Capital Gain on retirement from a Partnership Firm

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CA RAMESH KUMAR AHUJA (Querist)
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16 July 2008 There was a dispute among the partners of a three year old firm running a business. The dispute was settled and four partners out of the six decided to retire and a MOU was signed in this context by all the six partners. Each of the retiring partners has invested a sum of Appx Rs 30 lacs in the firm over the last three years. At the time of retirement the immovable properties were revalued and as a result of such revaluation each received Rs 2 crores. What is the position under the IT Act? Whether the surplus will be taxed as Capital gains?

S.Srinivasaraghavan

S.Srinivasaraghavan (Expert)
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16 July 2008 The above is covered by Section 45(4). The tax on capital gains has to be provided for as the liability of the firm and balance alone can be distributed.

CA. Sahendra Jaiswar

CA. Sahendra Jaiswar (Expert)
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16 July 2008 Yes, the surplus will be taxable as Capital Gain under Section 45 of the Income Tax Act, 1962 because it is consudered as Transfer of Capital Assets under Income Tax.

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