CAPITAL GAINS

[MOHINDER KANSAL]

ONE OF MY CLIENT IS PARTNERSHIP FIRM WHICH IS NOW DISSOLVED AND ASSETS ARE DISTRIBUTED AMONG PARTNERS AT PRESENT MARKET VALUE WHICH RESULTED IN GENERATING LONG TERM CAPITAL GAINS TAXABLE IN THE HANDS OF THE FIRM. NOW MY QUERY IS WHETHER FIRM CAN PURCHASE THE NHAI BOND AND GET EXEMPTION U/S 54EC. IF YES, IN WHICH NAME AND HOW ? AT MATURITY HOW THESE SHALL BE ENCASHED WHILE THE FIRM IS ALREADY DISSOLVED. PL. GUIDE ALONGWITH CASES, IF ANY.

[CAGOPALJI AGRAWAL]

To my mind, the dissolved firm can not take the exemption of section 54EC.

[DEV KUMAR KOTHARI]

A dissolved firm also continue as a firm in respect of compliance of old matters pertaining to period prior to dissolution. A firm can invest in specified bonds u/s 54EC directly or through its partners. Firm is dissolved say on 31.03.10 and entries for distribution of assets are also made on 31.03.10 so deemed capital gains accrues on 31.03.10. Time available to make investment in bonds is available til 30.09.10. The firm though dissolved as on 31.03.10 will file return for PYE 31.03.10 , AY 2010-11 after dissolution say by 30.09.10. Therefore, for the purpose of filing the return, paying taxes, and making investment the firm can act as firm the process of realizing assets and settling liabilities may be carried after dissolution of firm. In any case the right to invest in specified bonds within six months from the date of transfer is a statutory right,,Therefore, investment can be made by the firm in specified bonds. The investment can be made in names of partners as per their mutual understanding so that they can realize money on maturity. This is a practical aspect of firm having capital gains on the occasion of dissolution of firm and consequent distribution of assets of the firm in accordance with statutory provisions where certain gains are deemed to arise in hands of the firm. To carryout the scheme of the taxation and exemption or relaxation, the matter need to be considered in purpose seeking manner. The Dissolution deed may specifically provide for these matters- to maintain bank account to enable realization of assets, making of investments etc. Let us consider with another example: the firm is holding certain bonds which are not transferable and will mature after say two years after dissolution of the firm- how you will deal , apply the same principal in relation to investment to be made in respect of deemed capital gains on dissolution of firm. Go on brain storming.

AI Summary

Dissolved Partnership Firm's Eligibility for Section 54EC Tax Exemption on Asset Distribution Raises Debate on NHAI Bond Investments. A query was raised regarding a dissolved partnership firm that distributed assets at market value, resulting in long-term capital gains. The question concerned whether the firm could invest in NHAI bonds for tax exemption under Section 54EC and how to manage these investments post-dissolution. One response suggested that the dissolved firm cannot claim the exemption, while another argued that the firm can still act for compliance purposes, including investing in bonds within the statutory timeframe. The investment can be made in the partners' names, allowing them to realize the funds upon maturity. The dissolution deed should address these matters.