We have a partnership firm which is under continuous losses for the past three years. There are five partners. The partnership firm is registered under the Indian Partnership Act. We wanted to close the firm but received an offer from someone to buy the firm on as is where is basis. The deal is that all the 5 partners will exit the business and new partners (who are offering the price) will have to be inducted The details of firms assets and liabilities are as under: -
1) Total fixed assets, stocks, rent deposit etc., - Rs. 20 Lakhs
2) Total liabilities including bank overdraft - Rs. 30 Lakhs
The buyer has quoted a price of Rs. 15 Lakhs to take over assets of 20 Lakhs less liabilities of Rs. 5 Lakhs. The remaining liability of Rs. 25 Lakhs pertains to bank overdraft. This loan is to be cleared by the existing partners from the quote price of Rs. 15 Lakhs plus an additional 10 lakhs from their own sources.
The question i have in mind is: -
1) Whether in this case will there be any capital gains arising to the partners on receipt of Rs. 15 Lakhs even though they are repaying the loan of Rs. 25 Lakhs to bank.
2) The losses incurred during the 3 years have been accepted by the income tax department and order U/S 143(1) is also passed in this regard. Whether this loss will be allowed to be carried forward for future adjustments by the new partners?
3) Will there be any other areas we need to look into for preparing an agreement for business transfer?
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