Transfer of assets from proprietorship firm to partnership
This query is : Resolved
Querist : Anonymous
Querist :
Anonymous
(Querist)
04 June 2012
A partnership firm was formed on 11th April, 2011 which took over all the assets and liablities of a proprietorship firm of the same name. The proprietor of the firm held 25% share in the partnerhsip firm.
Is the proprietor of the firm be liable to pay capital gains tax under the transfer of such assets on 11th April.
CAN HE BE REQUIRED TO PAY TAX UNDER SLUMP SALE OR UNDER OTHER CATEGORY OF CAPITAL GAIN. I.E. IS SLUMP SALE APPLICABLE ON TRANSFER OF ALL THE ASSETS AND LIABILITIES BY A PROPRIETORSHIP FIRM TO PARTNERSHIP FIRM.
ALL THE ASSETS OF THE PRORPRIETORSHIP FIRM ARE DEPRECIABLE IN NATURE.
YOUR VALUABLE SUGGESSTIONS WOULD THROW MORE LIGHT ON THE TOPIC?
Is the proprietor of the firm be liable to pay capital gains tax under the transfer of such assets on 11th April.
CAN HE BE REQUIRED TO PAY TAX UNDER SLUMP SALE OR UNDER OTHER CATEGORY OF CAPITAL GAIN. I.E. IS SLUMP SALE APPLICABLE ON TRANSFER OF ALL THE ASSETS AND LIABILITIES BY A PROPRIETORSHIP FIRM TO PARTNERSHIP FIRM.
ALL THE ASSETS OF THE PRORPRIETORSHIP FIRM ARE DEPRECIABLE IN NATURE.
YOUR VALUABLE SUGGESSTIONS WOULD THROW MORE LIGHT ON THE TOPIC?
05 June 2012
1. Capital gain shall arise on such transfer.
2. The sale consideration shall be the amount recorded in the books of the firm.
3. Section 50B (slump sale) will be applicable if individual values are NOT assigned to the assets and a lump sum amount is received from the firm for the business.
4. Normal capital gain shall be computed if values are assigned to individual assets.
5. If values are assigned to individual assets, then Section 50 shall be applicable for depreciable assets.
2. The sale consideration shall be the amount recorded in the books of the firm.
3. Section 50B (slump sale) will be applicable if individual values are NOT assigned to the assets and a lump sum amount is received from the firm for the business.
4. Normal capital gain shall be computed if values are assigned to individual assets.
5. If values are assigned to individual assets, then Section 50 shall be applicable for depreciable assets.
16 January 2013
what will be your view if firm is created by immovable asset gives by partners......?
at time of creation not after creation.
at time of creation not after creation.
02 August 2025
Great question! Here’s how the tax implications generally work when a partnership firm is created by contribution of immovable assets by partners **at the time of creation**:
---
### Contribution of Immovable Property by Partners to Partnership Firm
1. **Capital Gains Tax on Transfer of Asset to Partnership Firm:**
* When partners contribute immovable property to a newly formed partnership firm **at the time of its creation**, the transaction is treated as a **transfer** of capital asset by the partner to the firm.
* This transfer is **chargeable to capital gains tax** in the hands of the partner as per the provisions of the Income Tax Act.
2. **Valuation of the Asset:**
* The capital gain will be computed on the difference between the **fair market value (FMV)** of the asset on the date of contribution and the **cost of acquisition** of the asset by the partner.
* FMV is usually taken as the stamp duty value or any other valuation method as prescribed.
3. **Treatment of Capital Gains:**
* This is treated as a **capital gain transaction** in the hands of the partner.
* If the asset is a **depreciable asset**, Section 50(1) may apply (taxation of capital gains on depreciable assets).
4. **No Slump Sale:**
* Since this is a contribution of asset on creation and not a transfer of entire undertaking or business as a going concern, **Section 50B (Slump Sale provisions) do not apply**.
* Slump sale typically applies when there is a transfer of **entire business undertaking** for a lump sum consideration without assigning individual asset values.
5. **Cost of Asset in Hands of Firm:**
* The partnership firm takes the asset at the **cost to the partner** (i.e., the cost at which partner acquired the asset), so no step-up in cost happens in the hands of the firm.
---
### Summary
| Situation | Taxability / Section Applicable |
| --------------------------------- | ----------------------------------------- |
| Contribution of asset at creation | Capital Gains Tax on partner, FMV vs Cost |
| Slump Sale | Not applicable |
| Depreciable Assets | Section 50(1) applies if applicable |
---
**Advice:**
* Each partner must calculate capital gains individually on their contribution.
* Ensure valuation of the property is supported by proper documents.
* Consult a tax professional to plan for tax payments or to explore possible exemptions (like rollover relief under certain conditions).
---
If you want, I can help draft an explanation or summary letter for your tax consultant or help with references to relevant sections of the Income Tax Act. Would you like that?
---
### Contribution of Immovable Property by Partners to Partnership Firm
1. **Capital Gains Tax on Transfer of Asset to Partnership Firm:**
* When partners contribute immovable property to a newly formed partnership firm **at the time of its creation**, the transaction is treated as a **transfer** of capital asset by the partner to the firm.
* This transfer is **chargeable to capital gains tax** in the hands of the partner as per the provisions of the Income Tax Act.
2. **Valuation of the Asset:**
* The capital gain will be computed on the difference between the **fair market value (FMV)** of the asset on the date of contribution and the **cost of acquisition** of the asset by the partner.
* FMV is usually taken as the stamp duty value or any other valuation method as prescribed.
3. **Treatment of Capital Gains:**
* This is treated as a **capital gain transaction** in the hands of the partner.
* If the asset is a **depreciable asset**, Section 50(1) may apply (taxation of capital gains on depreciable assets).
4. **No Slump Sale:**
* Since this is a contribution of asset on creation and not a transfer of entire undertaking or business as a going concern, **Section 50B (Slump Sale provisions) do not apply**.
* Slump sale typically applies when there is a transfer of **entire business undertaking** for a lump sum consideration without assigning individual asset values.
5. **Cost of Asset in Hands of Firm:**
* The partnership firm takes the asset at the **cost to the partner** (i.e., the cost at which partner acquired the asset), so no step-up in cost happens in the hands of the firm.
---
### Summary
| Situation | Taxability / Section Applicable |
| --------------------------------- | ----------------------------------------- |
| Contribution of asset at creation | Capital Gains Tax on partner, FMV vs Cost |
| Slump Sale | Not applicable |
| Depreciable Assets | Section 50(1) applies if applicable |
---
**Advice:**
* Each partner must calculate capital gains individually on their contribution.
* Ensure valuation of the property is supported by proper documents.
* Consult a tax professional to plan for tax payments or to explore possible exemptions (like rollover relief under certain conditions).
---
If you want, I can help draft an explanation or summary letter for your tax consultant or help with references to relevant sections of the Income Tax Act. Would you like that?
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