Question And Answer
Subject: SEc. 45(4) and 9 B
Querist: manali
Answered by:
Tags: ,
Date: March 16, 2023
Query asked by manali

Assessee is partnership Firm enganged in the business of construction having 5 partners .  Two of the five partners retired from the firm as per deed of retirement executed on 1.04.2017. It was agreed that one partner will get cash and other partner will get 1/5 portion of land from firm by 31.03.2023.  accordingly they got the respective commitment as per retirement deed executed on 1.04.2017 in 31.03.2023.

1.what are implication of the above in the hands of firm as well as partners

2. whether it will make a difference if the said land is held as capital asset or stock in trade.

pl guide

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The following questions would have to be addressed.1. Whether the deed of retirement was registered? 2. Whether the deed of retirement was acted upon? 3. Whether the accounts of the partners were settled? 4. Whether the firm can demonstrate through its books that the partners ceased to continue as a partner since April 01, 2017?

If all the conditions are satisfied, it can be argued that the transaction concluded in 2017 and it is only settled in 2023.

On a simpliciter receipt basis, the Department may take a view that in the case of the retiring partner taking cash as compensation for retirement; if the cash is received from the firm, the transaction will attract section 45(4) of the Income-tax Act, 1961. In the case of the retiring partner who is given land, it will attract section 9B and section 45(4) of the Act. Capital Asset or stock in trade, both will attract section 9B of the Act, the former will be considered as a transfer of a capital asset and accordingly taxed the latter will be considered as a deemed sale.

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