Search Results For: partnership firm


QUERY: Mr. A retired from a partnership firm. Upon retirement, the assets of the firm are revalued and the excess amount is credited to each partner’s capital account. Mr. A is paid the amount standing to his capital account [which is inclusive of revaluation amount]. What would be tax implications in the hands of the firm and/or in the hands of the Mr. A?

Will the position be different if:

(i) Instead of revaluation being carried out in the books of account, a lump sum huge amount is paid to Mr. A by drawing up a memorandum of settlement.

(ii) The amount paid to Mr. A is debited to the rest of the partners’ account or is debited goodwill account of the firm.

(iii) There is admission of a new partner who brings the amount required to be paid to Mr. A and who is given the same share as of Mr. A

(iv) There is no new admission and the existing partners distribute the share of Mr. A equally /unequally.
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Section 45(4) of the Income-tax Act, 1961 provides that, profits or gains arising from transfer of capital assets by way of distribution of capital assets on dissolution of a firm, association, etc. “or otherwise” shall be chargeable to tax as income of the firm, association, etc. of the previous year in which the said transfer takes place and for purpose of section 48,

QUERY: A firm having three partners and doing construction work.

In the said firm, there are tippers and JCB machines standing in balance sheet for business purpose.

Out of three partners, one partner wants tipper and another partner wants JCB machinery for his individual business purpose.

Can it be the transferred by debiting their capital account and crediting machinery account during the continuation of partnership business with-out attracting capital gain tax.

What will be position, if the said transaction is effected on dissolution of firm?

Further, if the firm is decided to be dissolved on April 01, 2016 and the said transaction is made then as to whether the entry is to be passed on March 31, 2016 or April 01, 2016 and in that circumstances as to which date will be treated for taxation purpose i.e. March 31, 2016 or April 01, 2016 and in which year liability to pay income tax, if any, will arise?
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If plant and machinery are withdrawn by the partners at book value during the continuance of partnership firm, then, the same can be debited to partners ac-count and credited to plant and machinery account in such case there is no question of any liability of capital gains. [See Malabar Fisheries Co. [120 ITR 49 (SC)]

QUERY: M/s. GE is a registered partnership firm in the business of property development. It holds certain residential flats / office premises, which are not yet sold and which are held as stock-in-trade. Out of such properties, it intends to distribute certain premises among the partners at book value, by journal entries. It wants to know –

(i) What are the implications under the Income- tax Act, 1961 and under Stamp Duty / Registration Act?

(ii) Will it make any difference if the distribution takes place upon dissolution? How accounts are to be settled?

(iii) What will be the character of the property received in the hands of the partners?

As regards the balance stock remaining with the firm, it desires to know what are the implications under Income-tax Act, 1961 and Wealth Tax Act, 1957?
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(i) Section 45(4) of the Income-tax Act, 1961 would not be applicable, as M/s. GE is holding properties as stock-in-trade.

Now, as per the query M/s. GE want to distribute the stock-in-trade to its partners. In other words, the partners would withdraw the stock from business. In Sir Kikabhai Premchand v. CIT [24 ITR 506],

QUERY: In case of a Partnership firm, the assets revalued and the amount was credited to the capital account of the partners. After few months, one of the partners retired and the firm paid the amount which was standing to the Capital Account (after revaluation) of the retiring partner. Mumbai ITAT in the case of Sudhaker M. Shetty has taken the view that amount received on retirement is taxable in the hands of partner. What is your view in this matter? There are various judgments wherein it is held that, amount received by partner on retirement is not liable to tax.

(i) Addl. CIT v. Mohanbhai Panabhai [165 ITR 166 (Guj.)(HC)]

(ii) Tribhovandas G. Patel v. CIT [236 ITR 515 (SC)]

(iii) Prasant S. Joshi v. ITO [324 ITR 154 (Bom)(HC)
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The manner of settlement of account may decide liability. In Sudhakar M. Shetty v. ACIT [130 ITD 197 (Mum)], the retirement deed conveyed interest in immovable property and after retirement he had no interest over the assets of the firm.

QUERY: For the purpose of section 44AD, is the limit to be decided qua assessee or qua business?
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Qua both. The scheme is applicable to “an eligible assessee engaged in eligible business” The salient features of the new presumptive taxation scheme are as under:

a) The scheme is applicable to individuals, HUFs and partnership firms excluding limited liability partnership firms. It is also not be applicable to an assessee who is availing deduction under sections 10A,

QUERY: Mr. P is Professional Engineer and has following source of income:

• Share of profit from engineering partnership firm Rs. 15,00,000/-

• Remuneration from the said firm Rs. 9,00,000/-

• Share of profit from proprietary concern Rs. 13,00,000/-

Whether Mr. P is required to get his accounts audited u/s. 44AB?
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No, as Mr. P’s gross receipts from the profession are less than Rs. 25/- lakhs. As per Guidance Note on Tax Audit under section 44AB of the Income-tax Act, 1961 issued by

QUERY: A HUF is a partner in partnership firm in capacity of HUF, whether remuneration is allowable for deduction u/s. 40(b) of the Income-tax Act, 1961 in the hands of partnership firm?
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No remuneration is allowable to HUF. Remuneration can be paid to Karta of the HUF, if he is a working partner in his individual capacity.

The Supreme Court in CIT vs. Trilok Nath Mehrotra & Others [231 ITR 278] has held as under:

“If a member of a Hindu Undivided Family joins a partnership

QUERY: In a partnership firm, the remuneration to the partners are calculated and paid as per Sec. 40(b)(v) and according to the slabs prescribed in the Income Tax Act, 1961, which is authorized by, and in accordance with, the terms of partnership deed and relates to the period falling after the date of such partnership deed.

Now a Finance Bill is passed on 27-7-2009 in which an amendment is carried out in Sec. 40(b)(v) in respect of remuneration of partners and is made applicable for entire Financial Year 2009-10 i.e. from 1-4-2009 onwards.

Since Finance Bill was passed on 27-7-2009, the amendment to remuneration clause can be carried out in supplementary partnership deed only after 27-7-2009.

Now in the circumstances, whether such amendment to partnership deed can be applicable to remuneration for the entire Financial Year 2009-10 so for the new limits or whether the amendment can only be prospective from the date of amendment in Partnership Deed?
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The payment of remuneration within the prescribed limits to working partners is allowable. Such remuneration is allowable on the basis of ‘book profit’ as defined in Explanation 3 to section 40(b) of the Act.

QUERY: The assessee is a partnership firm carrying on medical profession. At present it is carrying on Gynic Branch only for the last several years. It decided to set up 200 bedded multi-specialty hospital and accordingly started the project in May, 2012 under the same partnership firm as a separate unit in order to avail under section 35AD @ 150% of eligible capital expenditure:

(a) Whether this unit can claim deduction under this section though the place of business and the nature of services will be different? No old machinery etc. will be transferred to new building/unit.

(b) Whether the income of both the units owned by the firm will be consolidated for the purpose of applicability of section 115JC or separate treatment?

(c) Can there be any difficulty to claim deduction under section 35AD in case if old unit (Gynic) is also shifted to new Hospital? The new unit may start operation by April-May, 2015.
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a) Yes, the partnership firm can claim deduction under section 35AD @ 150% on capital expenditure incurred for setting up and operating hospital anywhere in India with more than 100 beds for patients. From the fact, it is clear that no old machinery would be transferred to new building/unit, hence, it would not be set up by splitting up or the reconstruction of a business already in existence.

QUERY: Mr. X, through holding 11% shares in a private limited company, is a minority shareholder and the entire company is run and managed by another group, with whom he is in dispute. Mr. X also is a partner in a partnership firm with 21% share, where again he is in minority and is only a sleeping partner and the firm is run and managed by another group. Without any knowledge of Mr. X, the company gave loan of Rs. 11 crores to the partnership firm, which was repaid on the next day. The company is not in the business of financing. Will there be any tax implication in the hands of Mr. X? Will there be any difference if there is another Mr. Y who has similar holding patterns in both the concerns?
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From the facts, it is clear that section 2(22)(e) of the Income-tax Act, 1961 is clearly applicable, irrespective of the fact whether X is managing the company’s business or not. Therefore, any loan given to a partnership firm wherein X has substantial interest i.e. he is beneficially entitled to 20% or more share of the income of the firm, the provision is applicable.