24 May 2011
Whether a partnership firm can revalue its assets when there is no change in constitution of firm?? When the value of fixed assets is increased due to above,and the increase is credited to partner's capital account,whether partners will be entitled to receive interest on such revaluation profit also???
25 May 2011
In Asstt. CIT v. Sant Shoe Store (2004) 88 ITD 524 (Chd-Trib), a similar issue was discussed. The Tribunal held the firm has no independent subsistence apart from partners and assets of the firm or assets of the partners. When firm pays interest on capital to the partners there are two legal entities otherwise one cannot make payment to himself. Although what is capital of partnership is neither defined in section 40(b) nor in any other statutory provision, section 14 of the Indian partnership Act, 1932 defines the property of the firm which in fact means property of the partners, as for the sake of convenience, a compendious name given to the partnership. The true value of all assets and liabilities can be determined only at the time of dissolution of partnership. Everything till that date is notional only. Yet for the sake of convenience and for practical purposes entries are made having regard to the market value of items and transactions involved. Till the actual value is determined, the partnership acts on above notional entries. These are binding on partners and partnership. Entries made representing transaction are real unless they are replaced by entries made at the time of dissolution by taking actual value of assets and liabilities of the partnership. Till the above date, (i.e. the date of dissolution) every entry made has to be treated as legally made and effective. Therefore, the assessee is entitled to interest on capital as reflected in the books of account.
In view of the above decision, the partners are eligible to claim interest on the increase in capital effected by means of revaluation of assets of the firm. However, as a matter of caution revaluation exercise must be bona fide and must be based on a technical valuation report from approved sources, with revalued asset value does not exceed original cost of the asset. CA MANOJ GUPTA JODHPUR 09828510543
25 May 2011
Sir, I want to know whether Additional Depriciation on increased revalued amount will be allowed or not?? And if the revalued amount exceeds the original cost of the assets,then what will be the treatment of such revaluation??
25 May 2011
no way depreciation under the law will be allowed only on the WDV and not on revalued amount u can charge dep on revalued value in accounts as per AS-6
25 May 2011
As per my understanding,Depriciation on revalued amount will not be allowed under income tax,although it can be charged in books. What will be the treatment if revaluation exceeds the original amount of assets????
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