a sale d)(I). As with payments for 130 Ol pPuperty, Section 707(a)(2)(A) require

Question

a sale d)(I). As with payments for 130 Ol pPuperty, Section 707(a)(2)(A) requires capitalization on item that the partners were seeking to immediately expense through the ruse of an allocation of income. PROBLEMS 1. Partnership is owned Corporation, quences to the parties involved in the following sales? 25% each by A, his wife, his wife's father and X in which A is a 50% shareholder. What are the tax conse- (a) During the year the partnership sells A some land in which it has a basis of $50,000 for its fair market value of $40,000. In the succeeding year, A sells the land to B for $45,000. (b) Same as (a), above, except that the first sale is to a second partnership also owned by the same parties except that an unrelat- ed party owns a 25% interest and X Corporation owns no interest in the second partnership. The second partnership then resells the land to B for $45,000. (c) A sells depreciable equipment in which he has an adjusted basis of $20,000 to the partnership for $30,000. d) A's wife sells residential rental property held by her as a capital asset to the partnership for $120,000. She had a $100,000 basis in the property. The partnership is in the housing rental business. e) Same as (d), above, except that the partnership is in the real estate sales business.

Explanation / Answer

As per section 45(4) of Income tax Act, 1961

When partnership Firm transfer its capital Assets by way of distribution on dissolution of a firm or otherwise to its member then capital gain will be arised in that previous year when transfer has taken place and sale consideration shall be taken of market value of Assets.

Note:-Otherwise Include Sales

As per section 56(2)(vii) of Income tax Act, 1961

Where an individual and HUF receive immovable property with consideration, in any previous year, from any persons. if purchse price is less than market value, difference between market value and purchase price is more than Rs.50000 then whole amount is taxable in the hands of Individual under income from other sources.

(a) in the given case:-

Partnership sell the land which are capital assets to A of $ 50000 but its market value is Rs. 40000 then sale considertion shall be taken $ 40000 as per section 45(4).

in the succeding Year, A sell the land to B of Rs. 45000 and A purchased the Assets of Rs. 50000 so short term capital gain shall be arised because assets has been sell within 3 years if assets sell after 3 years the long term capital gain will be arised. capital gain shall be computed as follow:-

Sale consideration= $45000

Cost of Acquisition= $50000

Short term capital loss= $5000.

(b) in the given case :-

A partnership sell the land to other partnership not to directily to its member, so sale consideration shall be taken sale price, in this case sale consideration shall be taken of Rs 50000.

in the hand of second Parnership capital gain shall be computed as follow:-

Sale consideration= $ 45000

Cost of Acquisition= $ 50000

Short term capital loss= $ 5000.

(c) As per section 45(3) of income tax Act, when capital assets Transfer by member of to his partnership firm then sale consideration shall be taken that value which shall be recorded by partnership firm as the vaue of capital assets in books of partnership firm.

in the given case:-

A is the partner and sell the assets to partnership firm of Rs 30000 then it is to be assumed that partnership firm has recorded it as Same value means Rs 30000.

Capital gain in the hands of A

Sale consideration= 30000

Cost of Acquisition= 20000

Short term capital Gain=10000

(d) in the given case:-

A' s wife is the partner and sell the property to partnership firm so section 45(3) shall be applicable which is already explained in Case (c) so capital gain shall be computed as follow:-

Capital gain in the hands of A' s wife

Sale consideration= $ 120000

Cost of Acquisition= $ 100000

capital Gain $ 20000

(e) section 45(3) is applicable only when partnership recoded the assets as capital asstes if partnership firm record the assets as stock then this section will not apply. then sale consideraion shall be taken sell price.

in the given case, partnership firm is involved in the business of Real Estate and record the assets as stock so sale consideration shal be taken sale price which have $ 120000

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