47(xiiib)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)55:
Provided that—
(a) all the assets and liabilities of the company immediately before the conversion become the assets and liabilities of the limited liability partnership;
(b) all the shareholders of the company immediately before the conversion become the partners of the limited liability partnership and their capital contribution and profit sharing ratio in the limited liability partnership are in the same proportion as their shareholding in the company on the date of conversion;
(c) the shareholders of the company do not receive any consideration or benefit, directly or indirectly, in any form or manner, other than by way of share in profit and capital contribution in the limited liability partnership;
(d) the aggregate of the profit sharing ratio of the shareholders of the company in the limited liability partnership shall not be less than fifty per cent at any time during the period of five years from the date of conversion;
(e) the total sales, turnover or gross receipts in the business of the company in any of the three previous years preceding the previous year in which the conversion takes place does not exceed sixty lakh rupees; and
(f) no amount is paid, either directly or indirectly, to any partner out of balance of accumulated profit standing in the accounts of the company on the date of conversion for a period of three years from the date of conversion.
Explanation.—For the purposes of this clause, the expressions "private company" and "unlisted public company" shall have the meanings56 respectively assigned to them in the Limited Liability Partnership Act, 2008 (6 of 2009);]
BUT PROVISION AS
Conversion of a Partnership Firm into an LLP:
No specific tax shelter has been incorporated under Income-tax Act for conversion of firm into LLP. However Memorandum explaining the provisions of the Finance (No. 2) Bill 2009 provides that General Partnership and LLP is treated as equivalent (except for recovery purposes) for Income-tax purpose. The Explanatory Memorandum, also stated, that conversion of a General Partnership Firm to an LLP will have no tax implications if
a)the rights and obligations of partners remain the same after conversion and
b)there is no transfer of any Asset or Liability after conversion.
If the above conditions are violated, the provision of Capital gains specified in section 45 shall apply. However above clarification is ambiguous and may create various issues.