CAPITAL GAINS FOR RETIREMENT OR DISSOLUTION OF PARTNERSHIP

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CAPITAL GAINS TAX ON RETIRMENT / DISSOLUTION OF PARTNERSHIP

Mr. A has Capital A/c of ₹ 15,00,000. His share in the assets of the firm comes to ₹ 80,00,000/-

Case 1.

He retires from the firm and he receives ₹ 25,00,000 in cash and balance 55,00,000 in a godown (property in name of firm) transferred to Mr. A. Cost to firm ₹ 20,00,000/-.

Would the firm have to pay capital gains tax u/sec 45 on 55lacs-20lacs on property transferred and also on the 25lacs - 15 lacs , excess given to partner on his capital account

What if the firm, revalues the godown before dissolution and makes book entries. is this legal and allowed by ITO

CASE 2

Same as above, but dissolution. the three partners all take ₹ 80lacs consisting of cash and property. Their capital account is ₹ 15 lacs each.

Would the firm be liable to pay tax on all the transfer of properties.

CASE 3

All partners are brothers. Can a family settlement be made and properties transferred before MR. A retires from partnership.

The firm is based in Thane Dist.Maharashtra and all partners reside in Thane.

[DR.MARIAPPAN GOVINDARAJAN]

Whether you have got clarified in the above issue? If not please inform.

AI Summary

Capital gains on partnership property: transfers on retirement or dissolution can create firm-level taxable gains.
Capital gains tax consequences arise when partnership assets are transferred on a partner's retirement or on dissolution: whether transfers of property to partners generate firm-level capital gains measured by the difference between transfer value and firm cost; whether cash paid in excess of a partner's capital account creates taxable gain; whether prior revaluation and book entries may alter tax treatment; and whether family settlements among partners can be used to transfer properties before retirement to affect tax incidence.