Case Law Details
ITO Vs Jatin Kanubhai Kotadia (ITAT Ahmedabad)
ITAT Ahmedabad held that Sale/ conversion of business of assessee-firm as a going concern to company for consideration of paid up share capital does not amount to transfer liable to tax as capital gains.
Facts- Yougstar Infrastructure is a Partnership Firm constituted on 7.11.2006 with five partners, including the two respondents herein. The business of the Partnership Firm was of dealing in land, development thereof, carrying out commercial and residential construction work and to carry out other related activities. One of the Partners brought into the partnership two pieces of land as his capital. Thus capital account in the books of the firm was credited by an amount of Rs.2,11,41,990/-. The profit sharing ratio was 50% to the Partner who brought in the land as Capital contribution and the remaining four Partners profit sharing ratio was 12.5% each.
This Partnership was re-constituted by a deed dated 01-05-2008 by admitting three more Partners with effect from 01-05-2008. The profit sharing ratio was 20% each to the Partner who brought in the land originally and three newly admitted Partners. Remaining four original Partners profit sharing ratio was 5% each. The land of the Partnership Firm was got revalued on 10.08.2008 by an Approved Registered Valuer and the value of the land was arrived at Rs.7,80,02,176/-.
Subsequently, the Partnership firm was converted into Private Limited Company on 23.09.2008. All the Partners of the erstwhile Partnership firm were allotted shares of the company in proportion to the Fixed Capital held by them in the erstwhile firm. The current capital, attributable to the share received on account of revaluation of land, was converted into unsecured loans in respective names of the shareholders of the Company.
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