Capital gain sec 47

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Priyank (Querist)
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31 October 2011 Dear All,

Please help me to understand practicability of this section.

Where a sole proprietary concern is succeeded by a company in the business carried on by it as a result of which the sole proprietary concern sells or otherwise transfers any capital asset or intangible asset to the company :

Provided that - (a) All the assets and liabilities of the sole proprietary concern relating to the business immediately before the succession become the assets and liabilities of the company;

(b) The shareholding of the sole proprietor in the company is not less than fifty per cent of the total voting power in the company and his shareholding continues to so remain as such for a period of five years from the date of the succession; and

(c) The sole proprietor does not receive any consideration or benefit, directly or indirectly, in any form or manner, other than by way of allotment of shares in the company;

How can we apply this section in our practical life? What process we have ro follow for this conversion or is there any specific requiremnt for applicability of this section?

Thanks in advance.

Regards,
Priyank Jain

CA PARAS BAFNA

CA PARAS BAFNA (Expert)
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07 November 2011 The provisions can be followed in the manner
you have elaborated.

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These can be followed under the guidance of Experts or Consultants.

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You have to Form a company, by nominating the Proprietor and one other Person as Directors of the Company.
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Prepare Balance Sheet of Prop. concern as at the date of conversion.
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If Prop. feels that he should get revalued his assets, he can do so carefully.

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He will be allotted shares in the newly form Co. in accordance to the Net Worth of his Prop Concern.
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Other Provisions have also to be followed in the manner prescribed here in above.

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Non-Compliance of any of the provisions may result into the Capital gains Tax Liability.

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Priyank

Priyank (Querist)
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08 November 2011 Sir,

Thanks a lot for your guidence.

As I am looking this section that section 49 (1) is not applicable for this point.

And if, as a propriter I revalued my capital assets and after this revaluation alloted shares of company to directors of this company after this if I sale the assets, it means due to non applicability of section 49 (1) my cap gain will reduced till amount of revaluation only.

Assets pur. Rs. 100,000/-
Reval Rs. 1,000,000/-
Sale after conversion in to company by Rs. Rs. 1,100,000/-

Cap gain will be Rs. 100,000/-.

Please correct if I am wrong or guide me further.

For your valuable comments.

Regards,
CA. Priyank Jain

CA PARAS BAFNA

CA PARAS BAFNA (Expert)
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08 November 2011 In case you have carefully looked the concerned provisions, you might have noted that there is no restriction on the company
in transferring the assets acquired from a sole prop. concern.
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Restriction is on the Prop., who has to maintain shareholding for a period of 5 years.
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Section 49(1) really does not apply in this case and your observation is not incorrect.

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