India: Conversion of firm into company | KPMG | GLOBAL

India: Conversion of firm into company, no capital gains tax

India: Conversion of firm into company

The KPMG member firm in India has prepared reports about the following tax-related developments (read more at the hyperlinks provided below).


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  • Interest on refund of “excess tax” withheld at source: India’s Central Board of Direct Taxes (CBDT) issued guidance clarifying instances when interest is paid on a refund of “excess tax” that was withheld (deducted) at source. Read an April 2016 report [PDF 247 KB]
  • Tips collected by hotel and remitted to employees, not taxable salary: India’s Supreme Court held that tips collected by a hotel from customers and remitted to hotel employees is not taxable as salary. Rather, the tips are received by the employer (hotel) from customers in a fiduciary capacity, and then are disbursed to employees for services they rendered to the customers. There was no reference to these amounts in the employment contracts; the employees did not have a vested right to claim tip amounts from the employer; and the tips were purely voluntary amounts paid by customers for services rendered to them. The Supreme Court concluded the tip income would be chargeable in the hands of the employees as income from other sources. The case is: ITC Ltd. Read an April 2016 report [PDF 298 KB]
  • Conversion of firm into company not a transfer subject to capital gains: The Gujarat High Court held that the sale of the business of a firm as a going concern to a company, for consideration of paid-up share capital, was not a transfer and was not taxable as capital gains. To invoke the capital gains tax measures, there must be a distribution of capital assets—which was totally missing in the taxpayer’s case because there is no distribution of capital assets either by way of dissolution of the firm or otherwise. Therefore, the transfer cannot be treated as a transfer of capital asset and is not subject to capital gains tax. The case is: R. L. Kalathia & Co. Read an April 2016 report [PDF 315 KB] 

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