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2011 (11) TMI 488 - AT - Income TaxTransfer of capital assets exempt u/s 47 - conversion of sole proprietorship into company - denial of exemption u/s 47(xiv) as on the date of succession and till the end of the relevant accounting year the shareholding of the sole proprietor was not more than 50% in the company - Held that - It is not in dispute that all conditions of clause a, b, c, of Section 47(xiv) are satisfied. Merely because there is some delay in the allotment of shares against the share application money, it cannot be said that there is a violation of clause (b) of Section 47(xiv). It is abundantly clear that the ownership of the assets has not been transferred to any other person but it remained with the company in which approximately 99% shares are held by the erstwhile sole proprietor - Decided in favor of assessee.
Issues:
Claim of exemption under Section 47(xiv) for long-term capital gain. Analysis: The appeal by the revenue challenged the deletion of an addition made by the Assessing Officer under 'Long Term Capital Gain' for the claim of exemption u/s 47(xiv). The Assessing Officer found that the conditions for claiming exemption were not met as the shareholding of the sole proprietor did not exceed 50% until after the relevant accounting year. The revenue argued that there was a clear violation of clause (b) of Section 47(xiv) and that the exemption should be denied. On the other hand, the appellant contended that all conditions were met, and any delay in share allotment should not disqualify the claim. The appellant emphasized that the assets were not transferred to any other person, and the sole proprietor continued to hold the majority of shares in the company. The Tribunal carefully analyzed the situation and found that all assets and liabilities of the sole proprietary concern were transferred to the company, satisfying the conditions of clause (a). It was also noted that the sole proprietor did not receive any consideration other than shares in the company, meeting the requirement of clause (c). Regarding clause (b), which mandates the sole proprietor's shareholding to be at least 50% for five years, the Tribunal observed that the delay in share allotment should not invalidate the claim. Despite the delay, the sole proprietor held nearly 99% of the shares, exceeding the requirement. The Tribunal emphasized that the legislative intent behind these conditions is to prevent asset transfers to individuals other than the sole proprietor to avoid capital gains tax. In this case, as the ownership of assets remained with the company where the sole proprietor held a significant majority of shares, the Tribunal upheld the CIT(A)'s decision to allow the exemption u/s 47(xiv) and dismissed the revenue's appeal.
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