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05-07-2019, Kantilal G. Kotecha, Section 45, 47(xiv), 55(2), Tribunal Mumbai

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3 months 2 days ago #10021 by amit
Section - 45, 47(xiv), 55(2), 2(47), 271(1)(c), 54
Order Date - 05-07-2019
Favouring - Assessee
Court - Tribunal Mumbai
Appellant - ITO
Respondent - Kantilal G. Kotecha
Justice - M.BALAGANESH, AM & AMARJIT SINGH, JM
Citation - 719Taxpundit115
Appeal No. - ITA No.205/Mum/2018
Asstt. Year - 2009-10

Order

PER : M. BALAGANESH (A.M):

This appeal in ITA No.205/Mum/2018 for A.Y.2009-10 arises out of the order by the ld. Commissioner of Income Tax (Appeals)-17 in appeal No.CIT(A)-17/IT-124/14-15 dated 17/10/2017 (ld. CIT(A) in short) against the order of assessment passed u/s.143(3)of the Income Tax Act, 1961 (hereinafter referred to as Act) dated 30/11/2011 by the ld. Income Tax Officer-8(2)(4), Mumbai (hereinafter referred to as ld. AO).

2. The only issue to be decided in this appeal is as to whether the ld CITA was justified in deleting the penalty levied u/s 271(1)(c ) of the Act in the facts and circumstances of the case.

3. The brief facts of this case are that the assessee is an Individual who ran a proprietary concern in the name and style of M/s. Overseas Plastic Moulders (OPM) since past thirty years. During the year under consideration, the assessee converted the said proprietary concern into a Public Limited Company i.e. M/s. Overseas Plast c Moulder India Limited (OPMIL). Thus the business of the proprietary concern was succeeded by a public limited company. On succession of business, the assessee transferred all the assets (including self generated goodwill) and liabilities of the proprietary concern and in consideration for the said transfer received 33,59,064 fully paid up equity shares of face value of Rs. 10/- each of the public limited company. The assessee had entered into an Assignment Deed with the public limited company dated 17.09.2008 wherein the assessee had recorded the terms and conditions of succession of business from proprietary concern into public limited company. The succession of business from a proprietary concern to a public limited company resulted in transfer of all the assets of the business including Plant and Machinery, Goodwill and also Leasehold rights of a factory land situated at Pune. The said transfer was liable for capital gains tax under section 45 of the Income-tax Act, 1961 (hereinafter referred to as 'the Act'). However, the said transfer was also eligible for exemption as per provisions of section 47(xiv) of the Act on fulfillment of certain conditions provided therein. The relevant provisions of section 47(xiv) of the Act are reproduced hereunder for ready reference:

“Transactions not regarded as transfer

47. Nothing contained in section 45 shall apply to the following transfers :— ….

(xiv) where a sole proprietary concern is succeeded by a company in the business carried on by it as a result of which the sole proprietary concern sells or otherwise transfers any capital asset or intangible asset to the company :

Provided that— (a) all the assets and liabilities of the sole proprietary concern relating to the business immediately before the succession become the assets and liabilities of the company;

(b) the shareholding of the sole proprietor in the company is not less than fifty per cent of the total voting power in the company and his shareholding continues to remain as such for a period of five years from the date of the succession; and

(c) the sole proprietor does not receive any consideration or benefit, directly or indirectly, in any form or manner, other than by way of allotment of shares in the company;”

3.1. On reading the provisions of section 47(xiv) of the Act, it would be seen that the aforesaid section provides an exemption on transfer on succession of a proprietary concern into a company on fulfillment of the following conditions:-

1) All the assets and liabilities of the sole proprietary concern relating to business immediately before the succession becomes the assets and liabilities of the company.

2) The shareholding of the sole proprietor be not less than fifty percent of voting power for a period of five years from the date of succession.

3) For the said transfer, the sole proprietor receives only allotment of shares in the company as consideration

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