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TMI Blog2013 (9) TMI 1280X X X X Extracts X X X X X X X X Extracts X X X X ..... art from drawing interest. In fact, the partnership firm indirectly transferred the land to the private limited company and distributed the consideration to the erstwhile partners by treating the same as if the partners advanced loan to the private limited company. This is an accounting technique adopted by the firm for indirect transfer of property to evade tax and the capital gain. Therefore, this Tribunal is of the considered opinion that the conditions laid down in section 47(xiii) of the Act is not complied with. The partners of the firm made an attempt to transfer the property by treating the value of the land as loan in the company. Therefore, this Tribunal is of the considered opinion that the CIT(A) has rightly confirmed the addition made by the assessing officer. - N.R.S. GANESAN, MEMBER (J) AND B.R. BASKARAN, MEMBER (A) For the Appellant : Shri R.V. Veeramani For the Respondent : Smt. S. Vijayaprabha ORDER N.R.S. Ganesan, Member (J) 1. This appeal of the assessee is directed against the order of the CIT(A), Kozhikode dated 01-03-2013 and pertains to assessment year 2005-06. The only issue arises for consideration is chargeability of capital gain. Shri R.V. Veeramani, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tative submitted that this case relates to valuation of closing stock. Therefore, this judgment is also not applicable to the facts of the case. According to the ld. representative, the assessee has not converted the assets of the firm into loan. The assets were only revalued at the insistence of the bankers. The company was formed as per the procedure laid down by the Companies' Act under Chapter IX. Therefore, according to the ld. representative, there is no transfer of property when the partnership firm was converted into a private limited company, and as such there is no question of any capital gain. The ld. representative placed his reliance on the decision of the Ahmedabad Bench of this Tribunal in ITO vs. Alta Inter-Chem Industries 2012 6 Taxcorp (A.T.) 29767 (Ahm). The ld. representative placed a copy of the order of the Ahmedabad Bench of this Tribunal on record. 4. On the contrary, Smt. S. Vijayaprabha, the ld. DR submitted that admittedly, the partnership firm was converted into a private limited company. The assessing officer found from the notes to the accounts of the firm that the land was revalued and the realization was credited to the partners' current acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... according to their profit sharing ratio. But the fact remains is that the value of the land after revaluation was not treated as share capital of the respective shareholders/erstwhile partners of the partnership firm. 7. We have carefully gone through the provisions of section 47(xiii) of the Act which reads as follows: (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, or any transfer of a capital asset to a company in the course of [demutualization or] corporatization of a recognized 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 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 part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lotment of shares, they are receiving benefits by way of treating the revaluation of assets as loan in the hands of the company. When it was treated as loan in the accounts of the company, the assessee is entitled to receive interest on the amount which was treated as loan. As rightly submitted by the ld. DR, the shareholders/the partners of the erstwhile partnership firm may withdraw the loan at any point of time. Therefore, this Tribunal is of the considered opinion that there was an indirect transfer of property from partnership firm to assessee company in violation of the conditions laid down in section 47(xiii) of the Act. The assessee company instead of paying the sale consideration to the partnership firm/partners, treated the market value of the land as loan from the erstwhile partners of the firm. 10. We have carefully gone through the decision of the Ahmedabad Bench of this Tribunal in the case of Alta Inter-Chem Industries (supra). In the case before the Ahmedabad Bench of this Tribunal the current account of all the partners was reflected as loan in the balance-sheet of the company. The contention of the revenue before the Ahmedabad Bench of this Tribunal was that there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eintroduced by Finance Act, 1987 with effect from 01-04-1988. In the case before us, the partnership firm is a separate assessable unit under the Income-tax Act. The partners of the firm converted the partnership firm into a private limited company under the Companies' Act. In other words, partnership firm ceased to exit on the day on which the private limited company came into existence. So it is a case of succession of the partnership firm by a private limited company. Therefore, the assets and liabilities of the partnership firm as it existed at the time of succession has to be taken over by the newly formed private limited company. The capital contribution, if any, by the respective partners and the assets of the erstwhile firm has to be treated as shares of the partners/shareholders in the private limited company. In this case, instead of treating the realization on revaluation of land as capital contribution or shareholding in the hands of the shareholders/partners of the erstwhile partnership firm, the assessee is treating the same as loan. One of the conditions prescribed u/s. 47(xiii) of the Act is that all the assets and liabilities of the partnership firm shall be tr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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