Capital gain

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A partnership firm, operating a lodging business in a family property owned by six individuals, has been accounting for capital expenditure. The property is now being transferred to one person. The key question is whether the capital gain should be taxed in the individual owners' hands or as a short-term capital gain for the business. The advice suggests that the firm is liable for capital gains on the expenditure it incurred. Subject to this, the gain will likely be taxed in the hands of the individual owners, using the initial property value as the cost of acquisition, with indexation applied.

jayam

jayam (Querist)

06 March 2020 One of my Client is engaged in lodging business, its apartnership firm.The lodging is done in a family property which belong to six persons of whom two are partners in the above firm.
The capital expenditure done to the property is accounted in books of partnership firm as and when th expenditure is incurred , but not the initial value

Now the joint owners are arriving at an agreement and property is coming to the hands of one person..Please advise whether capital gain should be taxed in individual hands or to be taxed as short term capital gain in business

CA PARAS BAFNA

CA PARAS BAFNA (Expert)

06 March 2020 1. Your query is silent about the consideration to be payable to the firm against the capital expenditure incurred by the firm for attaining enduring benefits. The firm is liable for capital gains, in respect of such CE.
2. Subject to above , the capital gains will be taxed in the hands of the individual owners of the property by considering the initial value as Cost of acquisition (Indexation has to be done for computing Capital Gains.

jayam

jayam (Querist)

07 March 2020 As such no specific sum is decided on as to be payable to form against capital expenditure since the firm will continue lodging business in that property only

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