CAPITAL GAIN, URGENT QUERY, PLEASE ANSWER

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This query is : Resolved

AMIT AGRAWAL (Querist)

12 March 2011 SIR JAI SHREE KRISHNA
THERE IS A PAERTMERSHIIP FIRM NAMED ABC HAVING 3 PARTNERS. PARTNERS INTRODUCED THEIR OWN LAND IN FIRM AS CAPITAL CONTRIBUTION AND NO PAYMNET HAS BEE RECEIVED AND FIRM ENTERED INTO A DEVELOPMENT AGREEMENT WITH ANOTHER DEVELOPERE FIRM NAMED BCD FOR DEVELOP THE SAID LAND FOR A CONDIDERATION RS 2000000/-, AT THE TIME OF AGREEMENT BCD PAID RS 500000/- AS ADVANCE MONEY TO ABC AND BALALNCE PAYMNET SHALL BE GIVEN BY BCD TO ABC AT THR TIME OF EXECUTION OF SALE DEED IN FAVOUR OF PROSOPECTIVE BUYERS, NOW A WANT TO KNOW
1- WHAT IS THE POSITION OF CAPITAL GAIN IN THE HANDS OF PARTNERS.
2- WHAT IS THE POSITIION OF TAX LAIBILTY IN THE HANDS OF FIRM AND WHAT IS THE POINT OF TIME WHEN TAX IS TO LEVIED ON ABC

CA PARAS BAFNA

CA PARAS BAFNA (Expert)

12 March 2011 1. On the basis of amount credited to respective partner in M/s ABC capital gains will be calculated in the hands of partners.
The date of transfer of asset for partners will be the date when the amount has been recorded in the books of ABC.

2. In the light of the facts, ABC is carrying on business and the land contributed partners is like stock in trade. Tax liability on ABC will arise at multiple times when the documents will be executed in favour of the so called prospective buyers. The Income will be taxed as Business Income. Profit arising on construction will have to be proportionately calculated and treated as Business Income.

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