taxability on transfer of unquoted equity shares as capital contribution to partnership firm

[BINDLAS DUPLUX]

dear all

one of my client want to contribute unquoted equity shares as an capital contribution to partnership firm to become partner.

he has some equity shares of which book value is rs. 10 lac as per aud. b. sheet on 31/03/2018, he want to contribute shares as capital contribution in partnership firm at less than book value and want to become partner.

whether sect. 56 of income tax act attract that he cannot trf. the shares below book value of that company as capital contribution to partnership firm?

[KASTURI SETHI]

Contact Grievances Redressal Cell. They will set Common Portal System as per order of the Deputy Commissioner. Such problems are solved immediately.

[Shrivats Pandey]

Sir kindly explain whom to contact as the grievance cell as told me to that they will tell the procedure to revocate the gstin cancellation

[DR.MARIAPPAN GOVINDARAJAN]

If the amount contributed is more than ₹ 50,000/- section 56 of the Income Tax Act would attract.

[BINDLAS DUPLUX]

thanks Govindrajan sir

Ok, i agree that sec. 56 will attract on firm,

but in the hands of partner,

> sec. 45(3) says that the full value of consideration for the purpose of sec. 48 will be the value at which the firm recorded in its books of accounts,

> but as per sec. 50CA says that the full value of consideration for the purpose of sec. 48 will be the fair market value.

which deeming fiction will be applied? that is the confusion.

AI Summary

Taxability of capital contribution: valuation conflicts arise between book value and fair market value for transferred unquoted shares. Transfer of unquoted equity shares to a partnership firm at below book value can trigger the receipt-of-property deeming provision in the hands of the firm if the property value exceeds the statutory threshold, treating excess as income. For the contributing partner, conflicting deeming fictions may apply to determine the full value of consideration for capital gains-one relying on the value recorded in the firm's books and another on fair market value-creating valuation uncertainty for computing taxable gain.