Transfer of Capital Asstes by partner to LLP

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CA Chintan Parikh (Querist)
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01 February 2011 One of the partner of LLP brings his capital asset as his contribution to LLP. Section 45 (3) of IT Act says that- if a contribution in form of an asset, is made to LLP by partner, such contribution could be taxable. Said section says- the transfer value would be such as the amount recorded in books of account of the firm.
But as per Rule 23 of LLP, the contribution of partner consisting immovable,etc.,.... shall be valued by approved valuer from the panel maintained by the CG.
So, on which amount tax will be chargeable?

B. Gopalkrishna Baliga

B. Gopalkrishna Baliga (Expert)
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01 February 2011 as far as Income Tax is concerned, the value which the partnership firm is going to enter in the books of accounts shall be taken for tax calculation. The said section i.e. Sec. 45(3) is free of any ambiguities. No multiple interpretation can be made. It straight away says that amount recorded in the books of the firm is the taxable amount, thus, no two or more interpretations should be made. LLP Act provision about valuation of asset and Income tax provision of taxability of Asset transferred by partner to firm are mutually exclusive. There cannot be any combined interpretation of these two provisions.
If the LLP is going to agree with the valuer and revalue the asset accordingly and include it in to their Balance Sheet at that value, then tax shall calculated according to that value as base only. there is no provision of valuation with reference to Sec 45(3) as to taxability of asset transferred.

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CA PARAS BAFNA

CA PARAS BAFNA (Expert)
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01 February 2011 Chintan bhai,

From the reply of Expert B. Gopalkrishna, I
may conclude this "Chintan" in following lines:

" In case LLP adopts the value of capital asset provided by an approved valuer, it will make compliance with both the Acts."

Guest

Guest (Expert)

01 February 2011 Agree with the both experts.

CA Chintan Parikh

CA Chintan Parikh (Querist)
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02 February 2011 Thank you to all of you for your valued and prompt reply.

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