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Capital gain on land transfered to firm by its partner

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DILLIRAJA

Chartered Accountant

33 Points Posted on 18 March 2014

Hello!

Kindly let me know the point/points of applicability of capital gain in the following case.

A person own a land for more than 10 years and transferes it to the firm in which is a partner as his capital contribution. The firm after one or two years sell the same - case 1: It is held as stock in the firm, case 2: it is not held as stock.

Regards

Replies (1)

CA Ankit Mittal

Charterd Accountant

118 Points Posted on 18 March 2014

Hello Raja

Though under the general law, firm does not have a distinct legal identity apart from its partners, under the Income-tax Act, Section 45(3) transfer of a capital asset by the partner to a firm or by a Member of Association of Persons to the Association of Persons (AOP) by way of capital contribution or otherwise is chargeable to tax as capital gains of the previous year in which such transfer takes place. The amount recorded as the value of the capital asset in the books of account of the firm, AOP or Body of Individuals (BOI) will be deemed to be the full value of the consideration.

As the Partner is holding the land for more than 10 years, the gain would be LTCG

Now after the transfer in Case1: Income would be chargeable under PGBP and there would be no Capital Gain

Case 2 : There will be STCG in the year of transfer & COA would be the book value of asset