No transfer as per section 47(xiii) in case land acquired by assessee company from partnership-firm succeeded by it

ACIT Vs Neptune Industries Ltd. (ITAT Ahmedabad)

Conclusion: Where the existing company acquired all the assets and liabilities of the partnership firms in the manner as provided under section 47(xiii) then the same would not be considered as transfer and there was no requirement under the provisions of section 47(xiii) that the firms should be converted into the company.

Held: Assessee-company was engaged in the activity of Manufacturing of Machinery on a turn-key basis. There were two partnership firms which were succeeded by assessee company with effect from 20^th September 2007. Assessee-company claimed that there was no capital gain arising on account of the succession of the firms by the assessee by the provisions of section 47(xiii). AO alleged that the conditions as specified under section 47(xiii) had not been satisfied. Therefore the transfer of land to assessee by the partnership firms was chargeable to tax in its hands being the successor of the firms. It was held there was no requirement under the provisions of section 47(xiii) that the firms should be converted into the company. It was sufficient if the existing company acquired all the assets and liabilities of the partnership firms in the manner as provided under section 47(xiii) to claim the exemption from the capital gain. Similarly, even if valuation of the technical know-how and trademark was determined at nil value, then also there would not be any violation of holding the shares in proportion of capital in the firm as stood immediately before succession as specified under section 47(xiii). Also, there was no prohibition for the introduction of new partners in the partnership firms before the date of succession. As such, the introductions of the partners in the firm before the date of succession did not act as an estoppel on the operation of the exemption provided under section 47(xiii). Thus, there was no violation of the provisions of section 47(xiii) and accordingly there could not be any income on account of transfer of the impugned land to assessee.

FULL TEXT OF THE ITAT JUDGEMENT

The captioned appeal has been filed at the instance of the Revenue against the order of the Learned Commissioner of Income Tax (Appeals)-, Gandhinagar dated 23/08/2011( in short “Ld.CIT(A)”) arising in the matter of assessment order passed under s.143(3) of the Income Tax Act, 1961 (here-in-after referred to as “the Act”) dt. 28/12/2010 relevant to the Assessment Year 2008-2009.

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