Search Results For: 45(4)


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If plant and machinery are withdrawn by the partners at book value during the continuance of partnership firm, then, the same can be debited to partners ac-count and credited to plant and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],