Income-tax Act Benefit u/s. 47(xiv) of the cannot be denied in case there is a delay in allotment of shares to the proprietor on conversion of a proprietary concern into a company

IT0 Vs. Shri Sanjay Singh (ITAT Delhi)-As entire consideration was shown as share application money and shares were issued against the same and same was continued to be held by the taxpayer for more than 5 years, the condition prescribed in clause (b) of Section 47(xiv) of the Act is also satisfied. Merely because there is a delay in the allotment of shares against the share application money, it cannot be said that there is a violation of clause (b) of Section 47(xiv) of the Act.

The intention of the legislature in providing the conditions is to ensure that in the garb of conversion or succession of a proprietorship into a company, assets are not transferred to persons other than the sole proprietor and facts of the case it is abundantly clear that the assets are not transferred to other persons. Thus, order of the CIT(A) is sustained and revenue’s appeal is dismissed.

INCOME TAX APPELLATE TRIBUNAL DELHI

ITA NO. 202 1/DEL/2008 ASST. YEAR: 2001-02

Income Tax Officer        

Vs

Shri Sanjay Singh

O R D E R

PER G.D. AGRAWAL, V.P.

In this appeal by the revenue, as many as four grounds are raised. However, they are all against the deletion of the addition of Rs. 55,42,877 made by the Assessing Officer under the head ‘Long Term Capital Gain’. At the time of hearing before us, it is stated by the ld. DR that during the accounting year relevant to assessment year under consideration, the assessee converted his proprietorship business into company and claimed exemption u/s 47(xiv) in respect of transfer of capital assets. The Assessing Officer found that the assessee has not satisfied the conditions for claiming exemption u/s 47(xiv). He pointed out that as per clause (b) of Section 47(xiv), the shareholding of the sole proprietor in the company should not be less than 50% of the total voting power in the company and his shareholding continues to remain as such for a period of five years from the date of succession. He submitted that the Assessing Officer has pointed out that on the date of succession i.e. 6.9.2000 and till the end of the relevant accounting year i.e. 3 1^st March 2001, the shareholding of the sole proprietor was not more than 50% in the company. In fact, the shares were allotted to the sole proprietor on 7.3.2002, thereafter his shareholding exceeded 50%. Thus, there was clear violation of clause (b) of Section 47(xiv). Therefore, the AO rightly denied exemption to the assessee and the CIT(A), without properly appreciating the facts of the case and legal position, accepted the assessee’ s claim. He submitted that the order of the CIT(A) should be reversed and that of the AO may be restored.