Capital gains tax on distribution of assets to partners

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

18 January 2012 Dear Experts, I have one client (firm) whose nature of business is real estate, as on date there is some closing stock of land for the value of Rs.50lac (book value), now the partners wants to dissolve the firm and distribute the land to all the partners, the fair market value of the land would be around
Rs.60lac?
Now will there be any capital gains tax?
and how to make the entries in the books of account?
Shall I debit partners capital account with the land cost?

CA Dileep Surya Kumar

CA Dileep Surya Kumar (Expert)
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19 January 2012 In the case of ALA FIRM vs CIT supreme court held that in case of dissolution of partnership (no intention to reconstitute it) , the closing stock shall be valued at market price.

The difference between cost and market value will be liable to tax under the head "Business or profession".

For accounting purpose you just revalue the stock

1.Stock in trade A/c Dr
To Profit & Loss A/c

pay tax on it.
'
'
Debit the partners capital A/c's with market value at the end.

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