I want to know the scope of Sec. 45(4)in case of firm.
(1) what is the meaning of the term used in the above section- "distribution of capital assets on the dissolution or otherwise".
does it mean distribution to (i)partner only or (ii) anyone ( e.g. creditor for settlement of their debt.)
by the way, as per ICAI modules, it includes the case of business acquired by the company on dissolutin of firm, except the cases where condtions of sc.47(xiii) is satisfied.
(2) what does "on dissoltion or otherwise" mean? does it mean that - sec. 45(4) attract even in case of transfering asset by a firm , while it is in operation (i.e. not in the process of dissolution)
25 August 2011
In my opinion sub-section 4 of Section 45 of the Income Tax Act in case of firm refers to the implication of capital gains tax treatment arising out of transfer of capital assets.
Most significantly the transaction/event must result in to the transfer of ownership in property and out of that there is a creation of some difference in the value of such properties resulting in to capital gains/profit to the firm.
A transfer of capital asset may take place in any form whether by way of sale or exchange or otherwise like that of distribution of capital assets on dissolution of the firm. Thus the transfer of capital assets may occur by way of distribution of the capital assets on the dissolution of the firm or otherwise too, however it must have given rise to Capital Gains for the purpose of taxation. Transfer of capital assets may take place during the operation of firm or on dissolution of the firm but sub-section 4 specifically relates to the transfer of capital assets by way of distribution of capital assets on dissolution-giving rise to Capital Gains.
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