Prior period profits

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A proprietorship concern is converted into a private limited company on 30th September 2011

Profit earned during the period 01-04-2011 to 30-09-2011 by proprietor is taken over by the new company

Can the profit be taxed under the new company or should it be taxed in the hands of the individual.

Replies (4)

the profits shud be considered as Pre-incorporation profits & shud be transferred to Capital Reserve.  These are capital profits hence not liable for taxation.

Not an easy query to answer.  How does the company take over the profits of the proprietory concern?  It is normally the business which is taken over and if any asset is sold or transferred to the company by the individual, then no capital gain arises by virtue of the exemption in Section 47(xiv).  Otherwise, the proprietor will have to pay the tax for the profits earned.   I doubt whether the taxman will agree to forgo tax on this profit as neither the individual pays tax on this profit nor does the company since it is pre incorporation profits.

Agreed with Member.

Good observation with Learned Member above. 

In the event of conversion, all the assets and liabilities are subsequently transferred to the company.


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