ISSUES (on CGT) - Another Round of..

 LLP 

https://www.facebook.com/swaminathanv3/posts/1607557002653913

https://www.facebook.com/swaminathanv3/posts/1606574206085526

COMPANY CASES, Vol. 128,: Part 6, 9^th December,2005

 Extract:

Section 35 -

Sub-sections (1) and (2) are reproduced below: -

Quote:

(1) for the purposes of taxation, any activity carried on by a limited liability partnership with a view to profit shall be treated as carried on in partnership by its partners (and not by the limited liability partnership as such) and, accordingly, the property of the limited liability partnership shall be treated for those purposes as property of the partners.

(2) where a limited liability partnership carries on a trade or business with a view to profit -

(a) assets held by the limited liability partnership shall be treated for the purposes of tax in respect of capital gains as held by its  partners; and

(b) any dealings by the limited liability partnership shall be treated for those purposes as dealings by its partners in partnership (and not by the limited liability partnership as such), in respect of capital gains accruing to the partners of the limited liability partnership on the disposal of any of its assets shall be assessed and charged on them separately.

Unquote

The purport, much less the legal implications, of the section is far from being understood.

As one is aware, under the income-tax act (it act), there are special provisions governing taxation of a partnership and its partners. In order to be assessed as a separate legal entity, the firm is required to be registered under the it act, by complying with its special requirements. Otherwise, the partners are assessable as an association of persons. They apply to the partners and partnerships governed by the age-old partnership law ; that is, the indian partnership act. In comparison, the said law is much simpler. Even so, over the decades, numerous disputes have arisen on several issues. Particularly, on questions such as - whether, and in what circumstances, a partnership or a partner(s) has to be assessed. One may find a plethora of court decisions settling almost every conceivable proposition in the matter.

Those are, in any case, of relevance only to a partnership under the indian partnership act. That is, the one essentially regulated by the principle of "mutual agency". According to the scheme of the proposed law governing llp, however, as noted supra, llp will not satisfy that principle.

Section 35 also covers taxation of capital gains arising on disposal of the assets of a llp. As to what are to be regarded as the assets of a llp for this purpose itself could be a matter for debate and dispute. In this connection, one may have to particularly keep in view the case law under the it act; mainly on issues with regard to allowance of depreciation.

Courts have ruled thus: if the property is held as partnership property, not necessarily owned by the partnership, it is the firm who is entitled to depreciation. It may be so, although on dissolution the property is to go to some partners only or all partners except one. Similarly, even after a person converts his business assets into partnership property, he can thereafter claim depreciation thereon in his personal assessment. One of the partners who continues to hold the assets, though used by the firm for its business, is entitled to claim depreciation thereon in his personal assessment; and not the firm.

In view of the forgoing, how the provisions of section 35 are to be interpreted and given effect to is rather a moot point.

  II Sec 54 F, 54

"....As seen from the agreements and the principles of law involved, all the apartments received in the development agreement WOULD BECOME ONE HOUSE TECHNICALLY , EVEN THOUGH THEY ARE OF INDEPENDENT UNITS even though they are of independent units. But, when the claim is made, it was the contention of assessee that all those flats were sold. Therefore, assessee does not own any other house, except the house in which he has invested....." -?!
(FONT supplied to focus on the obvious forbearing contradiction in terms)
< Calls for an independent in-depth study, in all its ramifications; may worth doing so in the light of discussion in, - (2014) 226 TAXMAN pg 143-151 !
NOTE: Prima facie, the assessee's contention has to be decided,- there being no fresh facts required, having regard to the applicable provisions of the IT Act; to be conjointly read with the state law on 'Flats'. The doubt is, - instead of remanding, could not the ITAT decided the issue, within its vested powers ?!

< "One" X  'a' X 'anyone', OR 'many' -  conceptual meaning- 'stimulated' litigation goes on and on ,,,,, ?!

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