The business form of Limited Liability Partnership
(LLP) became available in India when the Limited
Liability Partnership Act, 2008 (LLP Act) was
enacted. Prior to this, businesses were organised as companies
under the Companies Act. Small businesses find LLP to be a
preferred form and since the LLP Act has a provision for conversion
of a company into an LLP, many companies sought to convert to LLP.
However, the question was whether such conversion would attract
taxation under the Income Tax Act, 1961 (IT
Act).
In this context, the courts have held that conversion of a
partnership/LLP firm into a company does not constitute
'transfer' and hence is not subject to tax. This was
confirmed in 2003 by the Bombay High Court in the case of CIT
v. Texspin Engg. and Mfg. Works (2003) 129 Taxman 1
(Bombay HC). While this was indeed in the context of reverse
conversion (i.e. conversion of a firm into a company), taxpayers
sought to apply this principle even in the case of
