Transfer of capital asset between Firm and Partner
Section 45(3)
- In this section capital gain is applicable in the hands of partner as it is treated as transfer .
- Fair value of consideration is = Amount recorded in books of Firm.
Section 45(4)
- Where a partner receives during the PY any capital asset or SIT or both from the firm in connection with the dissolution or reconstitution , then the firm shall be deemed to have transferred such assets to partner in the year in which such assets are received by the partner and Firm is required to pay tax under the hand PGBP or Capital Gain.
- Fair market value as on the date of receipt by partner shall be treated as fair value of consideration for the purpose of capital gain and Profit or gain form business or profession.
Computation of Capital Gain
| Value of money on the date of receipts | (A) | XXX |
| Add: FMV capital asset on the date of receipts | (B) | XXX |
| Total | xxxx | |
| Less: Partner capital account balance at the time of reconstitution | (C) | XXX |
| Capital Gain | (D) | XXXXX |
NOTES
- In the above formula if the value of D is negative then the capital gain shall be zero.
- Balance in the capital account of the partner in the books of accounts of the firm is to be calculated without taking into account the increase in the capital due to revaluation of any asset or due to self generated goodwill or any other self generated asset.
- When capital asset is received by a partner from a firm in reconstitution , then provisions of this section shall apply in addition to the provisions of section 9B.
- The capital gain shall be deemed to be STCG if it is attributable to following assets
- STCG at the time of taxation u/s 45(4
- Capital asset part of block of asset
- Self generated asset and self generated Goodwill
5. In other cases capital gain shall be deemed to be Long term capital gain.
Meaning of Reconstitution
Reconstitution means where,
- one or more of its partner ceases to partners (Or)
one or more new partners/members are admitted in such circumstances that one or more of the - persons who were partners/ members, before change continues as partner or partners after the change (Or)
- All the partners/Members continue with a change in their respective shares or in the shares of some of them.
