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Query

CA Chetna (Chartered Accountant) (150 Points)

23 August 2013

Can 3 individuals (who are also members of the HUF including Karta) be a partner in a partnership firm?

If Yes:

There had been an agreement signed by these 3 individuals for Land ownership sharing varied sharing ratio.

Now if these 3 form a partnership firm, can this agreement for Land ownership be transferred to the new partnership firm in which these 3 are partners?

Will there arise any problem with respect to Income Tax, if there is transfer of this agreement from these 3 individuals to the partnership firm?

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3 Replies

Ankit (CA, CS) (3064 Points)
Replied 23 August 2013

Dear Chetana,

Yes…they can be partners in a firm. Since these are two separate entitites all together.

The Basic essence of a partnership firm in carrying on of business. Just holding of land cannot be said to be a business and as such cannot be called a Partnership Firm.

However, if the land is transferred to the new entity, Capital Gains Tax will b e attracted on the transfer since it is being trfd between 2 entities

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CA Chetna (Chartered Accountant) (150 Points)
Replied 23 August 2013

If the partnership firm is formed on the same day on which an agreement was entered between the individuals and transferred the Land agreement to the firm, then what is the quantifiable effect on transfer? Will there be NIL Capital Gain Tax on this transfer?