Case Law Details
Conversion To LLP – Capital gains to be computed on book value of assets transferred and not on market value
A perusal of the provisions of section 45 of the Income Tax Act shows the levy of capital gains to be on the profits or gains arising from the transfer of capital asset effected in the previous year. Admittedly, the erstwhile Company Aravali Polymers Pvt. Ltd. converted into a partnership firm Aravali Polymers LLP, a Limited Liability Partnership firm. This took place on 12.08.2010 being the assessment year under appeal. This conversion of the Pvt. Limited Company into a Limited Liability Partnership does not have the protection of section 47(xiiib) in the assessee’s case. Consequently the capital gain on the same is liable to be considered. In the computation of capital gains, nowhere in the Act is there provision, more so in section 45, for deeming the sale price in the case of equity shares. The value at which the shares or the assets of the Company Aravali Polymers Pvt. Ltd. was taken over by the Limited Liability Partnership firm, would be the sale price and the cost of acquisition thereof is to be as per books of the erstwhile Company. In these circumstances, the issue of computation of the capital gains under section 45 is restored to the file of the Assessing Officer, who shall take the sale consideration as on 12.10.2010 at the figure, at which the assets of the erstwhile firm has been acquired or taken over by the appellant Aravali Polymers LLP.
INCOME TAX APPELLATE TRIBUNAL,
KOLKATA ‘C’ BENCH, KOLKATA
Before Shri Shamim Yahya (Accountant Member),
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At the first blush, subject to an independent study in-depth, the point of controversy as settled by the first appellate authority is noted to essentially bring to the fore one important thing: The extant applicable provisions gone into by the itat are not so clear as to lend scope for a straightforward reading and intelligible interpretation of the law. As such, the matter,it is anybody’s guess as to what view would be finally taken, if, as is likely,pursued in further proceedings. No need to add that,now it is in the representing counsels’ court to put up all possible pleas only after making an incisive study, in order to ensure that the final opinion eventually handed out, by any yardstick, comes to prove a logically right or better view,in its profound sense.
Meanwhile, it is worthwhile for the law and finance ministries to probe into and decide how best the extant provisions could be modified so as to bring about clarity; as that should save from a protracted litigation and be for the common good.