Revaluation of Satellite Rights of Partnership Firm not amount to Capital Gain on Converting into a Company: Bombay HC [Read Order]

Business Income - Bombay High Court 2 - Tax Scan

When a partnership Firm is converted into a Company, revaluation of the satellite rights by the partnership firm would not attract any capital gain, a division bench of the Bombay High Court said.

Justice S V Gangapurwla and Justice A.M Badar was hearing a departmental appeal filed against the order of the ITAT.

While completing assessment against one Mr. Ravishankar R Singh, the Assessing Officer and the Commissioner (Appeals) had held that the revaluation of the satellite rights in the account of the partners interest would give rise to capital gain.

The satellite rights were the property of partnership till the date of the conversion whereas transfer of satellite rights to the incorporated company is not from the erstwhile firm but from the partners of the firm.

On appeal, the Tribunal accepted the claim of the respondent-Company by relying on the decision in Commissioner of Income Tax vs. Texspin Engineering and Manufacturing Works and held that there is neither distribution of assets nor any realization of assets.

Upholding the findings of the Tribunal, the bench said that “There is neither dissolution of the firm nor distribution of assets of the firm amongst the partners. No transfer of assets has taken place. It is further observed that the partnership firm was converted into a private limited company and the satellite rights thereafter vests with the company. The revaluation of the assets by the partnership firm would not attract any capital gain. There was no transfer as defined under Section 47 of the Act.”

Read the full text of the Order below.

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