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2014 (9) TMI 156 - ITAT LUCKNOWDetermination of effective date for cost of acquisition - Computation of LTCG - Whether the cost of acquisition of the property is to be taken as on 09/08/1985 when the property was originally purchased by the assessees or as on December, 1987 when the respective shares of the property were distributed to the assessees on dissolution of the partnership firm – Held that:- The distribution of assets on dissolution of firm admittedly took place on 31st April, 1987 - the provisions of this section could not apply and the cost of acquisition shall not be the cost for which the previous owner of the property acquired it – as per section 45(4) of the Act, the profit or gains arising from transfer of capital asset by way of distribution of capital asset on dissolution of a firm or other association of persons, shall be chargeable to tax as income of the firm of the previous year for which the said transfer took place and for the purpose of section 48 of the Act, the Fair Market Value of the asset on the date of such transfer shall be deemed to be the full value of consideration received or acquired as a result of transfer - When the Fair Market Value of the asset as on date of dissolution of the firm is deemed to be the full value of consideration received or acquired as a result of transfer, the Fair Market Value shall be the cost of acquisition in the hands of the transferee/the partners who received the property/capital asset. The circular No. 495 dated 22nd September, 1987 issued by CBDT clarifies the doubt raised with regard to the computation of capital gain or profit & gains of the partnership firm on conversion of partnership asset into individual asset on dissolution of the firm - The Board has clarified that conversion of the partnership asset into individual asset on dissolution or otherwise also forms part of scheme of tax avoidance - Keeping in view the clarification given by the CBDT and the provisions of section 45(4) of the Act, it has been held that on dissolution of the firm, if the capital assets are distributed, the cost of acquisition of capital asset in the hands of the recipients or the partners, would be the Fair Market Value of the asset on the date of transfer, which was taken into account for computing the profit and gains of the firm on transfer of capital asset on its dissolution - the CIT(A) has properly adjudicated the issue and deleted the addition – Decided against Revenue.
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