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ACIT vs. Celerity Power LLP (ITAT Mumbai)

SECTION(S): , , , , ,
DATE: November 16, 2018 (Date of pronouncement)
DATE: December 3, 2018 (Date of publication)
AY: 2011-12
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S. 47(xiiib) r.w.s 47A(4): The conversion of a company into a LLP constitutes a "transfer". If the conditions of s. 47(xiiib) are not satisfied, the transaction is chargeable to 'capital gains‘ u/s 45 (Texspin Engg 263 ITR 345 (Bom) distinguished). If the assets and liabilities of the company are vested in the LLP at 'book values‘ (cost), there is in fact no capital gain. The argument that u/s 58(4) of the LLP Act, the LLP is entitled to carry forward the accumulated losses & unabsorbed depreciation of the company, notwithstanding non-compliance with s. 47(xiiib) is not acceptable

We find from a perusal of the ‘memorandum‘ explaining the purpose and intent behind the enactment of sub-section (xiiiib) to Sec. 47, that prior to its insertion, the ‘transfer‘ of assets on conversion of a company into a LLP attracted levy of “capital gains” tax. The legislature in all its wisdom had vide the Finance Act, 2010 made Sec. 47(xiiib) available on the statute, with the purpose that the transfer of assets on conversion of a company into a LLP in accordance with the Limited Liability Partnership Act, 2008, subject to fulfilment of the conditions contemplated therein, shall not be regarded as a ‘transfer‘ for the purposes of Sec. 45 of the Act. In so far, the reliance placed by the ld. A.R on the judgment of the Hon‘ble High Court of Bombay in the case of CIT Vs. Texspin Engg. & Mfg. Works (2003) 263 ITR 345 (Bom) is concerned, the same in our considered view is distinguishable on facts.