Tax liability

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

01 February 2012 A firm consisting of five partners.Each partner contributed capital of Rs10 Lakhs each and all partners current account having a credit balance of Rs125 lakhs. Total credit balance in the partners capital and current account in the firm is Rs175 Lakhs. land purchased and registered in the name of all partners to the tune of Rs300 Lakhs during the year 2010-2011 and 2011-2012 by using firms fund and accounted in partnership firm.
My question
No-1 Whether the partners can use the firms fund for purchasing land in their name?.
No-2 Is there any tax liability will arise in the hands of individual partners/ firm for using the firms fund to the tune of Rs125 Lakhs(Rs300Lacs - Rs175 Lacs)?.

Yogesh Agarwal

Yogesh Agarwal (Expert)
Follow

02 February 2012 So far as my view concerned is
Ans to Q-1 registry of land can not be made in the name of partnership firm it is made only in the name of partners...so if the land is purchased for the partnership then it can be done and no tax liability will be arisen in the hands of individual partners.

Ans to Q-2 (partly as above and rest is- the balance 125 lakhs which is brought by the partner may could be of the nature of capital contribution or loan to the firm...

Regards
Yogesh

Message likes : 1 times

Prakash Kochar

Prakash Kochar (Expert)
Follow

03 February 2012 For business of firm land is to be purchase in name of firm on obtaining permission.
Partners land can be transferred to firm by way of executing regd. transfer deed.But in this case land is purchased in name of partners, legal;ly it belongs to partners, though accounted in firms account.
If land is purchased by partners by investing funds of firm, on it's adjustment account of partners net balance will be negative figurers. Depending on terms and conditions of partnership, firm may charge interst on debit balance in respective partners accounts, which may be treated as income of firm, liable for tax in it's hand.
Moreover the terms and conditions of partnership will be more important.

Message likes : 1 times

Upgrade to CAclubindia Pro. Subscribe Now!