Sec 47(xiv)

Originally posted by :sonia
"	I want to know when a sole proprietary concern sells its business to a existing public Ltd Company, Is it possible for a sole proprietorto avail the benefit of sec 47(xiv) of income tax act (transaction not regarded as transfer) or this benefit is availed only when a sole proprietary concern is converted into a public ltd. company. I am very confused as reverse opinion is given in vinod singhania book and bare income tax act. Please provide me clarification as early as possible	"

 

You go by the provision of the Act. To my knowledge, the sole proprietory business should be taken over by forming a new company, satisfying all the conditions of sec. 47 (xiv) of Income Tax Act, 1961.

As per the provisions of section 47(xiv) of the Act, if any 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 proprietorship concern relating to the business immediately before the succession becomes the assets and liabilities of the company; (b) the shareholding of the sole proprietor in the company is not less than 50% of the total voting power in the company and his shareholding continues to be remain as such for a period of 5 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. So, the interpretation from the above provisions comes out that the company should be formed before the succession, as it is talking about succession not conversion. I hope this will help.