Very urgent-capital gain

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

11 November 2016 what will be treatment if partner give plot of land to partnership firm . partnership firm is trading in real state business .
what will be entry and treatment of capital gain

Amol S Joglekar

Amol S Joglekar (Expert)
Follow

11 November 2016 Please go through section 45(3)
The profits or gains arising from the transfer of a capital asset by a person to a firm in which he is or becomes a partner or member, by way of capital contribution or otherwise, shall be chargeable to tax as his income of the previous year in which such transfer takes place and, for the purposes of section 48, the amount recorded in the books of account of the firm as the value of the capital asset shall be deemed to be the full value of the consideration received or accruing as a result of the transfer of the capital asset

Querist : Anonymous

Querist : Anonymous (Querist)

11 November 2016 Amol sir, recorded value of land in books and cost of acquisition is same. so no capital gain as per sec 45(3)

but how should firm record in books
what will be entry

Amol S Joglekar

Amol S Joglekar (Expert)
Follow

11 November 2016 01. if it is towards capital contribution
Debit Stock of land
Credit Capital

02. if it is loan
debit stock of land
credit loan from xxx

Querist : Anonymous

Querist : Anonymous (Querist)

11 November 2016 I agree but firm is dealing in real state business if we show as a capital assets then in case of sale of plot firm need to convert capital assets into stock in trade and capital gain may arise under section 45(4)

can we directly take land as a stock in trade if yes then how it is possible??

Amol S Joglekar

Amol S Joglekar (Expert)
Follow

11 November 2016 Oh Come on! Why are you getting confused with the word Capital Asset?
Ok tell me one thing......when the firm purchases land or say property, what entry do you pass?

Querist : Anonymous

Querist : Anonymous (Querist)

11 November 2016 land purchase a/c (direct expenses) dr
To cash/bank/ party name

but in my case firm has not paid anything to partner but capital account increased

Querist : Anonymous

Querist : Anonymous (Querist)

11 November 2016 if we are passing entry
land purchase (direct expenses) ac dr
to partners capital account

then this is correct entry

Amol S Joglekar

Amol S Joglekar (Expert)
Follow

11 November 2016 absolutely yes. No doubt about it.....
(In stead of land purchase, i called it as stock of land, which is grouped under PURCHASE)

Querist : Anonymous

Querist : Anonymous (Querist)

11 November 2016 Thanks a lot for resolving my confusion :)

Amol S Joglekar

Amol S Joglekar (Expert)
Follow

11 November 2016 you are most welcome.