Case Law Details
ACIT Vs Celerity Power LLP (ITAT Mumbai)
Conclusion:
Assessee LLP had failed to satisfy clause (e) of the proviso of Sec. 47(xiiib), therefore, the ‘transfer‘of the capital assets on the conversion of the private limited company into a LLP was to be regarded as a ‘transfer‘within the meaning of Sec. 45 and also, there was no occasion for invoking the provisions of Sec. 47A(4). And “Capital gains”, if any, involved in the transfer of the capital assets on conversion would liable to be assessed in the hands of the assessee LLP (as a successor entity) under Sec. 170(2). However, as the difference between the transfer value and the cost of acquisition was Nil, therefore, while computing the capital gains the machinery provision was rendered as unworkable. Therefore, no capital gains was to be assessed. Further, ‘carry forward‘of losses of the erstwhile company by the assessee LLP was not allowable however, deduction under section Sec. 80-IA was rightly allowed.
Held:
AO noticed that assessee had acquired the status of a LLP from a private limited company with effect from 28.09.2010 and the entire business, assets and liabilities of the company were transferred to assessee-LLP. Assessee contended that the conversion of company into LLP did not involve any ‘transfer‘ of the property, assets, liabilities etc. and the capital gains, if any, could only be brought to tax in the hands of the erstwhile company. Rather, A.O opined that as per the provisions of Sec. 47A(4), the benefit availed by company was to be deemed as the profits and gains of the successor LLP and on estimation basis, he added a certain amount to the total income of assessee as ‘capital gains‘ under Sec. 47A(4). Further, assessee’s claim regarding ‘carry forward‘ of depreciation loss of the erstwhile company was also rejected. Assessee’s claim of deduction under Sec. 80-IA did not find favour with the A.O as assessee had failed to file the ‘Audit Report‘ in ‘Form 10CCB‘ alongwith its return of income, thus the conditions contemplated under Sec. 80IA were not satisfied. It was held from a plain literal interpretation of the statutory provision of section 47A(4), it can safely be gathered that the same comes into play only for the purpose of withdrawing an exemption earlier availed by an assessee under Sec. 47(xiiib), and deeming the same as the profits and gains of the successor LLP or the shareholder of the predecessor company, as the case may be, for the previous year in which the requirements of the said proviso are not complied with. The lower authorities had erred in invoking Sec. 47A(4) for judging the eligibility of the assessee LLP towards exemption under Sec. 47(xiiib) as the failure on the part of assessee to have satisfied Clause (e) of the proviso of Sec. 47(xiiib), would in itself suffice for dislodging the claim of the assessee LLP that the ‘transfer‘ of the capital assets on the conversion of the private limited company into a LLP was not to be regarded as a ‘transfer‘ within the meaning of Sec. 45. Therefore, there was no occasion for invoking the provisions of Sec. 47A(4). Though the “Capital gains”, if any, involved in the transfer of the capital assets on conversion of the private limited company to the assessee LLP, de hors applicability of Sec. 47A(4) to the facts of the case, would not be liable to be assessed in the hands of the assessee LLP as per Sec. 45 r.w Sec. 5, however, the same would be subject to the liability of the assessee LLP (as a successor entity) under Sec. 170(2). As the assets and liabilities of the erstwhile private limited company had got vested in the assessee LLP at their ‘book values‘, hence such ‘book value‘ could only be regarded as the “full value of consideration” for the purpose of computation of ‘capital gains‘ under Sec. 48. Tribunal observed that though there was a transfer of capital assets from the erstwhile private limited company to the assessee LLP by virtue of the provisions of Sec. 47(xiiib), however, as the difference between the transfer value and the cost of acquisition was Nil, therefore, while computing the capital gains the machinery provision was rendered as unworkable. Since assessee had failed to satisfy the conditions laid down in the proviso to clause (xiiib) of section 47, therefore, it was rightly declined the ‘carry forward‘ of the losses of the erstwhile company by the assessee LLP. Tribunal held that CIT(A) has rightly admitted the ‘audit report‘ filed by assessee in ‘Form 10CCB‘ during the course of the appellate proceedings as filing of audit report was procedural in nature and therefore, the claim of deduction raised by assessee under Sec. 80-IA was rightly allowed.
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