Home Case Index All Cases Income Tax Income Tax + AT Income Tax - 2018 (10) TMI AT This
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2018 (10) TMI 1708 - AT - Income TaxCapital gain u/s 45 - conversion of partnership firm into a private limited company - credit of difference between the revaluation value and book value of the asset as loan in the capital account of the partners - HELD THAT:- When the assets and liabilities and business of the partnership firm as a going concern were taken over by a private limited company incorporated and the partners of the erstwhile partnership firm were allotted shares in the same proportion of the capital as it stood in the books of the firm on the date of succession, there was no transfer at all. Hence, there is no question of levy of tax on capital gain would arise for consideration at all. The main contention of the Revenue is that on revaluation of the asset of the erstwhile partnership firm, the difference between revaluation and book value was credited in the capital account of the respective partners in the same proportion of their capital as loan, therefore, there was indirect benefit to the shareholders and erstwhile partners. The question arises for consideration is whether there was any transfer on revaluation? Revaluation of existing asset of the partnership firm by itself does not amount to any transfer as held by the Madras High Court in CADD Centre [2016 (5) TMI 422 - MADRAS HIGH COURT] after considering the provisions of Section 47(xiii) of the Act, held that Section 47(xiii) applies only to a case of transfer by sale. Moreover, Section 45(4) would apply only when there is distribution of asset to the partners. In view of this judgment of Madras High Court, there is no violations of the conditions stipulated in Section 47(xiii) of the Act. If we accept that the difference between the revaluation and book value credited in the capital account of the erstwhile partners in the same proportion as their capital as a loan amounts to indirect benefit to the erstwhile partners, under the scheme of Income-tax Act, capital gain tax cannot be levied on the assessee-company. Under the scheme of Income-tax Act, only transferor is liable to pay tax on capital gain. In the case before us, the assessee-company succeeded to assets and liabilities of the partnership firm. Therefore, the assessee-company may at the best be considered as transferee and certainly not transferor. Therefore, considering the facts of the case in all respects, this Tribunal is of the considered opinion that capital gain tax cannot be levied in the hands of the assessee-company which succeeded to the assets and liabilities of the partnership firm. Hence, we are unable to uphold the orders of the lower authorities. It may not be necessary for this Tribunal to go into the contention of the assessee regarding validity of assessment order passed under Section 143(3) read with Section 147 of the Act, when there was search operation and proceedings were initiated under Section 153C of the Act. We are unable to uphold the orders of the lower authorities. Accordingly, orders of both the authorities below are set aside and the addition made by the Assessing Officer as capital gain is deleted. - Decided in favour of assessee.
|