2019-06-29_Corporate_Professional_Today

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June 29 To July 5, 2019 u Taxmann’s Corporate Professionals Today u Vol. 45 u 32

D.C. AGRAWAL

Advocate,

(Former CIT & Accountant

Member of ITAT)

Introduction

1.Section 45(4) provides for taxability of profit or gains arising

from transfer of capital asset by way of distribution of capi-

tal asset on dissolution of firm or otherwise. The expression

“otherwise” used in section 45(4) includes distribution of the

assets of the firm among the outgoing partners on retirement

also [refer- Asstt. CIT v. D.D. International (Global) [2009] 125

TTJ 112 (Amritsar)]. But where outgoing partners are paid

in cash on account of surrendering their rights in the assets

(including goodwill) of the firm, section 45(4) could not be

invoked. [refer- Pr. CIT v. R.F. Nangrani HUF [2018] 93 tax-

mann.com 302 (Bom.); CIT v. Dynamic Enterprises [2013] 40

taxmann.com 318/[2014] 223 Taxman 331/[2013] 359 ITR 83

(Karn.) (FB)]. In this brief article, the issue, whether there

is any tax avoidance in such arrangement which requires to

be plugged in through legislative means, has been discussed.

Ingredients of section 45(4) and consequence thereof

2.There are three ingredients for invoking section 45(4). They

are: (a) There should be a transfer of capital asset; (b) the

transfer should be from the firm; (c) the transfer should be

by way of distribution or “otherwise”. If these conditions

are satisfied, then (i) capital gains would be chargeable in

the hands of the firm, and (ii) FMV of the asset will be the

full value of consideration accrued/received by the firm.

Whether goodwill is a capital asset of the firm?

3. There is no dispute in the proposition that goodwill is
   a capital asset. As per section 2(14)(a) capital asset means

Tax on Goodwill received by

retiring partner should be

clarified

Pre-Budget 2019

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