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64. Special provisions relating to business reorganisation or conversion of a company into a Limited Liability Partnership
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64. Special provisions relating to business reorganisation or conversion of a company into a Limited Liability Partnership.—(1) In a business reorganisation, or on conversion of a company into a Limited Liability Partnership as referred to in clause (j) of sub-section (1) of section 47—
(a) the unabsorbed current loss from ordinary sources of the predecessor in respect of the financial year in which business reorganisation or such conversion has taken place shall be deemed to be the unabsorbed preceding year loss from ordinary sources of the successor in respect of the financial year and the provisions of section 61 shall apply accordingly ; and
(b) the unabsorbed current loss from special source of the predecessor in respect of the financial year in which business reorganisation or such conversion has taken place, shall be deemed to be the unabsorbed preceding year loss from that special source of the successor in respect of the financial year, and the provisions of section 62 shall apply accordingly.
(2) The provisions of sub-section (1) shall not apply in case of a business reorganisation if the successor in a business reorganisation does not satisfy the test of continuity of business, and—
(a) Where the predecessor is a sole proprietary concern or unincorporated body, and
(b) the shareholding of the sole proprietor or the participant, as the case may be, ceases to be less than fifty per cent. of the total value of the shares of the successor company at any time during the period of five years immediately succeeding the financial year in which the business reorganisation takes place.
(3) In case of the conversion, the provisions of sub-section (1) shall not apply if any of the conditions, specified in clause (j) of sub-section (1) of section 47 are not fulfilled.
(4) The total income of the financial year in which, the business reorganisation or the conversion referred to in sub-section (1) took place, and of all the subsequent financial years shall, notwithstanding anything in this Code, be rectified as if the provisions of this section had never been given effect to in those financial years, if conditions specified in sub-section (2) of this section or clause (j) of sub-section (1) of section 47 are not fulfilled at any time during five financial years immediately succeeding the financial year in which reorganisation or conversion took place.
Clause 64 seeks to provide the manner in which income is to be aggregated in case of a business reorganisation or where a company is converted into a limited liability partnership. In such cases, the unabsorbed current loss from ordinary sources of the predecessor in the financial year in which the business reorganisation takes place, shall be treated as the unabsorbed preceding year loss from ordinary sources of the successor in business in that year and the provisions of clause 61 shall apply. Similarly, the unabsorbed current loss from special sources of the predecessor in the financial year in which the business reorganisation takes place, shall be treated as the unabsorbed preceding year loss from special sources of the successor in business in that year and the provisions of clause 62 shall apply. Sub-clause (2) of the said clause provides that the benefit of taking over the loss of the predecessor by the successor shall not be available to the latter in a case of business reorganisation if it does not satisfy the test of continuity of business. Test of continuity of business has been defined in clause 314 of the Code as a set of conditions which the successor must fulfill to satisfy the test.
Sub-clause (2) further provides that the said benefit shall not be available to a successor in case of a business reorganisation if the predecessor is a sole proprietary concern or an incorporated body and the share holding of the sole proprietor ceases to be less than fifty per cent. of the total value of the shares of the successor company at any time during the period of five years immediately succeeding the financial year in which the business reorganisation takes place.
Sub-clause (3) of the said clause provides that the benefit of taking over the loss of the predecessor by the successor in a case of conversion of a company into a limited liability partnership shall not be available to the successor if any of the conditions, specified in item (j) of sub-clause (1) of clause 47 of the Bill are not fulfilled.
Sub-clause (4) of the said clause provides that the total income of the financial year, in which the business reorganisation or the conversion took place, and all the subsequent financial years shall, notwithstanding anything in this Code, be rectified as if the provisions of this clause had never been given effect to in those financial years if the conditions specified therein are not fulfilled at any time during five financial years immediately succeeding the financial year in which the business reorganisation or conversion took place.
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