Contribution of land as capital by a partner to a partnership firm: Section 45(3) vs Section 50C
- The Assessee had transferred its land to a partnership firm in which the Assessee was one of the partners.
- The plot was transferred as capital contribution on part of the Assessee. The consideration for the same was stated to be Rs.5 crores. The Assessee had claimed index cost of acquisition at Rs.9.49 crores thus showing long term capital loss of Rs. 4.49 crores on transfer of its land to the firm.
- The Assessing Officer observed that the value of the said land for the purpose of Stamp Duty as apparent from the agreement submitted by the Assessee was Rs. 9.77 crores. In view of these facts, the Assessing Officer issued a show cause asking the Assessee to explain why the provisions of section 50C of the Act should not be invoked and the Long Term Capital Gain arising thereon be recomputed.
- The Tribunal placed reliance on the judgement laid down in Assessee’s own case, wherein it was reiterated that the purpose of insertion of section 45(3) was to deal with cases of transfer between partnership firm and partners and in such cases, the Act provides for consideration to be adopted for the purpose of determination of full value of consideration.
- Since the Act itself has provided for deeming consideration to be adopted for the purpose of section 48 of the Act, another deeming fiction provided by way of section 50C could not have been extended to compute deemed full value of consideration as a result of transfer of capital asset.
- The profits or gains arising from the transfer of a capital asset by a partner to a firm in which he was or became a partner by way of capital contribution, then for the purpose of section 48, the amount recorded in the books of account of the firm should have been deemed to be full value of consideration of a capital asset.
- Therefore, the Tribunal reversed the finding of the CIT(A) and deleted the addition made towards computation of Long Term Capital Gain on account of transfer of capital asset into partnership firm.