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TMI Blog2018 (12) TMI 190X X X X Extracts X X X X X X X X Extracts X X X X ..... ms preconditioned by a statutory requirement that the assessee should have complied with the conditions of the proviso to clause (xiiib) of section 47. In the backdrop of our aforesaid observations, we are of the considered view that as the claim of the assessee LLP as regards 'carry forward' of the loss of the erstwhile private limited company, de hors satisfaction of the conditions laid down in the proviso to clause (xiiib) of section 47, clearly militates against the aforesaid statutory provision, thus, the same cannot be accepted. Our aforesaid view is further fortified from a perusal of the 'Memorandum' explaining the Finance Act, 2010. We thus in terms of our aforesaid observations find no infirmity in the order of the CIT(A), who in our considered view, after taking cognizance of the fact that the assessee had failed to satisfy the conditions laid down in the proviso to clause (xiiib) of section 47 had rightly declined the 'carry forward' of the losses of the erstwhile company by the assessee LLP. The order of the CIT(A) to the said extent is upheld. The Cross-Objection No. IV of the assessee is dismissed. Entitlement to claim of deduction under Sec. 80-IA - non-filin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... passed by the Assessing Officer (for short 'A.O') under Sec. 143(3) of the Income-tax Act, 1961 (for short 'Act' ), dated 19.03.2014 for Assessment Year 2010-11. Further, the assessee is also before us as a cross-objector. The revenue has raised before us the following grounds of appeal: 1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in holding that consideration received on transfer of asset took place is same as that of value of asset in the books of M/s Celerity Power Co. Pvt. Ltd. 2. On the facts and in the circumstances of the case and in law. the Ld. CIT(A) has erred in not confirming the value of consideration received as computed by the A.O for the purpose of Capital Gain u/s 47A(4) of the Income Tax Act, 1961. 3. On the facts and in the circumstances of the case and in law the Ld. CIT(A) has erred in allowing the assessee's claim of deduction u/s 80-IA of the I.T. Act. 1961 without appreciating that the assessee has failed to furnish form 1OCCB during the course of assessment proceedings, despite being required to furnish the same by the A.O. 4. The appellant prays that the order of the Ld. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vate limited company against the profits of the Cross objector. 2. Briefly stated, the assessee which is a Limited Liability Partnership (for short 'LLP') engaged in the business of power generation had e-filed its 'return of income' for A.Y 2010-11 on 30.09.2011, declaring income of ₹ 5,41,90,840/-. Thereafter, the assessee on the same date e-filed a revised 'return of income'. In its revised 'return of income' the assessee after claiming the 'set off' of brought forward loss of ₹ 5,79,93,084/-, had shown its returned income at Rs. Nil. Subsequently, the case of the assessee was selected for scrutiny assessment under Sec. 143(2) of the Act. 3. During the course of the assessment proceedings, it was observed by the A.O that the assessee had acquired the status as that of a LLP with effect from 28.09.2010, and resultantly its financial year under consideration was spread over the period 28.09.2010 to 31.03.2011. It was observed by the A.O that prior to 28.09.2010 the assessee undertaking was being run by a private limited company viz. M/s Celerity Power Pvt. Ltd. The A.O noticed that for the earlier period i.e 01.04.2010 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Limited Liability Partnership Act, 2008 provided that 'upon conversion', all tangible and intangible properties of the company shall be transferred to and shall vest in the LLP. Further, it was observed by the CIT(A) that the assessee did not fulfil the mandate of clause (e) of the proviso to Sec. 47(xiiib), as per which the total sales, turnover or gross receipts of the business of the erstwhile company in any of the three previous years preceding the previous year in which the conversion took place was not to exceed ₹ 60 lac. It was observed by the A.O that the turnover of the erstwhile company in the F.Y 2009-10 was ₹ 8,87,08,620/-. The CIT(A) observed that as the assessee had failed to satisfy clause (e) of the proviso to Sec. 47(xiiib), thus, it was caught under the mischief of Sec. 47(xiiib) r.w.s 47A(4). However, the CIT(A) was in agreement with the claim of the assessee, that as there was absence of any consideration involved in the transaction of conversion of the private limited company into a LLP, therefore, the machinery for computation of 'capital gain' contemplated in Sec. 48 was rendered as unworkable. Still further, the CIT(A) was al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the claim of the assessee as regards the same. The CIT(A) after necessary deliberations admitted as 'additional evidence' the 'Audit Report' that was filed by the assessee in 'Form 10CCB' in respect of its claim of deduction under Sec. 80-IA. Further, the CIT(A) being of the view that the benefit of deduction under Sec. 80-IA was attached to the 'undertaking' and not to its 'owner assessee', thus observed that as long as the identity of the undertaking remained as such, the claim of deduction under the said statutory provision would be available for the residual term to the new owner i.e the successor entity. The CIT(A) while concluding as hereinabove took support of the CBDT letter F.No. 15/5/63 (A-1) which was issued in context of Sec. 84, and corresponded to the then Sec. 80J and the present Sec. 80IA. Further, it was also observed by the CIT(A) that the embargo made available on the statute by sub-section (12A) of Sec. 80IA, which w.e.f 01.04.2007 restricted the entitlement of the successor company towards claim of deduction under the said statutory provision, was applicable only in the case of an amalgamated/demerged company, and had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he ld. A.R that as no consideration was involved in the transaction of conversion of the erstwhile private limited company into the assessee LLP, hence the machinery proviso for computing the 'capital gains' was rendered as unworkable. Alternatively, it was submitted by the ld. A.R that even if there was a 'transfer', then what was transferred was the 'undertaking' which had no determinable cost of acquisition, therefore, on the said count also no 'capital gain' was chargeable in the hands of the assessee. The ld. A.R in support of his aforesaid contentions relied on the judgment of the Hon'ble High Court of Bombay in CIT v. Texspin Engg. Mfg. Works [2003] 263 ITR 345 (Bom) and that of the Hon'ble High Court of Gujarat in DCIT v. R.C Kalathia Co. [2016] 381 ITR 0180 (Guj). The ld. A.R rebutting the observations of the lower authorities submitted, that as the assessee in the present case had neither claimed nor was ever allowed the exemption under Sec. 47(xiiib), therefore, the issue of withdrawal of the same by invoking Sec. 47A would not arise at all. In order to drive home his aforesaid contention the ld. A.R relied on the judgment of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7(xiiib), therefore, the lower authorities were in error in invoking Sec. 47A(4), as the same would come into play only for withdrawal of an exemption that was earlier claimed by an assessee. It was submitted by the ld. A.R that in absence of appropriate charging section and appropriate computation section, mere ineligibility for claim of exemption in Sec. 47(xiiib) cannot lead to creation of a charge. It was averred by the ld. A.R that if the legislature in all its wisdom had intended to create a charge, then merely providing for the same in Sec. 47(xiiib) was not sufficient, and the same could safely be held to be legislative misfire. In support of his said contention the ld. A.R relied on the judgments of the Hon'ble High Court of Bombay in Elphinstone Spg. Wvg. Mills Co. Ltd. v. CIT [1955] 28 ITR 811 (Bom) and The Deccan Cement Products Co. (1957) 8 STC 100 (Bom). The ld. A.R further submitted, that the CIT(A) after duly appreciating the facts of the case had rightly allowed the claim of deduction of the assessee under Sec. 80-IA of the Act. It was submitted by the ld. A.R that as the assessee in its revised 'return of income' had disclosed a loss, therefore, for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rry forward of the losses of the erstwhile company by the assessee LLP. 9. We are of the considered view that as the 'Grounds of appeal no. 1 2' raised by the revenue, and the 'Grounds of cross-objection No.1 to 3' raised by the assessee revolves around the common issue pertaining to the scope and gamut of Sec. 47(xiiib), therefore, the same are being taken up and disposed off together. On a perusal of the order of the CIT(A), it emerges that he had observed that as the assessee was caught under the mischief of Sec. 47(xiiib) r.w.s 47A(4), therefore, there was a 'transfer' of the capital assets from the erstwhile company to the assessee LLP. However, it was further observed by him that as the assets and liabilities of the erstwhile company had got vested with the assessee LLP at the 'book value', thus as the difference between the transfer value and the cost of acquisition of the said assets was Nil, therefore, the machinery provision for computing the 'capital gains' under Sec. 48 was rendered as unworkable,. The assessee has assailed before us the order of the CIT(A) to the extent he had concurred with the A.O, and had concluded that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er out of balance of accumulated profit standing in the accounts of the company on the date of conversion for a period of three years from the date of conversion. Explanation .- For the purposes of this clause, the expressions private company and unlisted public company shall have the meanings respectively assigned to them in the Limited Liability Partnership Act, 2008 (6 of 2009);' It is discernible from a cursory glance of Sec. 47, that the 'transfers' referred to in the said statutory provision would not be chargeable to income-tax under the head apital gains under Sec. 45 of the Act. In other words, though the transactions referred to in Sec. 47 are 'transfers', however, the same subject to cumulative satisfaction of the conditions contemplated in the respective sub-sections would fall beyond the sweep of chargeability to income-tax as 'Capital gains' under Sec. 45 of the Act. 11. We thus are of the considered view that the transaction involving conversion of a private limited company or unlisted public company to a LLP as contemplated in Sec. 47(xiiib) would though be a 'transfer', however, the same on cumulative sat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It is also proposed that if the conditions stipulated above are not complied with, the benefit availed by the company shall be deemed to be the profits and gains of the successor LLP chargeable to tax for the previous year in which the requirements are not complied with. It is also proposed that the aggregate depreciation allowable to the predecessor company and successor LLP shall not exceed, in any previous year, the depreciation calculated at the prescribed rates as if the conversion had not taken place. It is further proposed that the actual cost of the block of assets in the case of the successor LLP shall be the written down value of the block of assets as in the case of the predecessor company on the date of conversion. It is also provided that the cost of acquisition of the capital asset for the successor LLP shall be deemed to be the cost for which the predecessor company acquired it. Credit in respect of tax paid by a company under section 115JB is allowed only to such company under section 115JAA. It is proposed to clarify that the tax credit under section 115JAA shall not be allowed to the successor LLP. These amendments are proposed to tak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he issue before the 'AAR' was as to whether the conversion of a partnership firm to a private limited company under Part IX of the Companies Act, 1956 in September, 2005 was to be regarded as a 'transfer' within the meaning of Sec. 2(47) and other relevant provisions of the Income-tax Act, 1961? The 'AAR' while answering the said issue had observed in its order that the question whether vesting by operation of law would be a 'transfer' had not been decided by the Hon'ble High Court of Bombay in its decision in the case of CIT v. Texspin Engg. Mfg. Works [2003] 263 ITR 345 (Bom). In the backdrop of the said observations, the 'AAR' had observed that they were not inclined to express a final opinion on the point of 'transfer', and in the said context had stated as under : No final opinion is expressed in regard to the question whether on the registration of company under Part IX of the Companies Act, there was 'transfer' of capital assets. Thereafter, the 'AAR' had concluded that as no profit or gain had arisen at the time of conversion of the partnership firm into a company, hence there were no 'capi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urance, act or deed. In the backdrop of the aforesaid facts, the ld. A.R submitted that as the vesting of the assets of the company in the LLP did not require any further act, thus the term transfer used in the definition of the term convert in Clause 1(b) of the Third Schedule cannot be read as a transfer under the Transfer of Property Act, 1882. We have given a thoughtful consideration to the contention of the ld. A.R, and are unable to persuade ourselves to subscribe to the same. Interestingly, we find that as Sec. 5 of the Transfer of property Act, 1882 states that to transfer property is to perform such act, therefore, in our considered view, the transfer of the property by the company to the LLP as per Clause 6(b) of the Third Schedule' would in itself satisfy the requirement of Sec.1 of the Transfer of property Act, 1882. Be that as it may, we are of the considered view that the scope of the term transfer has to be read in context of the Income-tax Act, 1961, and cannot be narrowed down to that defined in the Transfer of Property Act, 1882. In this regard, it would also be relevant and pertinent to point out that unlike the conversion of a private limited c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r gains arising from the transfer of a capital asset or intangible assets or share or shares, shall be deemed to be the profits and gains chargeable to tax of the successor LLP or the shareholder of the predecessor company, as the case may be, for the previous year in which the requirements of the said proviso are not complied with. In our considered view the invocation of Sec. 47A(4) can be better understood by bifurcating the same into two parts viz. (i). there are profits or gains from the transfer of capital assets or intangible assets or share or shares which are not charged under Sec. 45 by virtue of conditions laid down in the proviso to Sec. 47(xiiib); and (ii). such profits or gains from the transfer of a capital asset or intangible assets or share or shares shall be deemed to be chargeable to tax of the successor limited liability partnership or the shareholder of the predecessor company, as the case may be, for the previous year in which the requirements of the said proviso are not complied with. We are of the considered view that from a plain literal interpretation of the aforesaid statutory provision i.e Sec. 47A(4), it can safely be gathered that the same comes into p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) in the year of raising of such claim itself. We thus not being persuaded to subscribe to the invoking of Sec. 47A(4) by the lower authorities, set aside the order of the CIT(A) to the said extent. 15. We are of the considered view that in terms of our aforesaid observations, the transaction involving conversion of the private limited company to the assessee LLP de hors compliance of the conditions contemplated in the proviso to Sec. 47(xiiib), would thus involve 'transfer' of the capital assets. However, as we have ousted the applicability of the provisions of Sec. 47A(4) to the facts of the case before us, therefore, the 'deeming fiction' therein facilitating assessing of the profits and gains arising from the transfer of the capital assets in the hands of the transferee i.e the assessee LLP would also meet the same fate and thus, would not be principally applicable in the case before us. In the backdrop of the aforesaid facts, the issue involved in the present case boils down to the chargeability of the profits and gains arising from the 'transfer' of the capital assets in pursuance to conversion of a private limited company to the assessee LLP. We ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disposed off in terms of our aforesaid observations. 16. We shall now advert to the issue that as to whether the conversion of a company into a LLP involves any 'capital gain', or not. We may herein observe that the exemption under Sec. 47(xiiib) which contemplates that certain transactions on satisfaction of the conditions therein provided are not to be regarded as a 'transfer', cannot be construed as a fiction to the effect that the income which is not liable to be taxed under the other provisions of the chapter of 'capital gains' can be deemed to be capital gains, if the conditions contemplated in Sec. 47(xiiib) are not satisfied. In so far, for determining that as to whether on the failure to satisfy the conditions provided in Sec. 47(xiiib), the conversion of the company into a LLP would involve any 'capital gain', the charging provision in Sec. 45 has to be looked into. Admittedly, the conversion of the assets and liabilities of the erstwhile company to the assessee LLP in the case before us took place as per the Limited Liability Partnership Act, 2008 at the 'book value' itself. Rather, as the entire undertaking of the erstwhile com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tified by two judgments of the Hon'ble Supreme Court viz. (i). CIT v. George Henderson and Co. Ltd. [1967] 66 ITR 622 (SC) and (ii). CIT v. Gilanders Arbuthnot and Co. [1973] 87 ITR 407 (SC). The Hon'ble Apex Court in the said judgments had observed that the expression 'full value of the consideration' does not mean the 'market value' of the asset transferred, but it shall mean the price bargained for by the parties to the transaction. We thus in terms of our aforesaid observations are persuaded to subscribe to the view of the CIT(A), that as the assets and liabilities of the erstwhile private limited company had got vested in the assessee LLP at their 'book values', a fact which has not been negated, hence such 'book value' could only be regarded as the 'full value of consideration' for the purpose of computation of 'capital gains' under Sec. 48 of the Act. The Grounds of appeal Nos. 1 and 2 raised by the revenue are dismissed. 17. In so far, the cost of acquisition of the assets of the erstwhile company are concerned, as per Sec. 49(1)(iii), where the capital assets becomes the property of the assessee by succession, inhe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant to cull out the provisions of sub-section (6A) of Sec. 72A, which reads as under: (6A) Where there has been reorganisation of business whereby a private company or unlisted public company is succeeded by a limited liability partnership fulfilling the conditions laid down in the proviso to clause (xiiib) of section 47, then, notwithstanding anything contained in any other provision of this Act, the accumulated loss and the unabsorbed depreciation of the predecessor company, shall be deemed to be the loss or allowance for depreciation of the successor limited liability partnership for the purpose of the previous year in which business reorganisation was effected and other provisions of this Act relating to set off and carry forward of loss and allowance for depreciation shall apply accordingly: Provided that if any of the conditions laid down in the proviso to clause (xiiib) of section 47 are not complied with, the set off of loss or allowance of depreciation made in any previous year in the hands of the successor limited liability partnership, shall be deemed to be the income of the limited liability partnership chargeable to tax in the year in which such condition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... given a thoughtful consideration to the issue under consideration and are unable to persuade ourselves to accept the same. We find ourselves as being in agreement with the view taken by the CIT(A), that sub-section (4) of Sec. 58 of the Limited Liability Partnership Act, 2008 is only in context of the tangible and intangible property, interests, rights etc., and has nothing to do with the 'carry forward' of losses, which is the creature of a specific statute in the form of the Income-tax Act, 1961. We are of the considered view that Sec. 72A(6A) which entitles a LLP to 'carry forward' the losses of the erstwhile private limited company, is in clear and loud terms preconditioned by a statutory requirement that the assessee should have complied with the conditions of the proviso to clause (xiiib) of section 47. In the backdrop of our aforesaid observations, we are of the considered view that as the claim of the assessee LLP as regards 'carry forward' of the loss of the erstwhile private limited company, de hors satisfaction of the conditions laid down in the proviso to clause (xiiib) of section 47, clearly militates against the aforesaid statutory provision, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hed to the 'undertaking' and not to its 'owner assessee', thus as long as the identity of the undertaking remained as such, the claim of deduction under the said statutory provision would be available for the residual term to the new owner i.e the successor entity. The CIT(A) while concluding as hereinabove, took support of CBDT letter F.No. 15/5/63 (A-1) which was issued in context of Sec. 84, which corresponded to the then Sec. 80J and the present Sec. 80-IA. Further, it was also observed by the CIT(A) that the embargo made available on the statute by sub-section (12A) of Sec. 80IA, which restricted w.e.f 01.04.2007 the entitlement of the successor company towards claim of deduction under the said statutory provision was applicable only in the case of an amalgamated/demerged company, and not in a case where a private limited company was converted into a LLP. 21. We have given a thoughtful consideration to the issue before us, and after necessary deliberations find ourselves as being in agreement with the view taken by the CIT(A) who has allowed the claim of deduction of the assessee under Sec. 80-IA of the Act. On a perusal of the ground of appeal raised by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the basis of the 'audit report' which was filed by the assessee for the first time during the course of the appellate proceedings, had observed as under : 10. On the issue of filing the audit report at the appellate stage, the Tribunal by placing reliance upon the various judgments, held that filing the audit report is procedural and directory in nature and the same can be filed at the appellate stage. It is also worth noting that before the Tribunal, the complete details were disclosed in respect of the production in second unit. As regards the claim under s. 80-IA(2) the statements have been found to be supported by the data and figures and the Tribunal has found that proper books of accounts were maintained and were audited and the audit reports in prescribed forms were filed. A similar view that filing of an 'audit report' is procedural and directory in nature, and the same could also be validly filed by the assessee at the appellate stage, had been taken by the Hon'ble High court of Gujarat in CIT v. Gujarat Oil and Allied Industries [1993] 201 ITR 325 (Guj) and the Hon'ble High Court of Punjab Haryana in CIT v. Jaideep Industries [1989] 18 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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