conversion of proprietorship to company

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Aseem Pahwa (Querist)
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19 May 2008 A firm prop. working as export house for the last ten years. firm owns machinery, land and building.Land and building is in the name of proprietor but shown in balance sheet and depreciation is beig claimed. now a new company has been formed to take over the business of proprietorship firm.what issues to be kept in mind and how to proceed. Please guide.
thanks,

CA. Yayati Tyagi

CA. Yayati Tyagi (Expert)
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19 May 2008 from the point of view of income tax, i quote clause (xiv) of section 47 here:

section 47:

(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;

if these points are taken care of while transferring business from prop. firm to company, there will be no capital gain in hands of proprietor.

for creation of company and transfer of business, better you contact any practising C.A.