Change Of Company To LLP Amounts To Transfer And So Taxable: ITAT

As per the Mumbai bench of the Income Tax Appellate Tribunal say in Mid-November, the conversion of company into Limited Liability Partnership falls under the definition of 'transfer' and hence will be liable to capital gains tax.

The concept of limited liability partnership introduced to help business scale up is being used to transfer profits of the concern to partners as dividend without any deduction of dividend distribution tax. Nonetheless, of lot, the premise is increasingly being used to reorganize by professionals as well as businesses to re-organise themselves.

And now the onus lies on the previous ruling by the Bombay High Court that conversion of a firm into company does not amounts to a transfer and involves no financial consideration.

Further as per the tribunal there shall be no capital gains tax implication as long as the asset transfer happens at book value. But this is as against the practise, as in many of the cases, the conversion usually is implemented at a higher rate to improve company's balance sheet, attract foreign funds, increase net worth of the partners as well as to borrow funds.

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