Page 44 - Knowledge Network Transform

Examples given in the statutory guidelines issued vide the amount so attributed to an asset shall be
Circular No. 14/2021 clarifies that the nature of assets reduced from the sale consideration at the time of
which are remaining with the firm would be the basis subsequent sale of that asset. Meaning thereby that
of attribution contemplated in Rule 8AA(5) and not capital gains taxed today shall be eligible for
the asset which is being transferred to the partner. In deduction subsequently.
other words, if out of the total 3 assets- S,T, and U-
For the purposes of this attribution, the firm is
with the firm, Asset U is transferred to the partner required to get its assets revalued by a registered
and asset S and T remain with the firm, it is the nature valuer. This may involve revaluation of existing
of asset S and T which would determine whether
assets of the firm (like land and building) and also the
45(4) capital gain is long term or short term. valuation of any self generated assets like Goodwill.
Rule 8AA(5) leaves various situations open ended The amount taxable u/s. 45(4) shall be attributed in a
like what would be the nature of capital gain if 45(4) proportionated manner to different assets based on
amount is attributed to stock in trade or if it is not this valuation/ revaluation.
attributed to any specific asset in particular or there The amount so attributed to a particular asset shall
is no asset remaining with the firm after be allowed as deduction from the sale consideration
reconstitution. The answer to these questions are
of that assets at the time of its subsequent sale. No
yet to emerge. indexation benefit would be available for the
It is important to note that even if the gains are taken amount so attributed.
as long term in terms of Rule 8AA(5), the benefit of y A very important procedural compliance for this
indexation shall not be available for capital gains taxed
purpose is filling of form 5C which will contain
u/s. 45(4). This is so because here capital gain is to be details of amount so attributed to capital assets
worked out based on the formula given in Sec. 45(4)
remaining with the firm. The form is to be
itself where there is no “cost of acquisition” as such
furnished on or before the due date for filing of ITR
and accordingly there is no question of indexing the u/s. 139(1) for the assessment year in which the
cost of acquisition. The concept of indexation is given
amount is chargeable to tax u/s 45(4).
to us by Sec. 48 of the act wherein the computational
y While attribution of 45 (4) capital gain amount &
mechanism for the normal capital gains is available.
Since for the purposes of capital gains u/s. 45(4), the its subsequent reduction is allowed in case of
capital gains, no such attribution is allowed if the
computational mechanism is given in that sub-section
asset remaining with the firm is stock in trade. For
it self, Sec. 48 would not come into picture and example, if a land is held as stock in trade by the
accordingly concept of indexation would also not be
firm & at the time of retirement of a partner, amount
relevant here. The only purpose of determination of
is paid to him on account of increase in value of this
long term or short term nature of gains for the land, this amount shall be allowed to be reduced
purposes of Sec. 45(4) is to find out applicable rate of
from sale price of land at the time of its sale.
tax i.e. whether the gains would be taxed as per
Conclusion Sec. 9B and 45(4) have introduced an
normal rate or @20% u/s. 112.
altogether new tax regime for taxability of dissolution/
Adjustment of 45(4) Capital Gains against future reconstitution of the partnership firms. Whereas Sec.
sale of asset
9B is relatively simple mechanism for taxability of
The final aspect of this whole process is attribution
deemed transfer of asset, various concepts contained
of 45(4) capital gains to the remaining assets (assets in Sec. 45(4) are quite different from our normal
which are not being transferred to the partner) of
understanding of capital gains. As these concepts
the firm so that it can be reduced from their sale would get tested on the touchstone of ground realities
price at the time of subsequent sale of these assets.
over the period of time, number of complex issues are
Sec. 48(iii) read with Rule 8AB provides that amount
bound to arise requiring a greater amount of clarity
taxable u/s. 45(4) shall be attributed by the firm to from law makers and also from judiciary.
the capital asset remaining with the firm. And then
41 Life’s tragedy is that we get old too soon and wise too late.