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Tax Publishers Revaluation of immovable property held as stock in trade in a firm credited to partner's current accounts and then firm converted into company. Subsequently 4 such companies merging under a court approved scheme of merger. Taxability for non-compliance of Section 47(xiii) - Taxability explained in the hands of the partners/in the hands of the amalgamated company *Facts :* Assessee's were partners in a firm dealing in real estate. One partner brought in a piece of land as capital contribution for which he was given a higher profit share. The immovable property was held as stock in trade. Subsequently the immovable property was revalued and the balances credited to the current account of the partners in their profit sharing ratio. Subsequently the firm was converted into Company under Chapter IX of the Companies Act, 1956. On conversion the surplus which was credited to the current account was converted into unsecured loans and the fixed capital portion became the shareholding percentage in the newly converted company. 4 such private limited companies merged as per court approved scheme. Revenue in a reopening took a stand that the surplus credited to the partner's current account which was converted into unsecured loan ought to have been treated as capital gains in the hands of the partners or in the hands of the merged company as capital gains under section 45(3). On appeal CIT(A) held that there was no distribution or any partner deriving any benefit under this process. Thus it was not violating Section 47(xiii) and if at all the taxability is possible it is in the hands of the firm as per Section 45(3) and not in the hands of the partners nor in the hands of the amalgamated company. Besides this as per Section 45(3) it is only capital asset which can be taxed and not stock in trade. Aggrieved by these orders revenue went in higher appeal - Held against the revenue that the addition was not possible in the hands of the partners. As a matter of fact, even not taxable in the hands of the partners under section 56(2)(vi) or (vii) as well. The taxability if at all is in hands of the firm which revenue has failed to establish. *Ed. Note:* Section 9B read with 45(3) has undone the tax planning which was done in this case. *Case:* DCIT v. Takshashila Realities (P) Ltd. 2023 TaxPub(DT) 5111 (Ahd-Trib)

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Revaluation of immovable property held as stock in trade in a firm credited to partner's current accounts and then firm converted into company. Subsequently 4 such companies merging under a court approved scheme of merger. Taxability for non-compliance of Section 47(xiii) - Taxability explained in the hands of the partners/in the hands of the amalgamated company

Facts :

Assessee's were partners in a firm dealing in real estate. One partner brought in a piece of land as capital contribution for which he was given a higher profit share. The immovable property was held as stock in trade. Subsequently the immovable property was revalued and the balances credited to the current account of the partners in their profit sharing ratio. Subsequently the firm was converted into Company under Chapter IX of the Companies Act, 1956. On conversion the surplus which was credited to the current account was converted into unsecured loans and the fixed capital portion became the shareholding percentage in the newly converted company. 4 such private limited companies merged as per court approved scheme. Revenue in a reopening took a stand that the surplus credited to the partner's current account which was converted into unsecured loan ought to have been treated as capital gains in the hands of the partners or in the hands of the merged company as capital gains under section 45(3). On appeal CIT(A) held that there was no distribution or any partner deriving any benefit under this process. Thus it was not violating Section 47(xiii) and if at all the taxability is possible it is in the hands of the firm as per Section 45(3) and not in the hands of the partners nor in the hands of the amalgamated company. Besides this as per Section 45(3) it is only capital asset which can be taxed and not stock in trade. Aggrieved by these orders revenue went in higher appeal -

Held against the revenue that the addition was not possible in the hands of the partners. As a matter of fact, even not taxable in the hands of the partners under section 56(2)(vi) or (vii) as well. The taxability if at all is in hands of the firm which revenue has failed to establish.

Ed. Note: Section 9B read with 45(3) has undone the tax planning which was done in this case.

Case: DCIT v. Takshashila Realities (P) Ltd. 2023 TaxPub(DT) 5111 (Ahd-Trib)