Right in share of part. firm immovable assets -capital gain

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Querist : Anonymous

Querist : Anonymous (Querist)

21 December 2011 There are 2 part. having shop in their own name brought in to firm as capital introduced. now one part selling/giving his share in shop to another part on agreed amount. (there is no dissolution/ retirement) What should be tax treatment ? to whom ?? Now Shop will fully own by Single partner.
Please reply

CA PARAS BAFNA

CA PARAS BAFNA (Expert)
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21 December 2011 When an asset is introduced in the firm,
the value credited to Partners' A/c becomes sales consideration and as such the ownership transfers in the name of the firm. The partners pay capital gains tax if any gain arises to him/them.
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In this case partners are taking away the asset from the firm. and Partner B will become sole-owner.
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Suppose the book value of asset is Rs. 20.00 Lacs in the firm's hand. The agreed consideration let be Rs 30.00 lacs for the shop as a whole.
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In my view, it will be deemed as if the firm, being the owner of the shop, is selling back the asset to the partners. As such it will be liable to pay capital gains tax.
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The amount of 15.00 lac will be debited to
both the partners.
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Now partner A sells his portion to Partner B which has cost of acquisition of Rs 15.00lac for him. If he sells at par, no capital gains would arise to A.
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If A sells it for Rs 18.00 lac to B , arising capital gain to A will be Rs 3.00 lac.
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It may further be noted that Capital gain tax paid by the firm would be divided between the partners.
Provisions of indexation and the nature of capital gains (ST or LT) is not being considered here.
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Further.....

B will become the absolute owner and the asset will appear in his personal balance sheet only.
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Querist : Anonymous

Querist : Anonymous (Querist)

22 December 2011 thanks sir but please reply weather right /interest in firms immovable assets is capital assets? then what will be capital gain tax working ? to whom ? can he sell such rights to another partner???

CA PARAS BAFNA

CA PARAS BAFNA (Expert)
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22 December 2011 If the immovable asset is in the firm, then firm is having right over the assets. Right of individual partner remains to the extent of sharing the firm's profits/losses which arises due to transfer of such immovable asset.
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If the partner is having right over the asset then firm is not having right to that extent on that asset.
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So, firm is liable for the gains arising on the transfer of such asset which is being shown in the books of firm.

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