Shareholder liable to capital gains tax on receipt of partnership interest against shares on conversion of a company into an LLP under the LLP Act

Shareholder liable to capital gains tax on receipt of partnership interest against shares on conversion of a company into an LLP under the LLP Act

This Tax Alert summarizes a recent ruling  of the Authority for Advance Rulings, New Delhi (AAR), dated 23 August 2019, in the case of Domino Printing Science Plc. (Taxpayer). The AAR, in this case, held that conversion of a company into a limited liability partnership (LLP) in accordance with the provisions of The Limited Liability Partnership Act, 2008 (LLP Act) results in transfer of shares by the shareholders of the converting company. The AAR further held that the value of interest in the LLP is to be considered as the “full value of consideration” received on the transfer of shares for the purpose of computation of capital gains under the Indian Tax Laws (ITL).