Conversion of Partnership Firm to a Company

New Direct Tax Code 4577 views 3 replies

Elton Sukumar M

Certified Accounting Technician

734 Points Joined March 2007

As we are know there are two methods of converting a Partnership firm into Pvt Limited company.

1) One is formation of Private Limited Company, which inturn acquires the partnership firm

2) Conversion of Partnership Firm as per provisions of Part IX, of the companies Act.

My question are

1) whether capital gain tax exempt in both the above cases or only in case 2

2) Whether minimum number of partners need to be 7 for converting partnership firm into private limited company under provisions of Part IX, of companies Act.

Replies (3)

Suresh Prasad

www.aubsp.com

15630 Points Joined October 2009

No capital gains are accrued or arisen at the time of conversion of partnership into a private limited company under Part IX of the Companies Act, irrespective of subsequent change in the shareholding of such company [Umicore Finance Luxembourg (AAR No. 797 of 2009)].

In a landmark Judgement of the Bombay High Court, in, CIT v M/S Texspin Engg. & Mfg. Works (ITA no 222of 2001 dated 5-3-2003)(unreported) after considering the provisions of Companies Act, provisions of income tax relating to capital gains and relying on the ratio of Malbar Fisheries Company v CIT (1979) 120 ITR 49 (SC), CIT Vs. George Henderson & Co Ltd (1967) 66 ITR 622 (SC), CIT Vs. Gillanders Arbuthnot & Co (1973) 87 ITR 407 (SC), held that, when a firm register as company, as per the procedure prescribed under part IX of the companies Act no capital gain tax arise to the firm.

sudarshan

745 Points Joined May 2007

no need to form private limited co, existing co can also acquire.

sweta

36 Points Joined December 2011

Plase any one can clarify or give source where it is necessary for Conversion of Partnership Firm into PVt Co it has to be carry out as per provisions of Part IX, of the company act 1956.