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Query Regarding Transfer of Asset

02 June 2009

Dear friends

In my training, I have faced following question :

When one partnership firm transfers an asset to another partnership firm composed of the same partners then what provision is/are attracted? Capital Gains/Gift/Clubbing

Do reply.

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9 Replies

Ajay Chaudhary (CA) (63 Points)
Replied 02 June 2009

Its a sale, Capital gain provisions shall apply.

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CA Vaishal Dalal (CA) (189 Points)
Replied 03 June 2009

The Whole situation is like this :

Two partnership firms ( A and B ) are already in existence and running diferent kind of business though made up of same partners.

There is one asset in A firm which is not in use and at the same time is required by B firm. So A transfers it to B at NIL consideration. A removes the asset from its block of assets and B added the same in its block of assets.

There is no specific provision in IT Act regarding transfer or gift by one partnership firm to another. Section 47(3) talks about transfer by an individual to a firm but nowhere it talks about transfer by a firm to firm.

Partnership firm being a separate entity under Income Tax Act, we cant treat this as a partner transfering capital asset. Section 56 is also not applicable here. And if there is no consideration, section 2(47) is not attracted. Similarly, it cant be a capital gains.

So, under this situation, no tax provision is attracted.

Is my interpretation correct? Waiting for replies and discussions.

purvi (some) (240 Points)
Replied 25 July 2010

"Say for eg asset is a flat or office property or say its a machinery purchased by transferer firm in the past.."

It is a transfer u/s 2(47) - in the nature of RELINQUISHMENT of asset

Tax will be leived at fair value if short term or at indexed value if long term.

SALE VALUE - ICOA - EXPENSES ON SALE = TAXABLE VALUE

Even if no consideration is exchanged - (neither cash nor barter) Sale value will be determined at fair market value after valuation officer inspects the condition of asset.

Its a clear capital asset transfer so, it cannot escape capital gains saying that its a gift or not a transfer for gain.

Though there is no specific provision - Firm to firm transfer is possible and is considered as a normal CG item. It is a giving off of asset by A to B as per your subject matters. Hence Taxable under CG tc

Reena Verma (CA Finalist) (417 Points)
Replied 14 August 2010

CAPITAL GAIN

Manoj BG (Tax Professional and in Service) (1795 Points)
Replied 14 August 2010

DEAR VAISHAL,

TRANSACTION WOULD COVERED UNDER CAPITAL GAIN TAX.

CLUBBING PROVISION WOULD NOT APPLIED HERE.

FAIR VALUE AS ON THE DATE OF TRANSFER WOULD DEEMED TO BE SALE CONSIDERATION AND WDV AS ON THE 1ST OF PREVIOUS YEAR IN WHICH ASSET IS TRANSFERRED WOULD BE THE DATE OF ACQUISITION (IN CASE OF DEPRECIABLE ASSET). IN CASE OF OTHER FIXED ASSETS, INDEXED COST OF ACQUISITION SHOULD BE USED (IF LONG TERM CAPITAL ASSET).

THE DIFFERENCE IF SURPLUS WOULD BE CHARGEABLE TO CGT (WHETHER LONG TERM OR SHORT TERM AS THE CASE MAY BE).

REGARDS,

MANOJ

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CA Arindam Sain (Practice) (308 Points)
Replied 15 August 2010

Yes. It is relinquishment of asset i.e., renouncing a claim or right or position on an asset...so covered U/S 2(47) as transfer of asset.

There fore it would come under the ambit of capital gain....

Mahendra (CA-Final) (91 Points)
Replied 16 August 2010

Originally posted by : skandar
	"Say for eg asset is a flat or office property or say its a machinery purchased by transferer firm in the past.." It is a transfer u/s 2(47) - in the nature of RELINQUISHMENT of asset Tax will be leived at fair value if short term or at indexed value if long term. SALE VALUE - ICOA - EXPENSES ON SALE = TAXABLE VALUE Even if no consideration is exchanged - (neither cash nor barter) Sale value will be determined at fair market value after valuation officer inspects the condition of asset. Its a clear capital asset transfer so, it cannot escape capital gains saying that its a gift or not a transfer for gain. Though there is no specific provision - Firm to firm transfer is possible and is considered as a normal CG item. It is a giving off of asset by A to B as per your subject matters. Hence Taxable under CG tc