section 47 (Xiiib)

[vikas mehta]

[(xiiib) any transfer of a capital asset or intangible asset by a private company or unlisted public company (hereafter in this clause referred to as the company) to a limited liability partnership or any transfer of a share or shares held in the company by a shareholder as a result of conversion of the company into a limited liability partnership in accordance with the provisions of section 56 or section 57 of the Limited Liability Partnership Act, 2008[6 of 2009.]:

Provided that—

(a) all the assets and liabilities of the company immediately before the conversion become the assets and liabilities of the limited liability partnership;

(b) all the shareholders of the company immediately before the conversion become the partners of the limited liability partnership and their capital contribution and profit sharing ratio in the limited liability partnership are in the same proportion as their shareholding in the company on the date of conversion;

(c) the shareholders of the company do not receive any consideration or benefit, directly or indirectly, in any form or manner, other than by way of share in profit and capital contribution in the limited liability partnership;

(d) the aggregate of the profit sharing ratio of the shareholders of the company in the limited liability partnership shall not be less than fifty per cent. at any time during the period of five years from the date of conversion;

(e) the total sales, turnover or gross receipts in business of the company in any of the three previous years preceding the previous year in which the conversion takes place does not exceed sixty lakh rupees; and

(f) no amount is paid, either directly or indirectly, to any partner out of balance of accumulated profit standing in the accounts of the company on the date of conversion for a period of three years from the date of conversion.

Explanation.—For the purposes of this clause, the expressions 'private company' and 'unlisted public company' shall have the meanings respectively assigned to them in the Limited Liability Partnership Act, 2008[6 of 2009.]:

what is the meaning of business in clause (e) above. whether in an investment company dividend income will be considered as part of Rs 60 lakhs or no.?

[Surender Gupta]

The terms (total sales, turnover or gross receipts) used in section 47(xiiib) are in line with the terms used in section 44AB. Therefore, any receipt or income which is taken as part of turnover for the purpose of tax audit u/s 44AB shall be taken into account for the aforesaid purpose. In my considered view, where the income is not forming part of total income under section 10 (exempted income) should not considered as part of total turnover of the business. Therefore, as long as dividend is exempt u/s 10(33) it would be be taken into account.

[Rajesh Tarpara]

sir

i have a case : please reply

My company is a Pvt.Ltd. company with accumulated surplus....now they want to split the company ( Demerger)

into two companies : 1st co. will continue with existing business and second will again be converted into LLP. so that thay can bye-pass dividend Distribution Tax in LLP.

is it possible and what are the tax implications?

[ note that original company has turnover more than 60/- lacs...can we convert resulting second company into LLP]

my email : [email protected]

AI Summary

Conversion to LLP: turnover definition and dividend treatment determine eligibility under the non-recognition transfer provision. Section 47(xiiib) non-recognition applies to company-to-LLP conversions or transfers where assets and liabilities vest in the LLP, shareholders become partners with proportional capital and profit shares, no consideration other than partnership interest is received, former shareholders retain at least half aggregate profit share for five years, turnover in any of the three preceding years does not exceed the statutory threshold, and no distribution from accumulated profits is made for three years. Expert commentary links the turnover phrase to tax-audit definitions and discusses whether exempt dividend receipts form part of turnover, with an apparent contradiction regarding treatment of dividend exempt under the exemption provision.