Income Tax--LLP
Securities Premium at Time of Conversion of Private Limited Company into LLP Is Liable to Tax
CA. Manoj Gupta
section 47(xiiib) provides exemption to capital gains arising on conversion of private limited company into LLP if conditions therein are satisfied. In the case of ITO v. Godhuli Dealcom LLP 2022 TaxPub(DT) 4402 (Kol-Trib) an interesting issue arose. In this case there was securities premium in books of company which was treated as reserves and surplus on conversion into LLP in the books of LLP. The ITAT Kolkata Bench noted that securities premium account is liability in hands of company in terms of Section 52 of the Companies Act, 2013 and on conversion of company into LLP this amount was credited to reserve and surplus. Since the liability of the company did not become liability of LLP hence condition (a) of proviso to Section 47(xiiib) did not get satisfied therefore, this amount was liable to tax in hands of LLP.
1. Relevant provisions
Section 47(xiiib) provides for tax free transition of private company or unlisted public company to a limited liability partnership. It reads as under:
'47. Transactions not regarded as transfer
Nothing contained in Section 45 shall apply to the following transfers,-
(xiiib) any transfer of a capital asset or intangible asset by a private company or unlisted 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):