Registration of introduction of property in firm

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rkdhandia (Querist)
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29 November 2007 sir,
Mr introuduce his land and building as capital in partnership firm for development of the land and making complex. Is any registration of any document is required as per registration act, or is any stamp duty to be paid. This case is of Rajasthan, if any case law on this subject pl inform.

R K Dhandia

R.V.RAO

R.V.RAO (Expert)
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29 November 2007 PROPERTY TAX IS A STATE SUBJECT.IF THE PARTNER DESIRES OR WANTS THE PROPERTY TO BE TRANSFERRED IN THE NAME OF THE FIRM , HE MAY PAY APPROPRIATE STAMP DUTY ( IN A.P THE STAMP DUTY ON TRANSFER OF PROPERTY IS 9.5%)AND REGISTER THE TRANSFER.YOU MAY PLEASE CHECK WITH LOCAL SUB REGISTRAR FOR DETAILS.THE VALUATION OF PROPERTY WILL BE DONE AS PER MARKET VALUE BY THE SUB REGISTRAR.
PARNERSHIP ACT REQUIRES THAT THE PARTNER CONTRIBUTING LAND AND BUILDING AS HIS CAAPITAL,-ALL FULL DETAILS TO BE STATED IN THE PARTNERSHIP DEED WHICH NEEDS TO BE REGISTERED WITH THE REGISTRAR OF FIRMS.
REGISTRATION THOUGH NOT ESSNTIAL FOR A FIRM , IT OFFERS LEGAL PROTECTION IN CASE OF ANY LEGAL ACTION AGAINST THE FIRM IN FUTURE.
IT IS DECIDED IN THE FOLLOWING CASE THAT THERE IS NO CAPITAL GAINS AND NO TAX WHEN A PARTNER INTRODUCES HIS PERSONAL ASSETS AS HIS CAPITAL IN THE FIRM.
In Sunil Siddharthbhai v. CIT [1985] 156 ITR 509 (SC), while considering the exigibility to the levy of capital gains on contribution of capital asset as share capital in a partnership firm, Pathak J. held as follows (para 522):

When his personal asset merges into the capital of the partnership firm, a corresponding credit entry is made in the partner's capital account in the books of the partnership firm, but that entry is made merely for the purpose of adjusting the rights of the partners inter se when the partnership is dissolved or the partner retires. It evidences no debt due by the firm to the partner. Indeed, the capital represented by the notional entry to the credit of the partner's account may be completely wiped out by losses which may be subsequently incurred by the firm, even in the very accounting year in which the capital account is credited. Having regard to the nature and quality of the consideration which the partner may be said to acquire on introducing his personal asset into the partnership firm as his contribution to its capital, it cannot be said that any income or gain arises or accrues to the assessee in the true commercial sense which a businessman would understand as real income or gain."

The levy of tax on capital gains under section 45 of the Income-tax Act is intertwined with the mode of computation envisaged under section 48 of the Act. The mode of computation provided under section 48 comprises a two-fold dimension, namely, asset. In the event of the absence of cost of acquisition, the question of accrual of gain does not arise and the levy of tax professing to be capital gain levy is in essence a levy on a capital asset. The charging section under section 45 loses its vitality in the absence of cost of acquisition of asset as the cost of acquiring the asset constitutes the bed-rock for exigibility to levy of capital gains. This approach as to the presence of cost of acquisition controlling the charging section is concretised by section 49. ... If there is no cost of acquisition, there is no gain and consequently there is no capital gains tax. Thus, the charging section takes colour from the computation as both the provisions are integrated and seek to levy tax regarding "an asset in the acquisition of which it is possible to envisage a cost".
R.V.RAO

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