Treatment on transfer of capital asset to partner/member on dissolution or reconstitution of specified entity - (New) Section 67(10) & 8 / (old) Section 45(4) & 9B

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.... A = income chargeable to income-tax under this sub-section as income of the specified entity under the head "Capital gains"; B = value of any money received by the specified person from the specified entity on the date of such receipt; C = amount of fair market value of the capital asset received by the specified person from the specified entity on the date of such receipt; and D = amount of balance in the capital account (represented in any manner) of the specified person in the books of account of the specified entity at the time of its reconstitution; if the value of "A" as computed is negative, such value shall be deemed to be zero; there is not capital gain. Ignore artificial increases • Revaluation gains of assets • Self-generated goodwill • Self-generated intangible assets Determination of period of holding of capital assets [ Rule 6(3) ] In case of the amount which is chargeable to income-tax as income of a specified entity under section 67(10) under the head "Capital gains",- • (a) Short Term Capital Asset - the amount or a part of it shall be considered to be....

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....n value of an asset on account of its revaluation; or (ii) the recognition of the value of a self-generated asset or self-generated goodwill, due to its valuation; and No Attribution Where Income Does Not Arise from Revaluation [ Rule 50(3) ] • Where the aggregate of the value of money and the fair market value of the capital asset received by the specified person from the specified entity, is in excess of the balance in his capital account, • charged to tax under section 67(10) does not relates to revaluation of any capital asset or valuation of self-generated asset or self-generated goodwill, of the specified entity, • the amount charged to tax under section 67(10) shall not be attributed to any capital asset for the purposes of section 72(5). Distributed Asset Exception [ Rule 50(4) ] • Irrespective of anything contained in sub-rule (2) or sub-rule (3), • where the aggregate of the value of money and the fair market value of the capital asset received by the specified person from the specified entity, in excess of balance in his capital account, • charged to tax under sect....

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....tive society) in any tax year; (c) "Reconstitution of the specified entity" means, where - (i) one or more of its partners or members, of such specified entity ceases to be partners or members; or (ii) one or more new partners or members are admitted in such specified entity in such circumstances that one or more of the persons who were partners or members, of the specified entity, before the change, continue as partner or partners or member or members after the change; or (iii) all the partners or members, of such specified entity continue with a change in their respective share or in the shares of some of them. (d) self-generated goodwill" and "self-generated asset" mean goodwill or asset, as the case may be, which has been acquired without incurring any cost for purchase or which has been generated during the course of the business or profession. Under Section 45(4) & Section 9B of the Income Tax Act, 1961 [ Upto 31.03.2026 ] I. Section 45(4) : Profits or gains from receipt of money or capital asset or both by specified person from specified entity on reconstruction of specified entity shall be chargeable to income-tax as inc....

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....hich has been generated during the course of the business or profession. II. Type of capital gain chargeable to tax u/s 45(4) [ Section 2(42A) & Rule 8AA(5) ] Capital Gains shall be of the following type :- Short Term Capital Gain (STCG) Long Term Capital Gain (LTCG) The amount or a part of it shall be deemed to be from transfer of short term capital asset, hence STCG if it is attributed to :- • Capital asset which is STCA at the time of taxation of amount u/s 45(4); or • Capital asset forming part of block of asset; or • Capital asset being self-generated asset and self-generated goodwill as defined in clause (ii) of Explanation 1 to sec 45(4). The amount or a part of it shall be deemed to be from transfer of long term capital asset or assets, hence LTCG if it is attributed to capital asset which is not covered in STCG and is LTCA at the time of taxation of amount u/s 45(4). III. Section 9B : Income on receipt of capital asset or stock in trade by specified person from specified entity in connection with the dissolution or reconstruction of such specified entity. [ Inserted w.e.f. AY 2021-22 ] • Deemed t....

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....21 dated 02.07.2021) Attribution of income taxable u/s 45(4) to the capital assets remaining with the specified entity, u/s 48 [ Rule 8AB Added vide Notification No. 76/2021, dated 02.07.2021 ] • (1) For the purposes of Section 48(iii), where the amount is chargeable to income-tax as income of specified entity under Section 45(4), the specified entity shall attribute such amount to capital asset remaining with the specified entity in a manner provided in this rule. • (2) Where the aggregate of the value of money and the fair market value of the capital asset received by the specified person from the specified entity, in excess of the balance in his capital account, chargeable to tax under section 45(4), relates to revaluation of any capital asset or valuation of self-generated asset or self-generated goodwill, of the specified entity, the amount attributable to the capital asset remaining with the specified entity for purpose of section 48(iii) shall be the amount which bears to • the amount charged under section 45(4) the same proportion as the increase in, or recognition of, value of that asset because o....