Contribution of land as capital

This query is : Resolved

atul kumar goel (Querist)
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17 June 2015 Sir, Two individuals namely A & B have a piece of land separately registered in own name. They decided to construct residential houses on the same. They want to form a partnership firm and contribute their land to partnership firm for this purpose. Now the queries are as:-
1)What will be the tax implication at the time of contribution of land as capital in the hands of firm and individually?
2)Whether it is necessary to execute transfer deed in favour of firm by paying stamp duty or not?
3)Whether section 45(2) of Income Tax Act arises at the time of conversion of land as stock or at the time of sale of residential house?

CS Advocate Abhishek Goyal

CS Advocate Abhishek Goyal (Expert)
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18 June 2015 1) There will be capital gain implication in the hands of partners on transferring the land to partnership firm u/s 45(3).

2) It will be better to execute transfer deed.

3) Section 45(2) arises in the year of conversion itself but taxability arises in the year of sale of converted asset.

atul kumar goel

atul kumar goel (Querist)
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18 June 2015 Thanks Sir,
Further , whether sec 50C applicable over and above 45(3). i.e whether circle value or value recorded in books will be the sale value in the hands of partners.

CS Advocate Abhishek Goyal

CS Advocate Abhishek Goyal (Expert)
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19 June 2015 Yes it is a valid point. In my opinion section 50C has not been given overriding effect on section 45(3) therefore in my opinion in such type of transaction section 45(3) should apply i.e. value recorded in the books of the firm shall be sale consideration for calculation of capital gains.

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