THE ACIT-Circle 4(1), Indore V. SHRI Arun Kumar Goyal, Indore

ITA 254/IND/2016

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 5779 (ITAT-INDORE)
• Duration Of Justice: 5 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-09-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 05-09-2016
• Assessment Year: 2011-2012
• Appeal Filed On: 18-03-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MOHD JAVED
• Assessee Lawyers: ARPIT MUNDRA
• Keywords: Deemed dividend
• Section: 56

Judgement Text

ITA NO.254 OF 2016 ARUN KUMAR GOYAL 1 IN THE INCOME TAX APPELLATE TRIBUNAL INDORE BENCH, INDORE BEFORE SHRI D.T. GARASIA, JUDICIAL MEMBER AND SHRI O.P. MEENA, ACCOUNTANT MEMBER ITA NO. 254/IND/2016 A.Y. 2011-12 ACIT-4(1), INDORE :: APPELLANT VS ARUN KUMAR GOYAL, INDORE PAN ABKPG 2577 R :: RESPONDENT DEPARTMENT BY SHRI MOHD. JAVED, DR RESPONDENT BY SHRI ARPIT MUNDRA, CA DATE OF HEARING 05.9.2016 DATE OF PRONOUNCEMENT 05.9.2016 O R D E R PER SHRI D.T. GARASIA, JM THIS APPEAL IS FILED BY THE REVENUE CHALLENGING TH E ORDER OF LD. CIT(A)- II, INDORE, DATED 30.11.2015. THE REVENUE HAS RAISE D THE GROUND THAT LD. CIT(A) HAS ERRED IN DELETING THE ADDITION MADE BY T HE ASSESSING OFFICER HOLDING THAT CONVERSION FROM COMPANY TO LLP IS ONLY RE-DESIGNATION OF RESERVE AND SURPLUS AND NOT DISTRIBUTION OF THE ACCUMULATED PROFIT OF THE COMPANY IMMEDIATELY BEFORE ITS LIQUIDATION. ITA NO.254 OF 2016 ARUN KUMAR GOYAL 2 2. FACTS, IN BRIEF, ARE THAT THE ASSESSEE WAS SHAREHOL DER IN THE CO. SURAJ GANGA DEVELOPERS P. LTD. WHICH WAS CONVERTED INTO L LP (LIMITED LIABILITY PARTNERSHIP) FIRM IN THE NAME AND STYLE OF SURAJ GA NGA DEVELOPERS P. LTD. ON 23.2.2011 IN FORM NO. 19 WITHIN THE PROVISIONS OF S ECTION 56/57 OF THE OF THE LLP ACT, 2009 & RULES THEREON. ON CONVERSION, THE A SSESSEE BECAME PARTNER IN NEWLY INCORPORATED SURAJ GANGA DEVELOPERS LLP AN D SHAREHOLDERS FUND BEARING RESERVE & SURPLUS AMOUNTING TO RS.4,59,47,9 26/- AS ON 23.2.2001 STOOD TRANSFERRED TO CURRENT ACCOUNT OF RESPECTIVE SHAREHOLDER/PARTNER IN LLP IN RATIO OF THEIR HOLDING. ASSESSEE WAS HOLDING 672 00 SHARES OUT OF TOTAL SHARES OF THE CO. I.E. 448000, THEREFORE, HIS CURRE NT ACCOUNT WAS CREDITED BY RS.68,92,189/- AS APPEARING ON PAGE NOS. 15 & 30 OF THE PAPER BOOK. THE ASSESSING OFFICER CONSIDERED THE AMOUNT OF CREDIT A S DEEMED DIVIDEND TREATING DISTRIBUTION OF SURPLUS ON LIQUIDATION OF CO. AND PROCEEDED TO INVOKE PROVISIONS U/S 2(22)(C) OF THE I.T. ACT. ACCORDINGL Y, THE ASSESSING OFFICER MADE AN ADDITION OF RS.68,92,189/- ON ACCOUNT OF OTHER S OURCES. 3. AGGRIEVED WITH THE ACTION OF THE AO, THE ASSESSE E PREFERRED AN APPEAL BEFORE THE LD. CIT(A), WHO WAS OF THE VIEW THAT THE RE HAS NOT BEEN LIQUIDATION OF THE CO. AND DISTRIBUTION OF ACCUMULATIVE PROFITS TO THE SHAREHOLDERS AND THE RE-DESIGNATION OF SERVERS & SURPLUS TO THE CURRENT ACCOUNT OF LLP MEMBERS IS NOT HIT BY SECTION 2(22)(C) OF THE I.T. ACT. LD. CI T(A) FURTHER HELD THAT SUCH RE- DESIGNATION OF RESERVES AND SURPLUSES CANNOT BE CON SIDERED AS DISTRIBUTION OF THE SAME TO THE SHAREHOLDERS. ACCORDINGLY, LD. CIT( A) DELETED THE ADDITION. ITA NO.254 OF 2016 ARUN KUMAR GOYAL 3 4. AGGRIEVED WITH THE ACTION OF THE LD. CIT(A), THE REVENUE IS IN APPEAL BEFORE US. 5. BEFORE US, THE LD. SENIOR D.R. RELIED ON THE ORD ER OF THE AO WHEREAS THE LEARNED COUNSEL FOR THE ASSESSEE HAS, RELYING U PON THE ORDER OF THE LD. CIT(A), REITERATED THE SUBMISSIONS MADE BEFORE LD. CIT(A) AND SUBMITTED THAT PRESENT CASE, WHERE PRIVATE LIMITED CO. WAS CONVERT ED TO LLP, IS NOT THE CASE OF ANY LIQUIDATION, THEREFORE, PROVISIONS OF SECTIO N 2(22)(C) ARE NOT APPLICABLE AS ALSO HELD BY THE LD. CIT(A). 6. WE HAVE PERUSED THE ORDERS OF LOWER AUTHORITIES AND MATERIAL AVAILABLE ON RECORD. BEFORE COMING TO ANY CONCLUSION, WE ARE REPRODUCING THE PROVISIONS OF SECTION 2(22)(C) OF THE I.T. ACT: ANY DISTRIBUTION MADE TO THE SHAREHOLDERS OF A COM PANY ON ITS LIQUIDATION, TO THE EXTENT TO WHICH THE DISTRIBUTIO N IS ATTRIBUTABLE TO THE ACCUMULATED PROFITS OF THE COMPANY IMMEDIATELY BEFO RE ITS LIQUIDATION, WHETHER CAPITALISED OR NOT. CONSIDERING THE PROVISIONS OF SECTION 2(22)(C), WE ARE OF THE VIEW THAT IN LAW, LIQUIDATION IS THE PROCESS BY WHICH A CO. IS BROUGH T TO AN END, AND THE ASSETS AND PROPERTY OF THE CO. ARE DISTRIBUTED. LIQUIDATIO N IS ALSO SOMETIMES REFERRED TO AS WINDING UP. THE MEANING OF THE CONVERSION IS THE PROCESS OF CHANGING OR CAUSING SOMETIMES TO CHANGE FROM ONE TO ANOTHER. TH US, THE LIQUIDATION AND CONVERSION ALTOGETHER DENOTE DIFFERENT MEANING AND PURPOSE. IN THE PRESENT CASE, THE PRIVATE LIMITED CO. WAS CONVERTED TO LLP AND THIS IS NOT THE CASE OF THE LIQUIDATION WITHIN THE MEANING OF SECTION 56 R. W.S. SCHEDULE III. THE CONVERSION HAS BEEN DEFINED TO MEAN CONVERT, IN RE LATION TO A PRIVATE LIMITED ITA NO.254 OF 2016 ARUN KUMAR GOYAL 4 CO. CONVERTING INTO A LIMITED LIABILITY PARTNERSHIP , MEANS A TRANSFER OF THE PROPERTY, ASSETS, INTERESTS, RIGHTS, PRIVILEGES, LI ABILITIES, OBLIGATIONS AND THE UNDERTAKING OF THE PRIVATE CO. TO THE LIMITED LIABI LITY PARTNERSHIP IN ACCORDANCE WITH THIS SCHEDULE. THUS, WE ARE OF THE VIEW THAT IN THE PRESENT CASE, THE PROVISIONS OF SECTION 2(22)(C) OF THE I.T. ACT ARE NOT APPLICABLE. BEFORE US, THE LD. DR COULD NOT CONTROVERT THE FINDING OF THE LD. CIT(A) BY BRINGING ANY CONTRARY MATERIAL ON RECORD. ON CONSIDERATION OF AB OVE, WE HOLD THAT THE LD. CIT(A) WAS RIGHT IN REACHING THE CONCLUSION THAT TH E RE-DESIGNATION OF THE RESERVES AND SURPLUSES TO THE CURRENT ACCOUNT OF TH E LLP MEMBERS IN ITS BOOKS OF ACCOUNTS IS NOT HIT BY THE PROVISIONS OF T HE SECTION 2(22)(C) OF THE I.T. ACT AND ALSO SUCH RE-DESIGNATION OF RESERVES AND SU RPLUSES CANNOT BE CONSIDERED AS DISTRIBUTION OF THE SAME TO THE SHARE HOLDERS. WE CONFIRM THE ORDER OF THE LD. CIT(A). ACCORDINGLY, THE GROUND RA ISED BY THE REVENUE STANDS DISMISSED. FINALLY, THE APPEAL OF THE REVENUE IS DISMISSED. ORDER WAS PRONOUNCED IN THE OPEN COURT ON 05.9.2016 . SD/- (O.P. MEENA) ACCOUNTANT MEMBER SD/- ( D.T. GARASIA) JUDICIAL MEMBER DATED : 05.9.2016 !VYS! COPY TO: APPELLANT/RESPONDENT/CIT(A)/CIT/DR, INDORE