To avoid Capital gain - When a firm is succeeded by the company the following conditions has to be satisfied.
1. all the assets and liabilities of the firm relating to the business immediately before the succession shall become the assets and liabilities of the company.
2. 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 form on the date of succession.
3. 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.
4. the aggregate of the share holding in the company of the partners of the firm is not less than 50 percent of the total voting power in the company and their shareholding continues to be as such for a period of 5 years from the date of succession ( section 47(xiii).)
We need a clarification, whether the aggregate of the share holding in the company of the partners of the firm is not less than 50 percent of the total voting power in the company and their shareholding continues to be as such for a period of 5 years from the date of succession means all the partners of the firm should continue the same share holding ratio for the period of 5 years or aggregate shareholding ratio of all the partners of firm should be as such for a period of 5 years.
(i.e) At the time of take over shares allotted to partners of the firm
X – 10000 shares
Y – 18000 shares
If Mr. Y transfer all its shares to Mr. X by way of gift deed will it affect the capital gain exemption.
I want to know that the aggregate shareholding of the partners should continue for a period of 5 years or shareholding ratio of each partners should continue for a period of 5 years.
Please clarify.
CAclubindia
