Treatment of Profit on transfer of Shares in an LLP

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  1. CA Jayakumar M G

    CA Jayakumar M G New Member

    Hi Experts
    In case of a designated partner of an LLP decided to Transfer his share to new partner and the retiring Partner will get Rs 2 Lakhs as premium.How this will be accounted in the Books of LLP and advice the Tax Libbility in the hands of the retirning partner
  2. ZED

    ZED Well-Known Member

    Do not use the phrase the retiring partner will transfer his share to new partner.

    If we will say this then ITO can claim that there has been a transfer.
    Lets segregate the 2 activities;
    1. Partner is retiring and is getting 2 Lakhs
    2. New partner is admitted (he might be bringing in some money for goodwill)

    Extracts from the judgement of Shri Rajnish M Bhandari V ITO

    Hon’ble Supreme court in the case of Mohanbhai Pamabhai following its judgment in the case of Sunil Siddharthbhai v. CIT 156 ITR 509 (SC) held that when a partner retired from the firm and received his share of an amount calculated on the value of the net partnership assets including goodwill of the firm, there is no transfer of interest of the partner in the goodwill, and no part of the amount received is assessable as capital gain under section 45 of the Act.

    Hon’ble Bombay High Court in the case of Prashant S Joshi has also noted the omission of section 47(ii) of the Act and insertion of section 45(4) of the Act with effect from 1.4.1988. Considering the entirety of the legal position, it has been affirmed by the Hon’ble High Court that amounts received by the partner on his retirement, are exempt from capital gains tax.

    Also read
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