Capital gain

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SUBHASH MISHRA (Querist)
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09 October 2009 Respected sir,

A land property acquired in inheritance by a family on the death of the head of family. The family consists his widow wife and two major sons.

Now all the aforesaid family members handed over the above land to other three persons (other than family members) and through a partnership deed duly executed by them, they have constituted a partnership firm.

As per partnership deed they will construct flats and shops on this land and will sell them on ownership basis. Likely they have started construction activities on this land.

Accordingly, In the beginning - in the books of accounts of the firm, they have debited land account and credited the capital account by considering fair market value of that property in their equal portion.

Partnership firm has filed its income tax return for the AY 2009-10 by showing construction account, Profit and loss account and Balance sheet.

Now the partners (Those who acquired this land in inheritance) has to file their income tax returns.

Now my questions are –
1) How I have to show it in their personal balance sheet.
2) Will any capital gain provisions will attract and if yes, how I have to deal with. (Keeping in mind that they simply transferred this property to a partnership firm).

Please guide.

With due respect

(Subhash Mishra)

CA. Vinod Pandey

CA. Vinod Pandey (Expert)
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10 October 2009 Dear Subhash,

Yes, Capital gain provisions will attract since it is transfer. You have to simply calculate Capital gain

Ratan Sharma

Ratan Sharma (Expert)
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10 October 2009 As you have transferred the land at the market price to the partnership firm therefore you might have passed the entries upto the date of transfer after revaluation of asset.
Now after selling this asset you have to calculate the capital gain upto the date of transfer of asset to the partnership firm and thereafter there will be business income of partnership firm. induction of property in the firm as capital of partner will not attract capital in the year in which the asset is transferred to firm but liable for capital gain in the year in which the asset is sold.
In the personal balance sheet of partner you have to simply made the entries of amount received from the firm but from the income Tax point of view you have to declare your income as abovementioned.

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Pritesh

Pritesh (Expert)
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10 October 2009 1. If Inheritance Entries are passed debitting land.. Cr land & Dr Investement in Partership A/c..

2. Capital Gains will be attracted as transaction satisfies provisions of sec.45., See that ur able to find out cost of acquisition., If same cannot be found computation provisions fail.. No cap Gains

3. Consider Indexation, Period of Holding of previous owner..

4. Check for Exemptions if any available under mentioned CG Chapter eg.54F etc..

5. Extra caution:-Consider Conversion of capital asset into stock in trade, as you have mentioned its debitted to land A/c, in books of Firm.

Any Pls ask..