ISSUE RELATING TO CAPITAL GAINS TAX

An office premises is bought in the year 1998-99 in the joint names of AG and AS who are partners of M/s. LEO.  Payment for purchase of this premises is made from LEO and debited to Office Premises Account in the books of LEO in the year 1998-99. The firm starts claiming depreciation on it.

Somewhere in the year 2003, AS retires from partnership and his brother WS is admitted as a partner.

Now this firm of LEO is dissolved as on 31^st July 2007. The aforesaid office premises is bought by WS [one of the partners of LEO] and his other brother NS. Hence a Sale Deed is executed between AG/AS (the sellers) and WS/NS (the buyers) in the month of September 2007.  Cheque is received in the individual names of AG/AS (the sellers) and deposited by them in their individual account. LEO’s books are not effected by this sale transaction.

Details of Office Premises

Cost Rs.8 Lacs (in 1998-99)

Book Value Rs.4.88 Lacs (after depreciation) as on 31.03.2007

Sale Deed Value is Rs.12 Lacs as on September 2007

Market Value as per stamp authority valuation is Rs.18 Lacs

QUERY

1)       What shall be the Capital Gains Tax implication [Short Term / Long Term]?

2)       Whether it has to be paid by AG/AS in their individual capacities as sellers or it will have to be paid by the Firm, LEO, as deemed owner of the office premises [as entry was booked in the firm books and depreciation claimed by the firm} ? and

3)       What shall be the amount of tax?

4)       What entry should be passed in the firm’s books as on 31.07.2007 [the date of dissolution of the firm]?

An immediate reply on the matter would be highly appreciated.