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Tax Publishers
Transfer of property as capital contribution in a
LLP below FMV and offsetting the said capital loss against LTCG on sale of
shares - whether colourable transaction
Facts:
Assessee sold shares of Maa TV to one Swapriya Raj Holdings
LLP and sustained long term capital gains of Rs. 24.77 crores, the sale
negotiations of which started in Feb 2015 and actual sale happened only in Dec
2015. She was also the substantial shareholder in Smilax Corporate Services
Pvt. Ltd. for 98.17% shareholding.The said Pvt. Ltd. Company was converted
into a Smilax Corporate Services LLP incorporated on 18-09-2015 where in the
assessee held partnership ratio of 98.33% and the other partner was her
daughter. The assessee then transferred her immovable agricultural property
with FMV 19.53 crores in the LLP for below FMV of Rs. 11.70 crores and
sustained long term capital loss. She claimed the resultant capital loss in her
personal return and claimed offset against the long term capital gains from the
sale of the shares of Maa TV. This was not acceptable to the AO and CIT(A) who
alleged this to be a colourable transaction and also did not agree to the
pretext of Section 45(3) would only apply to a firm and not to a LLP. The
decision of Sunil Siddharthbhai v. CIT (1985) 156 ITR 509 (SC) : 1985
TaxPub(DT) 1358 (SC), would also not apply to this case. Assessee's plea
was that by transferring the land to the LLP the same could be plotted and
commercialized while the departmental plea was that the same could have also
been in the Company as well which would have required registering the property
in the name of the Company as unlike in the case of a LLP. It was also pleaded
by the assessee that to transfer land to a LLP no registration is necessary as
per law. On higher appeal by the assessee -
Held against the assessee that the tax authorities have
every right to question the genuineness of the transaction and it appears to be
one of colourable intent in this case. While it is true that the tax officer
cannot sit in the arm chair of the businessman to evaluate pros and cons the
onus is on the businessman to establish the genuineness of the case. There is
no need for a LLP to register the property in its name, to that limited extent
the order of CIT(A) is not being concurred with as CIT(A) held that it required
registration. Assessee's appeal was dismissed accordingly.
Ed. Note: The modus
operandi the structure and claim of section 45(3) as not being applicable to a
LLP is all worth noting.
Case: Asha
Nimmagadda v. Asstt. CIT 2023 TaxPub(DT) 6604 (Hyd-Trib)
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