Case Law Details
CADD Centre Vs ACIT (Madras High Court)
Conclusion: When partnership firm was transformed into private limited company, there was no distribution of assets and as such, there was no transfer and therefore, assessee was not liable to pay any tax on capital gains.
Held: During the year, partners of assesse-firm felt the necessity of having a corporate identity and therefore, decided to incorporate a Private Limited Company and vest the business of the Firm along with the assets in the newly formed Private Limited Company, M/s.CADD Centre India Pvt. Ltd. AO came to the conclusion that the transfer of business assets of the assesse firm to the Private Limited Company would constitute distribution of assets and would attract capital gains as contemplated under Section 45(4) of the Income Tax Act and that assessee was liable to pay tax on “capital gains”. It was held that there was no transfer of asset as (a) no consideration was received or accrued on transfer of assets from the firm to the company; (b) the firm had only revalued its assets which would not amount to transfer;(c) the provision of Section 45(4) of the Act was applicable only when the firm was dissolved. In the instant case, there was no distribution of asset, but only taking over of the assets from the firm to the Company. Therefore, it was clear that the vesting of the property in the Private Limited Company was not consequent or incidental to a transfer. There was no transfer of a capital assets as contemplated by Section 45 (1) of the Income Tax Act.
FULL TEXT OF THE HIGH COURT ORDER /JUDGEMENT
When a Firm is succeeded by a Company, with no change either in the number of members or in the value of assets, with no dissolution of the Firm and no distribution of Assets, with change in legal status alone, whether there is a “transfer” as contemplated under Section 2(47) and Section 45(4) of the Income Tax Act and whether the Assessee is liable to be taxed, are the issues canvassed in this case.
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