tax on conversion of partnership firm into company

Hi,

if the question is from angle of capital gain computation, pl. first study the Section 47 (xiii) transactions not regarded as transfers which is reproduced below -

Section 47 [(xiii) ⁷⁰[any transfer of a capital asset or intangible asset by a firm to a company as a result of succession of the firm by a company in the business carried on by the firm, or any transfer of a capital asset to a company in the course of ⁷¹[demutualisation or] corporatisation of a recognised stock exchange in India as a result of which an association of persons or body of individuals is succeeded by such company :]

Provided that

(a) all the assets and liabilities of the firm ⁷²[or of the association of persons or body of individuals] relating to the business immediately before the succession become the assets and liabilities of the company;

(b) all the partners of the firm immediately before the succession become the shareholders of the company in the same proportion in which their capital accounts stood in the books of the firm on the date of the succession;

(c) the partners of the firm do 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; and

(d) the aggregate of the shareholding in the company of the partners of the firm is not less than fifty per cent of the total voting power in the company and their shareholding continues to be as such for a period of five years from the date of the succession;

⁷³[(e) the ⁷⁴[demutualisation or] corporatisation of a recognised stock exchange in India is carried out in accordance with a scheme for ⁷⁴[demutualisation or] corporatisation which is approved by the Securities and Exchange Board of India established under section 3 of the Securities and Exchange Board of India Act, 1992 (15 of 1992);]

So, in case all the above conditions are fulffiled, there will be no capital gain in transfer of assets.

The first four conditions should be fulfilled in totality. If any of the conditions not fulfilled then computation of tax as per Section 45(4)

In such case Captial gains would be Net Consideration less Networth of the firm takenover..

thanks for the reply..

What is Cost of acquisition to the company if it sells the asset?
Cost of p'firm or market value at the date of conversion.

Originally posted by : chintz
	thanks for the reply.. What is Cost of acquisition to the company if it sells the asset? Cost of p'firm or market value at the date of conversion.

COA--------> Cost for which the previous owner acquired it.

agree with pranjal sir and all other members

Originally posted by : CA Pranjal Joshi
	Section 47 [(xiii) [any transfer of a capital asset or intangible asset by a firm to a company as a result of succession of the firm by a company in the business carried on by the firm,

 Dear Pranjal

Would you be able to clarify whether Section 47(xiii) is applicable only to those cases where a partnership is converted into a company under Part IX of the Companies Act or the benefit of this section is also available to those companies as well where the company is specifically incorporated to acquire the business of a partnership. The acquisition of business in the latter case happens by way of business transfer agreement.

Dear Sir,

Though ur question is directed to Pranjal Sir but I have not seen him from many days...may be he is busy with work and other commitments....

As far as ur question goes, I would say Sec 47(xiii) shall apply as long as those comditions are being satisfied.

I mean this company can be a new company or an existing one.

The benefit shall still be available even if "to takeover the partnership" was not the reason for the incorporation of the company provided 4 conditions as required by the proviso are satisfied.