Capital Gains on merger of firms

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Punit Parekh (Querist)
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16 January 2011 Will the capital gains be attracted if two partnership firms get merged into an existing pvt. ltd. co.?
"Because sec 47 refers that the firm is succeeded by the company."
if the assets are transfered as the prescribed way in the act to an EXISTING co.
can that be still regarded as succession????

CA PARAS BAFNA

CA PARAS BAFNA (Expert)
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16 January 2011 It will definitely be regarded as a succession but under Section 47(xiii) it could be treated as transfer as the condition prescribed in sub-clause (d) of 47(xiii), as regard to holding of more than 50 percent voting power, can not be met by both the firms.

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CA PARAS BAFNA

CA PARAS BAFNA (Expert)
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16 January 2011 U/s 47(xiii) conversion provisions are prescribed.
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The assets & liabilities of both the firms can be taken over by the company and the firms' business(es) can be carried out by the firm.
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Partners Capital A/c Balances will decide the proportionate share holding pattern.
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But the condition of Section 47(xiii)(d) so as to hold more than 50% of the total voting power can not be satisfied individually by the two firms and as such the requirement can not be fulfilled.
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Hence in my view it is not possible as per the plain reading of the law.

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CA LOKESH KASAT, FCA, M.Com

CA LOKESH KASAT, FCA, M.Com (Expert)
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16 January 2011 Will be treated as Transfer

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Punit Parekh

Punit Parekh (Querist)
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16 January 2011 Thank you very much sir for solving the query.
but is it not possible that one 50% be given to the first firm and the other to the second as the parties associated are the same members???

CA PARAS BAFNA

CA PARAS BAFNA (Expert)
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16 January 2011 This is a question of very ideal situation
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It's possible only when the Capital in both the firms on the date of conversion is exactly equal.
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Not less than 50% means 50% or more.
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Then it is possible.

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