Capital Gains

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Querist : Anonymous

Querist : Anonymous (Querist)

07 February 2011 If a proprietory business has been converted into partnership firm,whether capital gain tax will be levied or not?

CA Jeen paul

CA Jeen paul (Expert)
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07 February 2011 where the proprietory business is coverted to firm capital gain will not be attracted. but the transfer of indiviadual capital assets of propritory business will be chargeable to capital gain tax

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Kumar Babu.G

Kumar Babu.G (Expert)
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07 February 2011 If a proprietory business has been converted into partnership firm,no capital gain will attract.Reasons are:
1.It is merely a status change.There is no actual transfer for a consideration.
2.No consideration will be received by transferor
3.Just assets of transferor will get reflected in books of firm at their book value

As per Sec 45(3) - The profits or gains arising from the transfer of a capital asset by a person to a firm or other association of persons or body of individuals (not being a company or a co-operative society) in which he is or becomes a partner or member, by way of capital contribution or otherwise, shall be chargeable to tax as his income of the previous year in which such transfer takes place and, for the purposes of section 48, the amount recorded in the books of account of the firm, association or body as the value of the capital asset shall be deemed to be the full value of the consideration received or accruing as a result of the transfer of the capital asset.

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Querist : Anonymous

Querist : Anonymous (Querist)

16 February 2011 The proprietor has received only profit sharing ratio in the firm,he has not received any cash or kind.
As per the information given by my seniors is the C.G will not be levied because he has not received any consideration other than profit share in partnership firm.