Anirudh Varma (CA Inter) 18 December 2014

Property of firm in the name of partner's wife

A Partnership firm engaged in logistics business bought a land in the name of partner's wife in november 2011. The payments for purchase of property and the sale receipts are directly credited/debited by/to the firm's bank accounts.The title deed of the land was in the nane of the Partner's wife when it was capitalised in the firm's books. The Land was capitalised in the firm's books and capital gains on sale of property in 2013 was paid by the firm for the relevant assessment year. Questions. 1.Can a property bought in the name of a partner's wife be capitalised in the firm's books ? If yes will this be a transfer of capital asset for the partner's wife u/s 2(47) of income tax act,1961 in the above case? 2.Is the treatment adopted by the firm valid in the eyes of law? 3.Will the payments made and other formalities done by the firm on the property be sufficient to capitalise the land in the firm's books ? The firm has not received any consideration from the partner's wife or partner for the maintenance of the property. 4.What will be the correct treatment if both the questions above are negative?

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Utsav Ghosh (Advocate) 24 December 2014

The asset purchased by the firm is in the name of the partners spouse does not negate that the asset was not purchased by the firm. It can be clearly indicted from the sale receipts and the payments capitalized in the book of accounts of the firm that the amount of money was paid by the firm and not by the partner spouse. Even if the property was purchased in the name of the partner in individual capacity it can be regarded as asset of the firm as the source of payment shall be regarded as the transfer of the asset and not the title of transfer. Hence if can be regarded as the asset of the firm.

The treatment adopted by the firm may not be valid. It should have been transfer in the name of the firm as Capital Asset of the firm. However it can be proved by the order of the Court or tribunal that it has been purchased by the firm in individual capacity. The spouse can also gift/ transfer the asset in the name of the firm by entering into a gift deed with the firm. Only 2% shall have to be paid on the gift deed or maximum of Rupees 3 lakhs. This will be regarded as valid transaction in the eyes of law.

If the property is capitalized in the books of the firm there she will be regarded as partner as she is transferring the asset which stands in her name in individual capacity under the partnership act.