CAPITAL GAIN TAX

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Mahabaleshwara Rao

director

197 Points Joined July 2010

A firm is converted into Private limited fulfilling all conditions laid down under sec. 47(xiii). As on the date of conversion the capital account of partners were 10 lacs each and they have issued same number of shares. After 2 months of the date of conversion two partners of them are issued with additional shares as they have brought money for the business. Whether it is the case of violation of condition no. 4 of sec 47 (xiii) as the proportion of shareholding changes, as it is stood on the date of conversion.

Also whether depreciation to be calculated on time basis or full depreciation is available.

Please.

Replies (4)

Hitesh Agarwal

Chartered Accountant

80 Points Joined August 2007

Condition no.4 of section 47(xiii) provides that the aggregate shareholding of the proprietor/ partners should not be less than 50% of the total voting power for a period of 5 consecutive years from the date of sucession. So as you have said that old partners have acquired new shares then there is no question of reducing the shareholding. So there seems no violation of the section.

Hitesh Agarwal

Chartered Accountant

80 Points Joined August 2007

Regarding depreciation, the depreciation shall be calculated at the prescribed rates as if the succession had not taken place. The computed depreciation shall be apportioned between the predecessor and successor in the number of days for which the assets were used by them. For e.g if the transfer has been made on 29.8.2010 then depreciation will be calculated at full rate and the depreciation so calculated shall be divided into predecessor and successor in the ratio of 150:215 i.e. no of days for which asset used by predecessor is 150 days and that for sucessor is 215 days.