Question And Answer
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Date: August 10, 2022
Query asked by KARAN SHAH
There is one partnership Firm WITH 2 PARTNERS. One of the partners died in the month of March 2022. Sharing ration was 50:50.
They had one Shop in the books of account and were claiming depreciation on it, WDV 31.3.2021 47,360/-.
Shop Acquired in the year 2001- 02 COA – INR 334470 /-.
Now the firm is selling the shop for INR 12,44,000/- (fair value). The asset is not yet transferred.
There will be STCG to the firm as per sec. 50  INR 11,96,640 ( 12,44,000 – 47360 )
My query is :
1. To save on the capital gains tax we need to invest in Bonds as per 54 EC, now since the firm is deemed to be dissolved on the death of the partner, how can the investment be made now.
2. What will be the date of transfer of Asset?
3. The return of income of the firm is yet to be filed, do we need to take the effect of transfer in the return of income for AY 2022-23 or can we take a following view;
Where one of the two partners of the firm dies, there is dissolution of the firm. But where the surviving the partner carries on the business with all the assets and liabilities as a going concern, there is no distribution within the meaning of the guidelines  given by the Supreme Court in Sakthi Trading Co. v. CIT [2001] 250 ITR 871 (SC). Therefore there is no liability for the Capital gains tax [CIT v. Moped and Machines [2006] 281 ITR 52 (MP)]
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The firm stands dissolved by operation of law in March 2022 i.e., AY 2022-23. Therefore, the asset should be reflected in the books of the erstwhile partner for FY 2022-23 i.e., AY 2023-24. Further, the transaction is not an exempted transaction under section 47 of the Income-tax Act, 1961 (Act). Therefore, the surviving partner cannot get the benefit of section 54EC of the Act, unless he holds the asset for a period of 36 months.

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