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TMI Blog2023 (1) TMI 959X X X X Extracts X X X X X X X X Extracts X X X X ..... lled all the conditions prescribed u/s. 47 (xiiib) of the income Tax Act as while accounting for the Goodwill, M/s. BRIZEAL REALTORS AND DEVELOPERS LLP should have credited the amount goodwill of Rs. 48,35,00,000/- to 'Capital Reserve' but the assessee LLP has credited the said amount of the Partner's current account. 3. We may note that despite notifying by Registered post as well through the Assessing Officer, neither anyone attended on behalf of the assessee nor any adjournment was filed. On other occasions also i.e. 31.10.2022; 26.07.2022; 12.10.2022 & 02.09.2021; none attended on behalf of the assessee. On many occasions, i.e. 08.09.2022, 19.05.2022, 21.06.2022; 16.02.2022; 23.03.2022; 01.12.2021 & 18.01.2022 none attended, however, on written request on behalf of Ld. Counsel of the assessee, case was adjourned. In the above facts and circumstances, we are of the opinion that the assessee is not interested in responding this appeal and therefore, same was heard ex-parte qua the assessee after hearing the arguments of the ld. Departmental Representative. 4. Briefly the facts of the case are that the assessee is a Limited Liability Partnership [in short, "LLP"] eng ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctivities. It was awarded a slum redevelopment project under Regulation 33(10) read with Appendix IV of the Development Control Regulations of Greater Mumbai [in short, "the DCR 1991"] vide the Revised letter of Intent [in short, "the LOI"] dated 19/01/2015 on land bearing CTS No. 819 (part) and CTS No. 818 (part) of Shiv Shankar Nagar Co-op. Housing Society Ltd. Thereafter, the existing shareholders decided to convert the company into an LLP as per the provisions of section 56, the Third Schedule of Limited Liability Partnership Act, 2008 [in short, "the LLP Act"] and Rule 39 of the Limited Liability Partnership Rules, 2009[in short, "the LLP Rules"]. After completion of necessary procedure under the LLP Act, the company got converted into LLP and was issued a certificate of conversions dated 17/03/2016 by ROC bearing Certificate No. AAF-9714. By virtue of said conversion under the LLP Act and operation of relevant sections all the assets, interest, rights, privileges, liabilities, contractual and legal obligation and duties of the company and whole of the undertaking of the company have been vested in the LLP with effect from the date of conversion, without any further assurance, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not by the present assessee LLP. Thus, the Goodwill which has been now recognised in the books of the assessee LLP is by their own admission a pre-existing intangible asset, the book value of which is NIL. (ii) The purpose of recognizing Goodwill in books of accounts of assessee LLP that it was resorted to in contemplation of admission of a new partner who would infuse funds in the SRA project is misconceived and could have been easily done by issuing shares in the predecessor company. However, that would not result into giving any benefit or paying the amounts to the shareholders of the predecessor company. The very purpose of colourable device of conversion of an existing company to LLP, valuing and accounting of the pre-existing intangible assets in the form of Goodwill post conversion was to fraudulently pass the benefits and pay the shareholders of predecessor company without paying legitimate tax due on such ultimate purpose. (iii) The Goodwill is valued by the valuer after considering "tremendous efforts", procedural and implementation reasons, extensive efforts, project synopsis, extensive effort and time, huge rental expenses and enormous efforts, time factor and so on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d public company (hereafter in this clause referred to as the company) to a limited liability partnership or any transfer of a share or shares held in the company by a shareholder as a result of conversion of the company into a limited liability partnership in accordance with the provisions of section 56 or section 57 of the Limited Liability Partnership Act, 2008 (6 of 2009): Provided that- (a) all the assets and liabilities of the company immediately before the conversion become the assets and liabilities of the limited liability partnership; (b) all the shareholders of the company immediately before the conversion become the partners of the limited liability partnership and their capital contribution and profit sharing ratio in the limited liability partnership are in the same proportion as their shareholding in the company on the date of conversion; (c) the shareholders of the company do not receive any consideration or benefit, directly or indirectly, in any form or manner, other than by way of share in profit and capital contribution in the limited liability partnership; (d) the aggregate of the profit sharing ratio of the shareholders of the company in the limited ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same persons as partners in the LLP. They (shareholders) have not received any thing more than their share capital in the LLP on the date of conversion. It is also seen that there is no time period/limit that is mentioned in clause (c). Actually, usage of the word 'shareholders of the company' itself restricts the time limit of operation of this condition till the date of conversion or the date of conversion, because the shareholders are shareholders of the company till the date and time the company exists. In this case the shareholders of the company are shareholders of the company till 17.03.2016. So as on the date of 17.03.2019, the shareholders received the capital in the LLP as per their shareholding in the company and nothing more. Therefore, the condition (c) operates only till the date of conversion i.e. 17.03.2016 and it is clear from the balance sheets pre conversion and post conversion that the shareholders have not received any consideration or benefit directly or indirectly. Therefore, I am of the considered opinion that there is no violation of the condition (c) of section 47 (xilib) as sought to be argued by the AO in the assessment order. 4.19 Clause (f) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any amount from anywhere much less any amount which is not in the books of the company on the date of conversion. Therefore, I am of the considered opinion that there is no violation of clause (f) of section 47(xilib) of the Act as argued by the AO. Further in view of the above, the argument of the AO regarding the entries supposed to be passed by the assessee is not relevant. 4.20 AO placed reliance on McDowell & Co. Ltd. Vs CTO, reported in 1985(3)SCC 230 to state that there is a colourable device in the case. In the said case the Court held that Tax planning may be legitimate if it is within the framework of law, but colourable devices cannot be part of tax planning. I am of the opinion that the conversion of the Company into LLP as per the provisions of the LLP Act, 2008 and commercial decision taken after such conversion cannot be seen as a colourable device. Further in this context. Apex Court have held that it is open for everyone to arrange its affairs in a manner so as to reduce its tax liabilities to the minimum, and such tax planning shall not be considered to be illegitimate, provided it is within the framework of law. Scheme of tax planning has been explained by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facts of the case. 4.21 Keeping in view the totality of facts and circumstances of the case as discussed in above paragraphs, I am of the considered opinion that the appellant has complied with all the conditions laid down in the proviso placed under section 47(xiib) of the Act particularly there is no violation of clauses (c) and (f) as sought to be argued by the AO. Therefore, the assessee is not liable to tax on conversion of company into LLP as per LLP Act 2008. The AO is therefore, directed to delete the addition of Rs. 48,35,00,000 made in the assessment order. The appellant gets relief. These grounds are allowed." 9.2. On going through the factual matrix of the case, the moot point for deciding here is that whether the partners of the assessee LLP had actually benefited either directly or indirectly on conversion of the predecessor company into LLP or not which has been alleged by the Assessing Officer. It is a trite principle in law that the conditions stipulated under the Act should be strictly construed and adhered to. Further, it is also a trite principle in law that no new words can be incorporated in the statute which can give unintended interpretation against the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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