Mumbai ITAT has held that conversion of a company into a Limited Liability Partnership (LLP), where the specified turnover/ asset thresholds to avail a specific capital gains tax exemption are not met, constitutes a “transfer” of capital assets by the company to the converted LLP. However, the conversion, being at book values, does not result in any taxable capital gains in the hands of the company (LLP as a successor of the company). Taxability of the shareholder of the company is not discussed in this ruling.

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The ITAT held that the conversion would result in a transfer of assets by the company to the LLP. Following are the key observations of the ITAT in this context: