Where any assets got transferred to the partner in any previous year on reconstitution or dissolution of the firm, the tax implications are always in question to us. To clarify whether such transfer is taxable in the hands of the firm or the partner, this article discusses the recent guidelines and clarifications issued by CBDT on the computation of capital gains.
But first let us know the meaning of certain terms:
Specified entity means a firm or other Association of Persons (AOP) or Body of Individuals (BOI). For simplicity, here the ‘specified entity’ is referred to as a ‘firm’.
Specified person means a person who is a partner of a firm or member of other AOP or in any previous year. For simplicity, here the ‘specified person’ is referred to as a ‘partner’.
So as per the inserted sections of the Income Tax Act, on dissolution the partnership firm will attract the provisions of Section 9B and whenever there is a change in the profit-sharing ratio related scenarios which leads to the reconstitution then both Sections 9B and 45(4) will be applicable.