SECTION 45(3) AND 50C

[Guest]

AS PER SECTION 45(3), PROFIT OR GAIN ARISING FROM THE TRANSFER OF A CAPITAL ASSET BY A PERSON TO A FIRM, IN WHICH HE IS OR BECOMES A PARTNER, BY WAY OF CAPITAL CONTRIBUION OR OTHERWISE, AMOUNT CHARGEABLE TO TAX IS ' AMOUNT RECORDED IN THE BOOKS OF ACCOUNT '.

AS PER Section 50C, WHERE CONSIDERATION RECEIVED OR ACCRUING AS A RESULT OF THE TRANSER BY AN ASSESSEE OF A CAPITAL ASSET, BEING LAND OR BUILDING OR BOTH, IS LESS THAN THE VALUE ADOPTED OR ASSESSED OR ASSESSABLE B ANY AUTHORITY OF A STATE GOVERNMENT FOR THE PURPOSE OF PAYMENT OF STAMP DUTY IN RESPECT OF SUCH TRANSFER, THE VALUE SO ADOPTED OR ASSESSED OR ASSESSABLE SHALL, FOR THE PURPOSE OF SECTION 48, BE DEEMED TO BE THE FULL VALUE OF THE CONSIDERATION RECEIVED OR ACCRUING AS A RESULT OF TRANSFER.

NOW MY QUERY IS, IF PARNER OF FIRM TRANSFER LAND IN FIRM AS A CAPITAL CONTRIBUTION BY RS. 15 LACS AND ASSESSABLE (SINCE DOCUMENT IS NOT REGISTERED)VALUE OF SUCH LAND IS 25 LACS. IN SUCH SITUATION, 50C OVERRIDE SECTION 45(3) OR NOT.IF RELEVANT JUDGMENT IS AVALIABLE, IT WOULD BE BETTER.

[Mahaganapathi V]

Sir

There is no need of registered sale deed in favour of the firm. If you transger the possession of the property in favour of the firm then it would be considered as a transfer as difined under income tax act and transfer of property act. More over in many of the p[artnership deed there will be a clause to purchse assets of the firm in the name of the partner also. Hence the valuation under section 50C would attract and accordingly the capital gain tax to be paid.

[Bharat Agarwal]

Both provisions are deeming fictions. Hence, where there is a specific deeming fiction in form of 45(3) stating that the value recorded in books of firm shall be treated as consideration then such deeming fiction cannot be overridden by another deeming fiction of 50C. Therefore, 45(3) would always prevail over 50C.

AI Summary

Deeming rule for partner contributions: book value recorded in firm may prevail over stamp duty valuation for land transfers. Two competing deeming fictions govern contribution of land by a partner to a firm: one treats the amount recorded in the firm's books as the consideration for the transfer, while the other treats the stamp duty value adopted or assessed by state authorities as the deemed full value of consideration for land or building where that value exceeds the actual consideration. The discussion records one view that stamp duty valuation can apply when possession transfers, and an opposing view that the book value deeming fiction for intra firm contributions should prevail.