TaxTMI 
TaxTMI 
2012 (6) TMI 159
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....ture needs no adjudication. Ground No.1.2 reads as under: "1.2 The ld.CIT(A) has grievously erred in upholding the addition of Rs.18,38,180/- made by AO u/s.47A(iii) of the Act without considering fully and properly the explanation offered and evidence produced by the appellant." 3. Other grounds i.e. Groun.2.1 to 4.1 are only arguments in support of Ground No.1.2 above. Thus, the only dispute in this appeal is with regard to taxing a sum of Rs.18,38,180/- as long term capital gain. The facts of the case are that during the accounting year relevant to the assessment year under consideration, the partnership firm, Vishal Containers was converted into Vishal Containers Pvt. Ltd. Before such conversion, the name of erstwhil....
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....rs and members of Vishal Containers as Joint Sock Company is the subscribers of Memorandum and Articles of Association of Vishal Containers Pvt. Ltd., in the same proportion of capital balance as share holders of the Company as per Chapter DC of Companies Act, 1956. Further, as per Clause 23(B) SCHEDULE-J of the Form 3 CD of Vishal Containers Pvt. Ltd. though the previous partners have been repaid by cheque or otherwise it is from the unsecured loan/deposit only and not from the capital balance. Thus, Proviso (C) of section 47(xiii) of the Income Tax Act is not violated and hence the question of gain arising out of transfer of the capital assets of the firm to be deemed as Profit and gains u/s. 47A(3) of the Income Tax Act does not arise. W....
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....at section. The Memorandum and Article of Association of Vishal Containers Pvt. Ltd. also mentioned in page 2 that the partners' of Vishal Industries decided to covert into Private Limited Company. The partners of the firm "Vishal Industries" have received net consideration of Rs.18.4 lakhs in contravention to the proviso (c) of Section 47(xiii) of the 1.T.Act. The Capital of the assessee-company at the time of conversion was Rs.1 crores whereas the capital of the firm was Rs.1.184 Crore in contravention of the proviso (a) of section 47(xiii) of the Act. The partners have collectively gained Rs.18.4 lakhs in the process as they are holding the same "Assets" of the company by employing only Rs. 1 crore of Capital which they were earlier hold....
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....ion 47, The clause-'c' of section 47 (xiii) reads as under: "(c) the partners of the firm do 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; and" 5. After considering the arguments of both the sides and the facts of the case, we do not agree with the findings of the AO that on the facts of the assessee's case there was violation of proviso-(c) to section 47(xiii). As per the AO, by way of repayment of Rs.18,38,180/- to the partners, there was benefit to them other than by way of allotment of shares in the company. As we have mentioned earlier, the partners' capital was Rs.1,18,38,180/-. The partners have withdrawn Rs.18,38,1....