Sr. No.

Case Name

Conclusion

 1.

[TS-385-ITAT-2014(Kol)-O]

ITAT holds capital gains on transfer of assets in the hands of a private company to assessee-LLP as taxable u/s 45 and not u/s 47A(4) [which provides for taxability in the hands of "successor LLP"]; Sec 47A(4) presupposes availability of tax exempt "transfer" benefit u/s 47(xiiib) and violation of proviso conditions thereafter; Interest free loan given to partners in the year of conversion of private company to LLP out of reserves & surplus violated proviso (f) to Sec. 47(xiiib), consequently tax exempt "transfer" on conversion to LLP u/s 47(xiiib) not available; As conditions of Sec. 47(xiiib) violated in the year of LLP conversion, no question of non-compliance of proviso conditions to attract Sec. 474(A), therefore, transaction taxable u/s 45; Restores computation of capital gains u/s 45 to AO's file taking value at which shares / assets of erstwhile private company were taken over by assessee-LLP as sale price.

 2.

[TS-35-ITAT-2010(Mum)-O]

UK based LLP (engaged in practice of law) taxable in India on account of service PE; Treaty benefit available to UK LLP (i.e. the partnership firm).

 3.

[TS-5013-HC- 2016(GUJARAT)-O]

Capital gain on conversion of firms to limited company - HC upholds ITAT ruling, holds that sale of business of firm as a going concern to limited company for consideration of 'share capital' does not amount to transfer liable to capital gains tax; Accepts assessee’s contention that even if there was a transfer, it was a slump sale and Sec 45 would not apply as the entire undertaking had been transferred as a going concern; Further accepts that there was no transfer of property in as much as immovable property cannot be transferred without registration, and in this case there is no registration of such transfer and that there was no transfer as on conversion of the firm to a company as the property vests in the same persons in proportion of their interest; Relies on Bombay HC ruling in Texspin Engineering and Manufacturing Works wherein HC had opined that “…On vesting of all the properties statutorily in the Company, the cloak given to the Firm is replaced by a different cloak and the same Firm is now treated as a Company, after a given date. In the circumstances, in our view, there is no transfer of a capital asset as contemplated by Section 45(1)” and “…even if we were to proceed on the basis that vesting in the company under Part IX constituted transfer under Section 45(1), still the assessee ought to succeed because the Firm can be assessed only if the full value of the consideration is received by the Firm or if it accrues to the Firm”.

 4.

[TS-3-HC-2003(BOM)-O]

HC upholds ITAT order that the provisions of Sec. 45(1)/(4) are not attracted even though there was transfer of assets from the firm to the newly constituted company on conversion of firm to company under Part IX of the Companies Act, 1956; Rejects Revenue stand that “on vesting of the properties of the erstwhile firm in the limited company, there was a transfer of capital assets and, therefore, it was chargeable to income- tax under the head "Capital gains" as, on such vesting, there was extinguishment of all rights, title and interests in the capital assets qua the firm.”; Holds that “even if we were to proceed on the basis that vesting in the company under Part-IX constituted transfer under s. 45(1), still the assessee ought to succeed because the firm can be assessed only if the full value of the consideration is received by the firm or if it accrues to the firm. In the present case, the company had allotted shares to the partners of the erstwhile firm, but that was in proportion to the capital of the partners in the erstwhile firm. That allotment of shares had no correlation with the vesting of the properties in the limited company under Part-IX of the Act.”

 5.

[TS-6139-HC-2014(ALLAHABAD)-O]

HC rules that no capital gains arises on conversion of a partnership firm into a company; The partnership firm having seven partners, became a joint stock company within the meaning of Sec. 566 of the Companies Act; All the partners became director in the new company; Holds that there was no transfer of assets of the firm to the company, it was only that the business was taken over by the company.

 6.

[TS-5670-HC-2015(MADRAS)-O]

Conversion of a partnership firm into a limited company, not liable to capital gains u/s 45(4) – HC holds in favour of the assessee, rules that “when a Partnership Firm is transformed into a Limited Company with no change in the number of partners and the extent of property, there is no transfer of assets involved and hence, there is no liability to pay tax on capital gains”; The firm has only revalued its assets which will not amount to transfer; Sec. 45(4) applicable only when the firm is dissolved; Rejects Revenue’s contention that expression “otherwise” occurring in Sec. 45(4) covers cases of capital gains even where there is no dissolution of the firm at all; Notes the twin conditions for Sec. 45(4) to apply – (i) transfer by way of distribution of capital assets, (ii) such transfer should be on dissolution or otherwise; Relies on Bombay HC decision in Texpin Engg and SC decision in Malabar Fisheries to rule that vesting of properties of a firm in a limited company under Part IX of the Companies Act is not covered by the expression "transfer by way of distribution" in Sec. 45(4); Explains that on vesting under Part IX, properties vest in the company as they exist unlike distribution on dissolution which presupposes division, realization, encashment of assets and appropriation of the realized amount; On the issue whether a ground (validity of reopening u/s. 148) not raised before the CIT(A) can be raised before the Tribunal, HC follows SC decision in NTPC and holds that the Tribunal is not confined only to issues arising out of the appeal before the CIT(A) and that, it has jurisdiction to examine a question of law, which arises from the facts, as found by the authorities below and having a bearing on assessee’s tax liability.

7.

[TS-797-ITAT-2012(Ahd)-O]

No capital gain on land revaluation during conversion of firm to a company - There was a major change in the share-holding pattern of the assessee-partnership firm and five new partners were inducted on March 16, 2007. AO initiated reassessment proceedings u/s 148 for AY 2007-08 on the ground that assessee had revalued (appreciated) assets consisting of land and building by Rs. 92.07 lakhs on March 30, 2007. The amount of revaluation was taxed as "capital gains" by the AO. AO opined that by revaluation of assets, investments made by the new partners had appreciated without paying any taxes. AO also noted that shares in the company had not been allotted in the same proportion as the capital accounts of the partners as they stood in the books of the firm on the date of succession. AO further noted that all the 8 partners’ current capital account had been taken over by the company as loan and accordingly were reflected in the balance sheet. AO thus held that assessee had not fulfilled provisions of Sec. 47(xiii) and it was thus disentitled for exemption. AO thus invoked Sec. 45(iv). ITAT affirmed CIT (A)’s view that in the process of conversion from firm to company no "transfer" was involved and thus revaluation of assets did not attract provisions of Sec. 45(iv).   ITAT held that amount on revaluation of asset (appreciation) on succession of firm to company is not liable to be taxed as capital gains. Reliance was placed on coordinate bench rulings in Well Pack Packaging, Gulabdas Printers and Bangalore ITAT ruling in Unity Care & Health Services. ITAT also rejected Revenue's reliance on Mumbai ITAT ruling in Om NamahShivay Builders & Developers and Delhi ITAT ruling in Goel Udog.

8.

[TS-5814-ITAT-2010(Chennai)-O]

Assessment u/s. 189 in the status of ‘firm’ after its conversion into a company is void, liable to be quashed - ITAT holds in favour of assessee, holds that assessment was done on a non-existent assessee, despite noting by the AO that the name and the status of the assessee had changed; Rejects Revenue’s contention that as per Sec. 189, assessment could be made on a firm even where business of the firm had discontinued or where a firm was dissolved; Notes that the firm in the present case was converted into a limited company under Part IX of Companies Act, 1956 and was not dissolved; Relies on Bombay HC in Texpin Engg. & Mfg. Works wherein it was held conversion of a firm to a company under Part IX was not to be treated as a dissolution;   Notes that the AO, despite having noted the conversion of the firm into a limited company, made a fatal error in doing an assessment in the status of “firm”; ITAT notes that “The entities before and after conversion are not different but nevertheless the entities do not exist simultaneously. The firm comes to an end and the company takes over it.”; Relies on decision of SC in Sakthi Trading Co. wherein it was held that even a dissolution would not always result in discontinuation of business; Further relies on Bombay HC in Texpin Engg. & Mfg. Works wherein it was held that an assessment on a non-existent firm was not valid. 

9.

[TS-6743-ITAT-2012(Chennai)-O]

Exemption of capital gains u/s. 47(xiii) cannot be withdrawn as per Sec. 47A(3) when all the relevant conditions u/s. 47(xiii) are complied with - ITAT holds in favour of assessee; States that there is no question of computing capital gains in this case as the conversion of the erstwhile firm into a private limited company is not to be treated as transfer as per Sec. 47(xiii); Notes that the assessee had fulfilled all the conditions u/s. 47(xiii) and hence, the conversion did not amount to transfer; Discards Revenue’s reliance on Sec. 47A(3) to withdraw the exemption of capital gains; Holds that Sec. 47A(3) provides that exemption shall be denied only if the relevant conditions u/s. 47(xiii) are not complied with by the assessee.