TaxTMI 
TaxTMI 
Guidelines under section 9B and sub-section (4) of section 45 of the Income-tax Act, 1961
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....arising from such deemed transfer is deemed to be the income of such specified entity of the previous year in which such capital asset or stock in trade or both were received by the specified person. Further, it is chargeable to income-tax as income of such specified entity under the head "Profits and gains of business or profession" or under the head "Capital gains", in accordance with the provisions of this Act. It has also been provided that the fair market value of the capital asset or stock in trade or both, on the date of its receipt by the specified person, shall be deemed to be the full value of the consideration received or accruing as a result of such deemed transfer. The definitions of terms "reconstitution of the specified entity", "specified entity" and "specified person" are provided in section 9B of the Act. 2. Similarly the Finance Act 2021 substituted sub-section (4) of section 45 of the Act. This newly substituted sub-section (4) now provides that where a specified person receives any money or capital asset or both from a specified entity, during the previous year, in connection with the reconstitution of such specified entity, then any profits or gains arising....
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....clause (c) of clause (6) of section 43 of the Act to determine written down value of the block of asset and section 50 of the Act to determine the capital gains arising on transfer of such assets. However, the Act has not yet provided that amount taxed under sub-section (4) of section 45 of the Act can also be attributed to capital assets forming part of block of assets and which are covered by these two provisions. To remove difficulty, it is clarified that rule 8AB of the Income Tax Rules, 1962 (hereinafter referred to as "the Rules") notified vide notification no. 76 dated 02.07.2021 also applies to capital assets forming part of block of assets. Wherever the terms capital asset is appearing in the rule 8AB of the Rules, it refers to capital asset whose capital gains is computed under section 48 of the Act as well as capital asset forming part of block of assets. Further, wherever reference is made for the purposes of section 48 of the Act. such reference may be deemed to include reference for the purposes of sub-clause (c) of clause (6) of section 43 of the Act and section 50 of the Act. 5. For the removal of doubt it is further clarified that in case the capital asset remai....
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.... This, net book profit after tax of Rs. 33 lakh (capital gains of Rs. 40 lakh without indexation less tax of Rs. 7 lakh) is to be credited in the capital account of each of the three partners, i.e. 1 lakh each. Thus partner "A" capital account would increase to Rs. 21 lakh. This exercise is required to be carried out since section 9B of the Act mandates that it is to be deemed that the firm "FR" has transferred the land "U" to partner "A" and the long term capital gains of Rs. 35 lakh is chargeable to tax in the hands of the firm "FR" As against capital balance of Rs. 21 lakh, partner "A" has received Rs. 61 lakh (Rs. 11 lakh of money plus land "U" of fair market value of Rs. 50 lakh). Thus Rs. 40 lakh is required to be charged to tax under sub-section (4) of section 45 of the Act. This shall be in addition to an amount of Rs. 35 lakh charged to tax under section 9B of the Act. On account of clause (iii) of section 48 of the Act, read with rule 8AB of the Rules, this Rs. 40 lakh is to be attributed to the remaining assets of the firm "FR" on the basis of increase in their value due to revaluation based on the valuation report of registered valuer. In this case as per revalu....
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.... received Rs. 61 lakh of money. Thus Rs. 40 lakh is required to be charged to tax under sub-section (4) of section 45 of the Act. This will be in addition to Rs. 35 lakh already charged to capital gains. On account of clause (iii) of section 48 of the Act, read with rule 8AB of the Rules, this Rs. 40 lakh is to be attributed to the remaining assets of the firm "FR" on the basis of increase in their value due to revaluation based on the valuation report of registered valuer. In this case as per revaluation there are only two capital assets remaining; lands "S" and "T". In both cases the value has increased by Rs. 60 lakh each. Thus, out of Rs. 40 lakh, Rs. 20 lakh shall be attributed to land "S" and Rs. 20 Lakh to land "T". When either of these lands gets sold, this amount attributed to them would be reduced from sales consideration under clause (iii) of section 48 of the Act. The amount of Rs. 40 lakh which is charged to tax under sub-section (4) of section 45 of the Act shall be charged as long term capital gains in view of sub-rule (5) of rule 8AA of the Rules, since the amount of Rs. 40 lakh is attributed to land "S" and land "T" which are both long term capital assets at ....
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....is required to be charged to tax under sub-section (4) of section 45 of the Act. On account of clause (iii) of section 48 of the Act, read with rule 8AB of the Rules and this guidance note, this Rs. 15 lakh is to be attributed to the remaining capital assets of the firm "FR" on the basis of increase in the value due to revaluation of existing capital assets, or due to recognition of the value of self-generated goodwill, based on the valuation report of registered valuer. In this case as per this report the value of patent "T" has increased by Rs. 15 lakh and the self-generated goodwill value has been recognised at Rs. 30 lakh. Thus one third of Rs. 15 lakh (i.e. Rs. 5 lakh) would be attributed to patent "T", while two third of Rs. 15 lakh (i.e. Rs. 10 lakh) would be attributed to self-generated goodwill, Rs. 5 lakh attributed to patent "T" shall not be added to the block of the assets and no depreciation shall be available on the same. When patent "T" gets transferred subsequently, this Rs. 5 Lakh attributed shall be reduced from the full value of the consideration received or accruing as a result of transfer of patent "T" by the firm "FR", and the net value shall be considered ....