Capital gain on transfer of capital asset by a partner to a firm or by a member to AOP or BOI-Section 45(3)
History: The Supreme Court in Kartikeya V Sarabhai v CIT (1985) 156 ITR 509 held that where an assessee contributed his individual assets into that of a firm in which he was a partner by way of capital, the transaction amounted to transfer but did not attract capital gains.
To nullify this decision, sub-section (3) was inserted by the F.A. 1987, w.e.f. 1-4-1988.
As per section 45(3), the profits or gains arising from the transfer of a capital asset by a person to a firm or other association of persons or body of individuals in which he is or becomes a partner or member, by way of capital contribution or otherwise, shall be chargeable to tax as his income of the previous year in which such transfer takes place.
Capital gain arises in the hands of partner or member in case of transfer of assets from a partner to a firm or AOP or BOI.
What will be the amount of consideration The amount recorded in the books of account of the firm, association or body as the value of the capital asset shall be deemed to be the full value of the consideration received or accruing as a result of the transfer of the capital asset in the hands of partner or member.