Section 28 (iv) Querry

This query is : Open

V RAGHAVENDRA (Querist)
Follow

01 September 2009 HI !! Pls answer my querry at the earliest ! I would be thankful !!

" One construction company having 10 partners have got 1 plot of land. This plot of land is revalued as 4 of the partners were due to retire. The excess revaluation amt came to rs 30 lacs. 4 partners retired ad the firm continued with the remaining 6 partners. The excess amount is credited to the partners capitals in thier PSr ratio.

The querry is whether the revalued amt is taxable in the hands of the partners as profits and gains of the business or the entire additional revalued amt of rs 30 lacs will be taxable in the hands of the firm."

If not taxable in the hands of the continued partner , pls give the citation of certain judgements supporting the same.

Thanks !!

Late CA Sampat Jain

Late CA Sampat Jain (Expert)
Follow

01 September 2009 NO INCOME TAX IS ON REVALUATION.

HOWEVER A PARTNER RELINQUISHING HIS RIGHTS IN THE FIRM FOR AN AMOUNT HIGHER THAN HIS CAPITAL CONTRIBUTION WILL ATTRACT CAPITAL GAINS TAX

V RAGHAVENDRA

V RAGHAVENDRA (Querist)
Follow

02 September 2009 Thanks for replying me so soon !! I m thankful 2 u !!

Pls give me the citation of certain judgements regarding the issue of section 28(iv) regarding my querry !

Upgrade to CAclubindia Pro. Subscribe Now!

Late CA Sampat Jain

Late CA Sampat Jain (Expert)
Follow

02 September 2009 Share in firm is a capital asset - Share of a partner is a partnership concern is a capital asset and its transfer will give rise to capital gains - V. Rangaswami Naidu v. CIT [1957] 31 ITR 711 (Mad.).

V RAGHAVENDRA

V RAGHAVENDRA (Querist)
Follow

02 September 2009 Thanks a lot for ur timely help !!!

Thnks once again !!

V RAGHAVENDRA

V RAGHAVENDRA (Querist)
Follow

08 September 2009 The partner in my above eaxmple dint relinquish his right. only the assets were revalued and the profit on revaluation was trfd to capital a/c.

Pls giv ur opinion as to whether this would attract the provisions of section 28 (iv)..

If not , pls give the citations relevant to section 28(iv) based on our example as the A.O. is referring to that section ans saying that the revalued increase in the value of the asset is taxable in the hands of the firm.

Awaiting ur answer