| Question And Answer | |
|---|---|
| Subject: | Cost of acquistion in case of conversion of Company to LLP |
| Category: | Income-Tax |
| Querist: | Pawan Singla |
| Answered by: | Law Intern |
| Tags: | Company converted in to LLP, Conversion of company into LLP |
| Date: | September 12, 2025 |
In case of conversion of a Pvt. Company into LLP, section 47(xiiib) conditions are not satisfied and the conversion is treated as a “transfer” and capital gains is taxable in the company’s hands on FMV of Land. In this case, if original cost of purchase of land was 100000/-, book value was also 100000/- but at the time of transfer to LLP, the company has paid capital gain tax on FMV Rs. 200000/-, so when the LLP sell this land in future, its cost of acquisition will be 200000/- or 100000/-? This case is not covered in section 49. Can the LLP claim cost of acquisition = FMV on which is company has paid tax? If yes, any backing of provision or case law?
Two views are possible.
One argument is that s. 49. (1) refers to “Where the capital asset became the property of the assessee … (iii).. (e) under any such transfer as is referred to in … clause (xiiib) … of section 47”.
Section 47(xiiib) refers to “any transfer of a capital asset or intangible asset by a private company or unlisted public company (hereafter in this clause referred to as the company) to a limited liability partnership or any transfer of a share or shares held in the company by a shareholder as a result of conversion of the company into a limited liability partnership in accordance with the provisions of section 56 or section 57 of the Limited Liability Partnership Act, 2008 (6 of 2009)”.
The argument is that although the exemption under Section 47(xiiib) does not apply due to non-satisfaction of conditions, the transaction remains a “transaction referred to in” that clause and so the cost of acquisition will be the original cost of ₹100,000.
The other view is that the first interpretation will lead to double taxation which goes contrary to the scheme of the Act. As the company paid tax on the basis of the FMV of ₹200,000, that should be considered as the cost in the hands of the LLP.
In my view, the second view is the better view.