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2014 (9) TMI 656 - ITAT KOLKATAComputation of capital gain - Claim of exemption u/s 47(xiib) – Private Limited Company namely Aravali Polymers Pvt. Ltd. was converted into a Limited Liability Partnership under section 56 of the Companies Act - advancing of loans to the partners - tantamount to distribution and/or payment to the partners - Held that:- The Company does not exist after conversion - the question of a violation of Proviso (c) to Section 47(xiiib) does not exist - Coming to the proviso (f) to section 47(xiiib), it bars payment either directly or indirectly to any partner out of the 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 - Here the assessee-firm gave loans to its partners - This loan, more so a part of the loan, has been paid out of the Reserves and Surplus of the erstwhile Company which, in fact, represents the accumulated profit standing in the accounts of the erstwhile Company - the loan has been paid, it is an interest - free loan coupled with the fact that the loan has been given to its partners in the same ratio as profit sharing shows that the amount has been given directly to the partners out of the balance of the accumulated profits standing in the accounts of the Company on the date of conversion - there is a violation of proviso (f) to section 47(xiiib). Proviso (f) of section 47(xiiib) having been violated the benefit of the provisions of section 47, which deems certain transactions to be not regarded as transfer stands violated. The conversion of the Pvt. Limited Company into a Limited Liability Partnership does not have the protection of section 47(xiiib) in the assessee’s case - the capital gain on the same is liable to be considered - In the computation of capital gains, nowhere in the Act is there provision, more so in section 45, for deeming the sale price in the case of equity shares - The value at which the shares or the assets of the Company Aravali Polymers Pvt. Ltd. was taken over by the Limited Liability Partnership firm, would be the sale price and the cost of acquisition thereof is to be as per books of the erstwhile Company - the issue of computation of the capital gains u/s 45 is restored to the file of the AO - the assessee has not complied with the proviso to section 47(xiiib) - Consequently the benefit of section 47(xiiib) is not available to the assessee - as the assessee did not have the benefit of section 47(xiiib), the provision of section 47A(4) does not apply - The capital gains in respect of the transfer of the assets in the hands of M/s. Aravali Polymers Pvt. Ltd. to the appellant firm Aravali Polymers LLP is to be computed under section 45 of the Income Tax Act for which purpose, the issue is restored to the file of the Assessing Officer – Decided partly in favour of assessee.
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