TMI Blog2018 (9) TMI 1027X X X X Extracts X X X X X X X X Extracts X X X X ..... resent case last allotment of shares to larger extent was made by the Company only on 11.03.2003, they were deprived of such an opportunity for 3 years in a row. Had it been a case of other shareholders or outside shareholders also joining the said company and the allotment process of shares could have been legally delayed for 3 years for such other persons also, in a hypothetical case, even such other shareholders would have been deprived of such Dividends from the company, if the reasons assigned by the Company that Authorized Share Capital of the company was not suitably increased was to be taken as a valid excuse, for that purpose. Therefore, we are satisfied that on a reasonable and harmonious construction of the relevant provisions of the Act quoted above, the Company in the present case was rightly held liable for the capital gains tax liability by virtue of Section 47(A)(3) of the Act read with Section 47(xiii)(b) of the Act. We are of the opinion therefore that the learned Tribunal was justified in holding that the Assessee-company was liable to pay such capital gains tax liability instead of the partnership firm and to that extent the Assessing Authority as well as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccession of the firm by a Company in the business carried on by the firm, the allotment of shares to the erstwhile partners of the firm in the proportion to their capital accounts in the books of the firm has to be made at the time of the succession of the business by the company or within a reasonable period thereafter? 5. The facts giving rise to the filing of the present appeals in brief as noted by the learned Tribunal in its order dated 18.07.2007 are as follows: - The partnership firm M/s Prakash Electric Company comprising of 5 partners, who are said to be the brothers of the same family, came to be succeeded by the Assessee-company M/s Prakash Electric Company Private Limited, Ambalapady, Udupi on 01.05.1999. The capital account balances for these 5 partners as on 30.04.1999 vide para 20 of the Tribunal's order was as follows: 20. The firm was succeeded by the company on 1/5/99. The following was the capital balance of the partners as on 30th April, '99. (i) K. Suryaprakash Rs.36,08,853 (ii) K. Ashok Kumar Rs.21,35,177 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax by virtue of Section 47A(3) of the Act inserted by Finance Act, 1998 with effect from 01.04.1999. The relevant observations of the Income Tax Appellate Tribunal in this regard are quoted below for ready reference: 45. Now, before we discuss as to whether the capital gain should be charged in the hands of the firm or in the hands of the company, for this, we have to ascertain the implication of non-compliance of clause-(b) of proviso to section 47(xiii). 46. We will take the next ground of appeal raised by the Assessee. The Assessee has stated that if there was non-compliance of the condition u/s 47(xiii), the incidence of tax should be on the successor company and not on the Assessee. By this proposition, the learned AR relied on the provision of section 47A(3). It was argued that if any of the condition is not satisfied, this capital gain is to be charged in the hands of the successor company. The learned AR further submitted that except clause - (b) oF proviso to section 47(xiii), all the conditions are satisfied. 47. It will be relevant to reproduce section 47A(3) of the income-tax Act. Section 47A(3): where any of the conditions laid down in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry as well as Webster's Encyclopedic Unabridged dictionary also, the word 'any' has various meanings including 'one'. This clearly shows that the word 'any' does not always mean more than one. It may also be used to denote 'one'. So, both the words 'a' as well as 'any' are ambiguous and, therefore, the meaning of these words has to be seen with reference to the context in which these words are used . 49. If one is required to be harmoniously interpret section 47(xiii) and 47A(3), it is to be inferred that if all the conditions mentioned in proviso to section 47(xiii) are not satisfied at the time of succession, then capital gain will be chargeable in the hands of the firm and section 45 will not be excluded. However, if any of the conditions mentioned in the proviso to clause 47(xiii) is not complied then, section 47A will be applicable. In the instant case, shareholders of the company are the person who are partners of the Assessee firm. In the grounds of appeal, it has been mentioned that if there is non-compliance of conditions of section 47(xiii), then the tax should be charged on the successor company. In order to decid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h the firm sells or otherwise transfers any capital asset or intangible asset to the Company (any transfer of a capital asset or intangible asset by a firm to a company as a result of succession of the firm by a company in the business carried on by the firm, or any transfer of a capital asset to a company in the course of 49 Inserted by the Finance Act, 2003, w.e.f. 1-4-2002 . [(demutualization or) corporatisation of a recognized stock exchange in India as a result of which an association of persons or body of individuals is succeeded by such company:] Provided that - (a) all the assets and liabilities of the firm 50 Inserted by the Finance Act, 2001, w,e,f. 1.-4-2002 . (or of the association of persons or body of individuals) relating to the business immediately before the succession become the assets and liabilities of the company; (b) all the partners of the firm immediately before the succession become the shareholders of the company in the same proportion in which their capital accounts stood in the books of the firm on the date of the succession; (c) the partners of the firm do not receive any consideration or benefit, directly or indire ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be the income chargeable under the head Capital gains of the previous year in which such shares are transferred.) (3) Where any of the conditions laid down in the proviso to clause (xiii) or the proviso to clause (xiv) of section 47 are not complied with, the amount of profits or gains arising from the transfer of such capital asset or intangible asset not charged under section 45 by virtue of conditions laid down in the proviso to clause (xiii) or the proviso to clause (xiv) of section 47 shall be deemed to be the profits and gains chargeable to tax of the successor company for the previous year in which the requirements of the proviso to clause (xiii) or the proviso to clause (xiv), as the case may be, are not complied with). (4) Where any of the conditions laid down in the proviso to clause (xiiib) of section 47 are not complied with, the amount of profits or gains arising from the transfer of such capital asset or intangible asset or share or shares not charged under section 45 by virtue of conditions laid down in the said proviso shall be deemed to be the profits and gains chargeable to tax of the successor limited liability partnership or the shareholder of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re no specific time limit is prescribed for such compliance with the conditions in proviso (b) of Section 47(xiii) of the Act, a reasonable time period should be allowed to the Assessee to complete with the said process of allotment of shares by the successor-company to the erstwhile partners of the partnership firm, whose business has been succeeded to by the Company. He submitted that even the period of 3 to 4 years, as it has happened in the present case could constitute a reasonable period for such compliance with the conditions of clause (b) aforesaid and therefore, he prayed that the Assessee's appeal deserves to be allowed by answering the aforesaid substantial question of law, the levy of capital gains tax on the firm as well as the company deserves to be set-aside. 15. Per contra, the learned counsel for the Revenue Mr.K.V.Aravind submitted that the process of allotment of shares should be completed on or before the date of succession of the business of partnership firm by the limited company, as it would otherwise defeat the very purpose of providing the exemption from tax in the form of Clause(xiii) by taking out such transfers of capital assets from partnership f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e firm, whose business is succeeded by the Company. 18. It is not disputed before us that all the other conditions, five in number, in the said Proviso to Clause (xiii) of Section 47 except the issue raised with regard to the point of time for allotment of shares, stood satisfied in the present case, and not only all the 5 partners were allotted shares in the new company, which succeeded to the business of the partnership firm but their shareholding also never fell below 50% and the minimum holding period of 5 years was also maintained from the date of succession on 01.05.1999 and no other consideration except in the form of allotment of shares in the company was paid by the company to the erstwhile partners of the partnership firm. The condition of all the assets and liabilities of the firm upon succession becoming the assets and liabilities of the company was also satisfied. 19. Therefore, the only point raised before us is about the purported non-compliance with the condition stipulated in clause (b) of Clause (xiii) of Section 47 and effect thereof on the capital gains tax liability of the erstwhile firm or the successor-company. 20. We are of the opinion that the reas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egally delayed for 3 years for such other persons also, in a hypothetical case, even such other shareholders would have been deprived of such Dividends from the company, if the reasons assigned by the Company that Authorized Share Capital of the company was not suitably increased was to be taken as a valid excuse, for that purpose. 24. Therefore, we are satisfied that on a reasonable and harmonious construction of the relevant provisions of the Act quoted above, the Company in the present case was rightly held liable for the capital gains tax liability by virtue of Section 47(A)(3) of the Act read with Section 47(xiii)(b) of the Act. We are of the opinion therefore that the learned Tribunal was justified in holding that the Assessee-company was liable to pay such capital gains tax liability instead of the partnership firm and to that extent the Assessing Authority as well as the First Appellate Authority viz., CIT(A) fell in error in affixing such liability on the partnership firm. 25. The provisions of Section 47A(3) of the Act are very clear in this regard and if any of the conditions laid down in Clause (a) or clause (e) of Proviso to Clause (xiii) of Section 47, are not c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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