CONVERSION OF PROPRIETORY CONCERN IN TO PARTNERSHIP FIRM-WHETHER CAPITAL GAIN WILL APPLY?
A Proprietary concern carrying on business of Angadia services, desire to convert itself in to Partnership firm.
As at a specified date, final account of the Proprietary concern will be made from 01-04-2009 till the date of conversion. All the assets & liabilities will be transferred in to firm as it is / at book value.
The Proprietor will also be one of the partners out of 3 partners. The balance of capital account of the erstwhile Proprietor will be treated as the capital contribution of the Partnership firm.
Is it possible to take shelter U/s 47 (xiv)/ 47(xiii) to avoid capital gain on merger of Proprietary concern in to Partnership firm which spell for succeeded by a Company.
Or
Section 45 (3) will be applicable, wherein the amount recorded in the books of firm , association or body as the value of the capital assets shall be deemed to be value of the consideration received or accruing as a result of transfer by a person/ proprietor to a firm or A.O.P. or B.O.I.
If it is so, if the all the assets & liabilities are transferred at actual cost as on date of conversion , then there should not be any capital gain as the balance in the proprietors’ capital account will be treated as capital contribution of the proprietor.
2. In case the capital gain is not attracted , if the transfer takes place at cost, it there any minimum limit in profit sharing ration as applicable in Section 47(xiii)/ 47(xiv), which prescribes as aggregate shareholding is not less then 50% of total voting power.
Request guiding immediately on receipt of this query.
CA Laxmi Mittal
M.No. 038894
lnmittal @ dataone.in
CAclubindia
