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Himanshu Nagpal (Querist)
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17 September 2011 if any capital asset is distributed by HUF on its partition then its not a transfer. but whether sec 56(2)(vii) gets attracted in the hands of the members??

C A S.S.Agarwal, M.Com.,LL.B,

C A S.S.Agarwal, M.Com.,LL.B, (Expert)
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18 September 2011 The partition of HUF and distribution of assets are not covered by Section 56

The section is like this
Sec. 56(2) (viia) (w.e.f. 1-06-2010):-
The section came into force w.e.f. 1-6-2010. The section applies to any Firm (including LLP) and a private limited company as well as non-listed public company. Under this section, if a specified assessee receives any share of a private or public unlisted company (closely held company) from any person, without consideration, and the fair market value of which exceed Rs. 50,000 in the financial year, the whole of the aggregate fair market value of such shares shall be considered as income from other sources of the recipient. If the specified assessee purchases such shares of a closely held company from any person at a price which is less than the fair market value of such shares, and if the difference between the fair market value of such shares, and if the difference between the fair market value and the purchase price is more than Rs. 50,000 in any financial year, such difference will be considered as income of the specified assessee under this section. This section is applicable even if such shares of such closely held company are acquired as stock-in-trade or as capital asset. Therefore, if any amount is treated as income u/s. 56 (2)(viia), the same will be added to the cost of the shares of the closely held company received by the specified assessee for the purpose of computation of capital gains. It appears that the benefit will not be available if the shares are treated as stock-in-trade. In this case, fair market value of the share of a closely held company will have to be determined as provided in Rule 11U and 11UA notified by CBDT by Notification No. 23/2010 dated 8-4-2010.