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2016 (12) TMI 360 - HC - Income TaxConversion of the partnership firm into a Private Limited Company - premature transfer of shares - revocation of exemption from Capital gains tax - Held that:- AAR has in a very reasoned Order, has taken a view that no capital gains accrued or attracted at the time of conversion of the partnership firm into a Private Limited Company. In part IX of the Companies Act, therefore, notwithstanding the non-compliance with clause (d) of the proviso of Section 47(xiii) of the Income Tax Act by premature transfer of shares, the said Company is not liable to pay capital gains tax. These findings have been arrived at essentially looking into the fact that there was revaluation of assets at the time of conversion of the firm M/s. Anandeya Zinc Oxides Private Limited. The said finding of fact has not been disputed by the learned Counsel appearing for the Petitioners and, as such, the finding of the learned AAR that there was no capital gains in the transaction in question cannot be faulted. It is also to be noted that even immediately after such conversion in question from the partnership firm into a Private Limited Company, the assessment with regard to the income of the new Company as well as of the respective partners were filed and there was no objection or grievances raised by the Assessing Officer that any capital gains had to be paid on account of the incorporation of the Company in terms of the said provisions. The transfer of shares in favour of the Respondent by the erstwhile partners who were shareholders of M/s. Anandeya Zinc Oxides Private Limited and such partners/share holders are liable to pay capital gains even if acceptable, would not affect the decision passed by the learned AAR whilst coming to the conclusion that there were no capital gains at the time of incorporation of the new Company by the said partnership firm. The contention of the Petitioner that in view of the violation of clause (d) of Section 47(xiii), the exemption from capital gains enjoyed by the Assessing firm upon conversion into a Private Limited Company, ceases to be in force cannot be accepted. We have already examined that there are no capital gains which have accrued on account of such incorporation. In such circumstances, we find that the said contention of the learned Counsel appearing for the Petitioner that in view of the transfer of the capital assets or intangible assets, there are capital gain tax payable by the transferee Company, cannot be accepted. As pointed out herein above, there was no capital gains payable at the time of the incorporation of the Company from the erstwhile partnership firm. Maintainability of application under Section 245(N) of the Respondents - Held that:- The question as to whether capital gains are liable to be paid or not in terms by the transferee Company being a non resident Company, the Respondent herein, would be a matter which would come within the scope of advanced ruling in terms of the said depreciation. Considering the said observations and taking note of the findings of the learned AAR, we find that there is no case made out for interference by this Court under Article 226 of the Constitution of India. The Petitioners were given an opportunity by the learned AAR and the contentions raised were duly considered whilst passing the impugned Orders. We find no reason to interfere in the impugned Orders passed by the learned AAR.
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