Capital gain on conversion of partnership firm to company
Nitin Jichkar
(Querist) 22 June 2013
This query is : Resolved
Partnership firm has decided to convert its business into Company (PVT LTD) by incorporating new company they got registration from ROC , they also done all the procedure regarding conversion to company Like AOA MOA file in ROC. BUT when they (FIRM) applied in to Local registrar office for changing there name in to Company name the same authority has raised the demand for STAMP DUTY on Building and Land Rs.1.5 Crore hence firm has decided not to convert in to company however Company had run the business by PVT LTD name for 2 months after that they run there business firm name.
Now my question is
1 ) Is this Consider Conversion under Capital gain ?
2 ) If it is Conversion than is it liable for Capital Gain ? (Because Company has not Complete 5 year from the date of conversion ie non compliance of capital gain condition )
3 ) Please provide any Judgment on such topic .
Question at glance
"A" Firm run Business as firm :2011-12
"A" Pvt ltd run business as company for 1-4-2012 to 31-05-2012
for Stamp Duty they again run business
as "A" firm for 01-06-2012 to 31-03-2013
J K Agrawal
(Expert) 22 June 2013
I think your problem is not related to Income Tax act but it relates to Transfer of Property Act and Stamp Act.
If a Firm is transferring its immovable property to a company, it is transfer of property and it attracts stamp duty equal to applicable on sale deed which is to be calculated at present market value.
Now via media is there. The company can hire the property of firm to use it and let the partnership be continued defunct but earning rent of property.
Have a nice day.
Vineet
(Expert) 24 June 2013
In Vali Pattabhiram Roa v
Shri Ramaniya Ginnning & Rice Factory (P) Ltd. (1986) 60 Comp cas 568 (AP), the Court has held that there is no transfer under general law if the constitution of the firm is changed in to that of company by registering it under part IX of the Companies Act, as there shall be statutory vesting of title of all the properties of the firm in the newly incorporated company without any need for a separate conveyance, section 5 of the Transfer of Property Act is not attracted, even stamp duty is not leviable.
J K Agrawal
(Expert) 26 June 2013
Thanks to MR Vineet. I learnt an new thing today.
I answered as per my general knowledge but there are specific provisions in company law that if a partnership is converted into a company the property of partnership automatically become part of company without any conveyance.
