 1 SCC 1<\/a> : (2014) 367 ITR 466.<\/p>\n","protected":false},"excerpt":{"rendered":"

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