Question

Let's do some initial internet research on the sale of fixed assets. In addition, how about anything in the Codification .

Answer 1

Internal Approvals
Internal approvals needed for an Asset sale are achieved with the help of the Companies Act, 2013. The steps required for an asset sale or a stock sale can be as follows:

The Board of Directors must pass a resolution to the effect of the sale of assets/undertaking of the company as per Section 179.
The following steps are only applicable to public companies where the asset in question constitutes more than 20% of the total net worth of the company or the asset/undertaking is generating more than 20% of the total income of the company in the previous financial year. Section 110 of the Companies Act, 2013 is to be read with Rule 22 of the Companies (Management and Administration) Rules, 2014.
Board of directors of every listed companies and all public companies – i) with paid-up capital of Rs. 10 crores or more; (ii) having a turnover of Rs. 100 crores or more; (iii) all public companies, having in aggregate, outstanding loans or borrowings or debentures or deposits exceeding Rs. 50 crores or more will refer to the Audit Committee for valuation of the undertaking and assets of a company (Section 177(4)(vi) of the Companies Act, 2013).
Notice must be given to the members that the resolution for asset sale is proposed to be passed as a special resolution by way of postal ballot / electronic voting. The notice must be accompanied by an “Explanatory Statement”, pertaining to the said Resolution, mentioning the material facts concerning the item and the reasons should also be enclosed along with a Postal Ballot Form (See Section 102 of the Companies Act, 2013).
The Resolution will have to be passed by a special resolution (received through postal ballot). Vote must be received within thirty days from the date of dispatch of the notice to be considered as a valid vote.
If the resolution is successfully passed, the Board will authorize a person to finalise and execute necessary documents including but not limited to definitive Agreements, deeds of assignment / conveyance and other ancillary documents, with effect from such date and in such manner as is decided by the Board.
Form MGT – 14 along with the resolution and notice given under Section 102 must be filed with the ROC within 30 days along with required fees.
The following steps are not to be followed for private companies and for asset sale of public companies where the valuation of the asset is less than the mentioned threshold. Although, some companies can frame their own procedure for an asset sale within their constitutional documents of the company i.e. the MoA & AoA. The only steps relevant for the above mentioned companies will be Step 1, 6 and 8.
Tax considerations
The structure is the most important thing that is to be analysed to understand the tax implications in an M&A transaction. These are the following taxes that are to be taken care of in an asset sale:

Stamp Duty
The amount of stamp duty that is to be levied on a transaction is state specific. To understand the stamp duty implication on a transaction, it is advised to read Section 5 and 6 of the Indian Stamp Act, 1889, which is as follows:

“5. Instruments relating to several distinct matters. — Any instrument comprising or relating to several distinct matters shall be chargeable with the aggregate amount of the duties with which separate instruments, each comprising or relating to one of such matters, would be chargeable under this Act.

6. Instruments coming within several descriptions in Schedule I. — Subject to the provisions of the last preceding section, an instrument so framed as to come within two or more of the descriptions in Schedule I, shall, where the duties chargeable thereunder are different, be chargeable only with the highest of such duties: Provided that nothing in this Act contained shall render chargeable with duty exceeding one rupee a counterpart or duplicate of any instrument chargeable with duty and in respect of which the proper duty has been paid.”

In case of a Business Transfer Agreement, it is generally advised to use an agreement to sell instead of a conveyance deed as the stamp duty is considerably lesser for an agreement compared to a conveyance deed.

Capital Gains Tax
In case of depreciable assets, capital gains computed on a block of asset basis and the value over and above the aggregate of the written down value of the block of assets and expenditure incurred in relation to the transfer will be treated as the capital gains and subject to tax as short term capital gains. Where the block of asset basically means a group of assets falling within a class of assets in respect of which the same percentage of depreciation is prescribed. Such block of assets may comprise of (a) tangible assets such as buildings, machinery, plant or furniture; (b) intangible assets such as knowhow, patents copyrights etc.

In other cases, capital gains tax payable by the seller will depend on the period that the seller has held each of the assets that are transferred.

GST would also be applicable in the Asset Sale. Schedule 1 will be applicable where there is a permanent transfer of the business assets. However, Schedule II covers the situation only if a part of business assets is disposed of.