Transfer of property as capital contribution in a LLP below FMV and offsetting the said capital loss against LTCG on sale of shares - whether colourable transaction 

Facts:

Assessee sold shares of Maa TV to one Swapriya Raj Holdings LLP and sustained long term capital gains of Rs. 24.77 crores, the sale negotiations of which started in Feb 2015 and actual sale happened only in Dec 2015. She was also the substantial shareholder in Smilax Corporate Services Pvt. Ltd. for 98.17% shareholding.The said Pvt. Ltd. Company was converted into a Smilax Corporate Services LLP incorporated on 18-09-2015 where in the assessee held partnership ratio of 98.33% and the other partner was her daughter. The assessee then transferred her immovable agricultural property with FMV 19.53 crores in the LLP for below FMV of Rs. 11.70 crores and sustained long term capital loss. She claimed the resultant capital loss in her personal return and claimed offset against the long term capital gains from the sale of the shares of Maa TV. This was not acceptable to the AO and CIT(A) who alleged this to be a colourable transaction and also did not agree to the pretext of Section 45(3) would only apply to a firm and not to a LLP. The decision of Sunil Siddharthbhai v. CIT (1985) 156 ITR 509 (SC) : 1985 TaxPub(DT) 1358 (SC), would also not apply to this case. Assessee's plea was that by transferring the land to the LLP the same could be plotted and commercialized while the departmental plea was that the same could have also been in the Company as well which would have required registering the property in the name of the Company as unlike in the case of a LLP. It was also pleaded by the assessee that to transfer land to a LLP no registration is necessary as per law. On higher appeal by the assessee -

Held against the assessee that the tax authorities have every right to question the genuineness of the transaction and it appears to be one of colourable intent in this case. While it is true that the tax officer cannot sit in the arm chair of the businessman to evaluate pros and cons the onus is on the businessman to establish the genuineness of the case. There is no need for a LLP to register the property in its name, to that limited extent the order of CIT(A) is not being concurred with as CIT(A) held that it required registration. Assessee's appeal was dismissed accordingly.

Ed. Note: The modus operandi the structure and claim of section 45(3) as not being applicable to a LLP is all worth noting.

Case: Asha Nimmagadda v. Asstt. CIT 2023 TaxPub(DT) 6604 (Hyd-Trib)