TMI Blog2019 (6) TMI 1376X X X X Extracts X X X X X X X X Extracts X X X X ..... he second substantial questions of law raised are answered in favour of the revenue and against the assessee. As department contend that, applicability of Section 47A(3) would arise only at a stage subsequent to the assessment of tax, when it is later discovered that there was violation of the provisions contained in the proviso to Section 47(xiii) we are not impressed with this contention. It is true that exemption already granted can be withdrawn by virtue of the provision contained in Section 47A(3) of the Act on discovery of violations of the conditions provided in the proviso to Section 47(xiii). But, if the assessing authority finds at the time of assessment, that there is violation of the provisions contained in the proviso to Section 47 (xiii), then transfer of capital assets made in that manner, comes within the ambit of Section 45 and assessment has to be done accordingly. In making such assessment, the authority concerned is obliged to take note of the provisions contained in Section 47A(3) and then the liability to pay tax has to be imposed not on the erstwhile firm but on the successor company. We find that the assessee firm is not liable to be assessed for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ') and if so, whether the transaction amounts to transfer of a capital asset within the purview of Section 45 of the Act? ii) Whether, on the facts and circumstances of the case, revaluation of a capital asset of the assessee firm before its conversion as a company and crediting the enhanced value of the asset to the current account of the partners, thereby creating a liability on the firm and transferring such liability to the company amounts to violation of clause (a) of the proviso to Section 47(xiii) of the Act and if so, whether the transaction amounts to transfer of a capital asset within the purview of Section 45 of the Act? iii) Whether the enhanced value of the capital asset credited to the current account of the partners of the firm, if treated as capital gains, can be brought to tax payable by the erstwhile firm? 4. We have heard learned counsel for the appellant and the learned Standing Counsel, Government of India (Taxes) and also perused the records. 5. The assessee firm was in existence till the date 20.04.2004. The firm was converted as a private limited company on 21.04.2004. Before such conversion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the partners of the firm is not less than fifty per cent of the total voting power in the company and their shareholding continues to be as such for a period of five years from the date of the succession; ( e) the demutualisation or corporatisation of a recognised stock exchange in India is carried out in accordance with a scheme for demutualisation or corporatisation which is approved by the Securities and Exchange Board of India established under section 3 of the Securities and Exchange Board of India Act, 1992 (15 of 1992); 8. Inviting our attention to Section 47(xiii) of the Act, learned counsel for the appellant has contended that there was no transfer of capital asset effected by revaluation of the asset of the firm before its conversion as a company and by crediting the enhanced value of the land in the current account of the partners and by showing it as a loan from the partners in the accounts of the company. 9. We are unable to accept the aforesaid contention. The contribution towards a fixed asset would stand enhanced in case of its revaluation. No doubt, revaluation of the land before the conversion o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation of clause (a) of the proviso to Section 47(xiii) of the Act, as found by the Tribunal. We find no merit in this contention. What is mentioned under clause (a) of the proviso to Section 47(xiii) of the Act is that all the assets and liabilities of the firm immediately before the conversion of the firm as a company shall become the assets and liabilities of the company. Crediting the enhanced value of the land, just before the conversion of the firm into a company, to the current account of the partners of the firm thereby creating a liability on the firm and showing it as liability of the company, on conversion of the firm as a company, was only a device adopted by the partners of the firm for evasion of tax. There was no such liability actually in existence immediately before the conversion of the firm into the company. Such a liability on the firm was created only by crediting the enhanced value of the land to the current account of the partners instead of the capital account of the firm. By adopting such a method, there was violation of the condition provided under clause (a) of the proviso to Section 47(xiii) of the Act because a new liability was created on the firm which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tention. 16. Section 47(A)(3) of the Act provides that where any of the conditions laid down in the proviso to clause (xiii) of Section 47 of the Act 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 the conditions laid down in the proviso to clause (xiii) of Section 47 shall be deemed to be profits and gains chargeable to tax of the successor company for the previous year in which such requirements are not complied with. It is evident from this provision that on violation of the conditions provided in the proviso to clause (xiii) of Section 47 of the Act, when the transfer of the capital asset is brought within the ambit of Section 45 of the Act, the liability to pay tax on the profits and gains of such transfer of capital asset, falls not on the erstwhile firm but on the successor company. 17. Learned Standing Counsel for the department would contend that, applicability of Section 47A(3) of the Act would arise only at a stage subsequent to the assessment of tax, when it is later discovered that there was violation of the provisions cont ..... X X X X Extracts X X X X X X X X Extracts X X X X
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