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2019 (8) TMI 58 - HC - Income TaxConversion of the partnership firm into a private limited company - Violation of the conditions stipulated u/s 47(xiii) - transfer by way of distribution of assets - partners of the erstwhile firm derived benefit other than allotment of shares by way of loan credits in their favour on conversion of the partnership firm into a private limited company - HELD THAT:- In our considered view, the legal position having been well settled that when vesting takes place, it vests in the company as they exist. Therefore, unless and until the first condition of transfer by way of distribution of assets is satisfied, Section 45(4) will not be attracted. Therefore, in the facts and circumstances of the case, we find that there is no transfer by way of distribution of assets. We find that the CIT(A) did not take into consideration the legal issue involved i.e. when a firm is succeeded by a company with no change either in the number of members or in the value of assets with no dissolution of the firm and no distribution of assets with change in legal status alone, whether there is a 'transfer' as contemplated u/ss 2(47) and 45(4). This issue was rightly decided by the Tribunal by taking into consideration the decision of a Division Bench of this Court in the case of CADD Centre Vs. ACIT [2016 (5) TMI 422 - MADRAS HIGH COURT] , in which, the decision of a Division Bench of the Bombay High Court in the case of CIT Vs. Texspin Engineering and Manufacturing Works [2003 (3) TMI 56 - BOMBAY HIGH COURT] , was taken into consideration. The vital difference is that shares worth of ₹ 10 lakhs alone were allotted and that the remaining was given as credit of loan to the partners of the erstwhile firm in the same proportion as their share capital of the firm. In our considered view, what is required to be considered is the effect of vesting as held in the case of Texspin Engineering and Manufacturing Works, which followed the decision of the Hon'ble Supreme Court in the case of Malabar Fisheries Co. Vs. CIT [1979 (9) TMI 1 - SUPREME COURT] and there can be no distribution of assets when a partnership firm vests in a company under Part IX of the Companies Act, 1956. Thus, we are of the view that the Tribunal rightly followed the decision in the case of CADD Centre. - Decided against revenue.
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