| Question And Answer | |
|---|---|
| Subject: | Retirement of Partners before amendment brought in Finance Act, 2021 |
| Category: | Income-Tax |
| Querist: | ruchi bhansali |
| Answered by: | Advocate Shashi Ashok Bekal |
| Tags: | partnership firm, Retirement of partners, Taxation of partnership firm, valuation of land |
| Date: | October 22, 2021 |
Assessee is a partnership firm having 17 partners engaged in the business of development of property . The said firm has one land which is hold as current assets having book value very less. In this firm two partners were admitted in the firm in the month of May. 2020, who are willing to invest the capital require for development of the said land and the project on the said land. Due to some reason the original 17 partners have decided to retire from the firm in the month of Dec. 2020. Before the retirement the partners have made revaluation of land and credited the capital account of partners as per profit and loss sharing ratio and debiting the same to land in the books of accounts. Continuing partner have brought the necessary capital and the amount standing to the capital account of retiring partners including the revaluation amount has been paid to all the retiring partners, accordingly retirement deed has been executed on 29.12.2020. In the Finance Act 2021 the provisions of Sec. 9B and 45(4) have been introduced which are applicable for A.Y. 21-22. what is impact on the retirement deed which was executed on 29.12.2020, much prior to the amendment . Is there any way , where assessee can fight on the ground that the provisions are not applicable to such transactions when the provisions were not in the statute. please guide
As we understand, the 17 partners have exited the firm. Their accounts have been revalued and settled by cash.
Section 9B of the Income-tax Act, 1961 (Act) is not applicable as there is no pay-out via Capital Asset or Stock-in-trade.
The difference between the pay-out by the firm and the capital account before revaluation, would be subject to tax under section 45(4) of the Act.
It is pertinent to note that, as per Rule 8AB of the Income-tax Rules, 1962 the revaluation should be based on a valuation report obtained by a registered valuer as defined under Rule 11U(g) of the Rules.
With respect to the retroactivity of the newly inserted provision, there is no bar on the Legislature to make retroactive amendments. The Hon’ble Supreme Court in the case of Chhotabhai Jethabhai Paterl and Co. v. Union of India 1962 SCR Supl. (2)(1) has held that that if a power to impose taxation has been conferred by a constitution, then the legislature could equally make the
law retroactive and impose the duties from a date earlier than the date from which it was imposed.