Tax in case of revaluation of land which is stock itme

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

23 April 2011 Respected experts,

please reply

Query is :

In partnership firm say x numbers of partners are there and firm having land as stock in trade.
Now say out of x numbers of partner 2 partners want to go out of partnership and say other x numbers of partner are join firm.

Firm revalued the land and give its impact to partners capital account then tax implication of the same in the hand of firm and partner.

I.e. whether due to revaluation of land firm need to pay tax on same or not.

If any case study relevant to this then please give reference of the same.

Thanks

Please reply urgently

please

thanks

CA MANOJ GUPTA

CA MANOJ GUPTA (Expert)
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23 April 2011 In view CIT v. Kunnamkulam Mills Board (2002) 257 ITR 544 (Ker), if partners of a firm want to move out of the firm and at the same to take out entire amount invested, they can do so by introducing new partners, revaluing assets at the time of introduction, taking revalued amounts to the credit of their capital accounts and wipe out the same without attracting any tax liability on the firm or partners. It is because in such cases section 45(4) will not be attracted, therefore, firm will not have to pay tax and amount received from firm will be capital receipt in the hands of partners.
Another planning may be done. Existing partners may withdraw the amounts standing to their credit after revaluation leaving nominal amount representing one or two per cent share in the partnership.

CA MANOJ GUPTA
JODHPUR
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