| Question And Answer | |
|---|---|
| Subject: | When there is change in profit sharing ratio whether provision of section 9B read with S.45(4) and 48 of the Act is attracted ? |
| Category: | Income-Tax |
| Querist: | Moti |
| Answered by: | Advocate Shashi Ashok Bekal |
| Tags: | change in profit sharing ratio, Reconstitution of partnership |
| Date: | May 22, 2021 |
1. Where there is only change in profit or loss sharing ratio of existing partners and no change in partners, will it get hit by section 9B?
2. Where there is only change in sharing ratio of existing partners in the assets and liabilities of the firm without any change in profit or loss sharing ratio, will it get hit by section 9B?
3 Where there are both sharing changes as above among existing partners ,will it get hit by section 9B.
In all above cases no one is receiving any capital assets or stock in trade and same partners continue as before. There is no revaluation of any assets. There is no tax planning involved.
Further in a genuine case where a family member is admitted in family business , would section 9B get attracted .
Addressing your questions;
1. Reconstitution of a partnership firm takes place whenever there is a change in the profit sharing ratio among the partners, admission of a new partner, retirement of a partner and death or insolvency of a partner.
Therefore, section 9B of the Act will be attracted upon change in profit sharing ratio.
Section 9B read with section 45(1) and section 45(4) both will apply where there takes place reconstitution of firm which among others include change in profit sharing ratio. But in absence of any distribution of capital asset or stock in trade or money the charge will fail.
CA Manoj Gupta
Jodhpur
9828510543