Image Source:

This article is written by Madhuri Pilania, pursuing the Diploma Programme in Advanced Contract Drafting, Negotiation and Dispute Resolution from LawSikho.


A business is defined in Section 2 (17) of the Goods and Services Tax Act. When it comes to selling a business from one business to another, this is called corporate restructuring, and this in itself is a very complete and complex process. This restructuring can take place in different ways, such as equity organization, merger, split, acquisition, recession sale through a business transfer agreement. 

The main purpose of business restructuring is to grow and develop in size and gain. A business can be sold in two ways, that is, by quick sale or asset sale. In the case of the sale of assets, the buyer can only benefit from the purchase of rights and obligations chosen by him and eliminates other rights and obligations that are not necessary for the company to make a profit. The asset purchase will identify the work items that are part of the ownership transfer. The buyer generally benefits from an asset sale. However, from the seller’s point of view, a quick sale via business transfer is more preferable, as capital gains taxes are paid at a low value compared to the purchase of assets.

Slump Sale

As mentioned earlier, “slump sale” is just one method of corporate restructuring. The company will sell its business and this is one of the most common forms of business buying in India. Retail is usually done as follows:

  • To increase business performance;
  • Improve focus and eliminate negative synergy and facilitate strategic investment; and
  • Benefit from relevant tax and regulatory benefits.

The 1999 Finance Act introduced the concept of retail by adding section 2 (42C) and section 50B of the 1961 Income Tax Act. While the former was defined as retail, it provided the way in which retail sales tax was calculated.

However, retail taxation has a long history. A long time ago many doubts arose about the taxation of stagnant sales on a case list.

Prior to the addition of Section 2(42C), the courts ruled that retail is the ongoing sale of a business where the aggregate price cannot be attributed to individual assets or liabilities. 

In the historical case against the Income Tax Commissioner of PNB Finance Ltd., the Supreme Court assesses the scope of Articles 41(2), 45 and 50B, while profits from transactions do not decrease in the area of​ ​Recessionary sales, corporate income or capital gains. 

In order to attract Section 41(2), the material must be assets that are depreciated and the consideration received must be able to be distributed among several assets. In the case of a falling sale, there is a company that is transferred (including depreciable and non-depreciable assets) and it is not possible to assign the decrease price to depreciable assets and therefore cannot be taxed as such. The court ruled that when withdrawing the capital gain, the collection part and the calculation parts were integrated code and that if one failed the other failed, i.e. even the collection part failed if the calculation parts failed.

Essentials of a Business Transfer Agreement

  • Compromise sale: The transfer must essentially be done through a method of sale. It will not supersede the provisions of Section 2 (42C) of the TI Act when the transfer is made in any other way.
  • Basis of fear of worry: According to this rule, the company must be able to function even after its transfer.
  • Assets and liabilities: there is a transfer of commitments as a whole. If only the assets are subject to transfer of the business, it cannot be considered a quick sale.
  • Lump-sum: price to be paid as a whole, not for tangible assets. It must be a one-time advance and must not be made in instalments or in any other way.

What is BTA?

A Business Transfer Agreement (BTA) is structured to realize a comprehensive sale of assets and liabilities from one business to another. It is a property purchase and transfer agreement in which details about the sale of the company and its assets are captured. Describes the transfer type, sales type, conditions of sale and details of the transfer. BTA lists assets, liabilities, equity, contracts, client lists, leases, employee insurance, new employment rights, inventories, tax issues, copyrights, and patents among other things.

First, it is structured as a “sales agreement”, which will determine how the business enterprise is sold. The agreement itself does not result in an immediate transfer of the company but is a blanket agreement in which the parties are listed and the actual sale is executed through various agreements/documents to follow. Therefore, basically, the BTA remains an indicator of the intent made by subsequent binding documents.

The second form of BTA is when BTA makes the business company sell and pay. In turn, this BTA itself completes the sale of the trading company. Therefore, in such cases, BTA is nothing more than a transfer note.

Parties to the agreement

This clause means the separation of one or more business companies by the seller and the liquidation of the said separated companies in the buyer. The parties must be natural persons and no legal person can enter into such an agreement. Even a non-resident cannot do business in India without a workplace in the country. So, for a non-resident to initiate a sale or even an asset purchase in the fall, they must first establish an Indian corporation and then use that Indian corporation to initiate a business transfer.

Recital clause

This clause provides the background for the organizations involved in the transaction. However, this clause is not operational, but an explanatory part of the contract. The item should contain the actual matrix of the transaction, highlight the intentions of the entities involved in the transaction, etc. For eg:

  • The seller is a retailer in the city of Ghaziabad.
  • The buyer is a private company operating all over India in the field of clothing manufacturing and marketing.
  • Seller wishes to sell the Business at retail and Purchase agrees to purchase the Business from the Seller.
  • The Parties have signed this Agreement for the transfer of the Seller’s Business on a permanent basis under the terms and conditions of this Agreement.

Purchase Consideration

Once the explanatory clause is created in the contract, the valid provisions of the contract begin. This article explains the payment method, the amount, the currency and the payment method that the Buyer must make to the Seller during the transfer of the Business. The notation for such an element could be:

“The fee for the transfer of the seller’s business is Rs 5,000, to be paid through NEFT from the buyer’s merchant to the seller’s bank by wire transfer.”

Condition Precedent of the parties

Besides the representation and guarantees provision, the precedent condition is one of the most basic clauses in a business transfer contract as it includes conditions or events that must be completed before the contract enters into force. After the precedent conditions are fulfilled by the buyer, the rights and obligations of the parties come into effect. This clause ensures that the seller has the legitimate rights, approvals and consent to transfer the business. An example of such a sentence could be:

  • The Seller has obtained all the approvals and permissions required by law for the sale and transfer of the Business under this Agreement.
  • The Seller has not objected to the sale of the business covered by this Agreement pursuant to Section 281 of the Income Tax Act of 1961.
  • There are no major defects or the Seller is not aware of any material defects with the Business.

Duration and Termination 

Either party may terminate this Agreement prior to the Closing Date. The right of termination in Clause 11.1 shall not prejudice all existing rights and remedies of the Parties under this Agreement, including the right to request certain performance as an alternative to termination of obligations under the Agreement or to terminate the Agreement and claim compensation. violation for any of the violations committed in the said period prior to termination.

It is pertinent to note that instead of considering an immediate transfer, a commercial transfer agreement may instruct the parties to sign a transfer document. 

In the case of Vijay Krishna Mishra, the Supreme Court explicitly decided that the sales contract would not be subject to the payment of stamp duty payable on a bill of sale and said that: Explanation appended to Article 23 of Schedule IA of the Stamp Act as substituted by M.P. Act No. 19 of 1989 reads as under:

For the purposes of this article, if there is an agreement related to the sale of the property, the transfer of possession of any property to the buyer before the execution will be understood as an assignment, without the assignment of said contract and according to this contract, the stamp duty. 

Given that the provisions of Section 47A apply to a vehicle covered by this section, it will apply mutatis mutandis to said contract that is considered a vehicle as indicated above: In addition, if a subsequent transfer is made on the basis of the said sales contract, the stamp tax paid and withdrawn, if any, in the sales contract and considered as a transfer, will be adjusted according to the total tax payable subject to a minimum of Rs.10.


On the basis of the above legal provisions and relevant case law, it can be concluded that when a BTA is in the form of a sales contract, the Seal will be subject to stamp duty in accordance with Article 5(c) of Annex I. Whether movable or immovable, the law and transmission contract to which the assets of the enterprise will be transferred will be subject to stamp tax according to the nature of the transferred asset and the document to be registered. Therefore, in order to understand the consequences of the stamp tax in this transaction, it would be appropriate to analyze the nature of the transferred asset and the vehicle to which it is transferred.

Students of Lawsikho courses regularly produce writing assignments and work on practical exercises as a part of their coursework and develop themselves in real-life practical skill.

LawSikho has created a telegram group for exchanging legal knowledge, referrals and various opportunities. You can click on this link and join:

Follow us on Instagram and subscribe to our YouTube channel for more amazing legal content.


Please enter your comment!
Please enter your name here