Amalgamation/merger of two partnership firms

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Querist : Anonymous

Querist : Anonymous (Querist)

15 September 2012 Can two partnership firms amalgamate and form a new partnership firm or can one partnership firm takeover the business of other partnership firm. Both the firms are Registered partnership firms with two common partners. One additional partner in one firm. What are the procedural matters? what are the tax implications?

CA Ayush Agarwal

CA Ayush Agarwal (Expert)

15 September 2012 Tax Implications are:-

If you have a lot of immovable property then a slump sale may not be practicable because of the stamp duty exposure. Have you considered keeping the title to the properties in the old firm but giving a perpetual & irrevocable tenancy to the new firm? If the stamp duty law in your State is benign, then this may be workable.

What are the other assets in the business? If the other assets are nominal in value, then the department may argue that s. 50C should apply on the basis that the major value is taken up by the immovable property.

If 50C does not apply (on the basis that what is transferred is not "land or building") then one can fix the consideration at the net worth. There is no provision by which the consideration can be taken at the market value.

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