My current partnership firm is unregistered. There are two people in the current firm. My current partner(lets call him Partner B) and myself (Partner A).
partner B has decided to be retired. Our approximate losses till date is around 10 lakhs each.
A new partner (Lets call him partner C) wants to takeover the losses of my partner (Partner B) by paying him the 10lakhs he contributed.
After Partner C takeover of Partner B, we (Partner A + C) will look at converting this firm into a private limited company
My questions are as follows: 1. Will there be any problem in carrying forward the capital losses (20 lakhs total)
2. Will there be a problem in conversion of an UNREGISTERED partnership into a Pvt Ltd co.
3. any other problems you might foresee?
this is slightly urgent. your help would be most appreciated
1.According to section 78 of the Income Tax, 1961 firm can not set off and carry forward losses related to the retired partner.
2. Partnership converted in to private limited company will get exemption from capital gain subject to conditions interalia that partners should hold 50 percent of the voting powers of the company and they should continue to retain the same for a period of five years.
04 April 2012
You have not clarified whether the firm is unregistered with the Registrar of firms and society or with the income tax department. If you have filed the return then the loss is in the hands of the firm how this loss is allowed as carried forward in the hands of the partner. Carry forward of loss is notallowed in the hands of the company on conversion of firm into Pvt. Ltd Company as the provision of Section 79 will apply and the new company is not covered in this section.
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