Tax on retirement of partner & tax planning

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nilesh patel (Querist)
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12 July 2013 Kindly provide inputs on tax applicability for below situation:

Case -
Partnership firm
3 partners - 2 individual & 1 huf ( all 1 family members).
Has business income & house property income from 3 let out property (all commercial property).

Huf wants to retire & in settlement receives 1 let out property having book value 90 lakh (market value 1.00 crore) but with O/S bank loan of 35 lakh and another 3rd party pvt loan of 15 lakh. Also his capital a/c has credit balance of 25 lakh.

kindly assist if tax on such retirement is applicable under capital gain or not. and suggest ways for tax planning or lowering tax liability. Also if the route of family settlement is adopted ( as heard in sum case laws) is there a no tax liability for above case in case of family settlement.

Regards
CA Nilesh Patel

CA Sanket M Shah

CA Sanket M Shah (Expert)
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28 August 2013 Hello Mr. Nilesh Patel

Partnership Firm has to pay tax on Rs. 30 Lakhs i.e. [(90-25-15-35)*2] u/s section 45(4) and pls refer judgement of CIT V/s A. N. Naik and Associates. There are also other judgments in which it has said that Firm is not liable for tax. Therefore it is a disputed matter.

My personal view is that there is a tax liabiity applicable to the Firm on Rs. 30 Lakhs (for 2 Partners 15*2) and also to the HUF (retiring parnter) on Rs. 15 Lakhs
if any clarification required you may mail to shahsanket123@gmail.com

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