My firm handed a flat and part of its stock to a retiring partner. Nothing was sold and no money changed hands. Is the FIRM taxable on that?
Yes. Section 9B, inserted by the Finance Act 2021 with effect from 1 April 2021 (AY 2021-22), deems the firm to have transferred the capital asset or stock in trade to the partner in the year he receives it, and deems the fair market value on the date of receipt to be the full value of consideration. The charge falls on the FIRM, not the partner, and it arises on both dissolution and mere reconstitution — a partner retiring or a new partner coming in is enough.
Decided by the CBDT Circulars & Instructions (Not applicable — statutory text) on 2021-04-01, reported as Income-tax Act 1961, s.9B; inserted by Act No. 13 of 2021 (Finance Act 2021), w.e.f. 1-4-2021, i.e. from AY 2021-22. It bears on section 9B, section 45(4), section 48(iii), section 2(47) of the Income Tax Act 1961, in Capital Gains and How Tax Law Is Read matters.
This is a charge on a transaction in which the firm receives nothing. Practitioners still working from the pre-2021 law look for a 'transfer' within s.2(47) and, finding none, conclude there is no charge; s.9B removes that argument by deeming the transfer. Two further points are routinely missed. First, s.9B catches STOCK IN TRADE as well as capital assets, and where it is stock the profit is charged under 'Profits and gains of business or profession', not under capital gains — so no indexation, no s.54 series, and it enters book profit. Second, s.9B and the substituted s.45(4) can both operate on one and the same event, and Explanation 2 to s.45(4) says in terms that the two are to be worked out independently; the firm can therefore face two separate computations arising out of a single retirement deed. Note also that s.9B(5) makes the Board's guidelines under s.9B(4) binding on the income-tax authorities AND on the assessee — an unusual provision, since a circular ordinarily binds only the department.
Binding on the department, not on the assessee or the courts. An assessee may rely on a circular that is beneficial to them.
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Not a case. The provision applies where a 'specified person' — a person who is a partner of a firm, or a member of an association of persons or body of individuals other than a company or a co-operative society, in any previous year — receives during the previous year any capital asset or stock in trade or both from a 'specified entity' (that firm, AOP or BOI) in connection with the DISSOLUTION or the RECONSTITUTION of the entity. 'Reconstitution' is defined by the Explanation to cover three situations: one or more partners or members ceasing to be partners or members; one or more new partners or members being admitted in circumstances where one or more of the pre-change partners or members continue after the change; and all the partners or members continuing with a change in their respective shares or in the shares of some of them.
Where a partner receives a capital asset or stock in trade from the firm on dissolution or reconstitution, the firm is deemed to have transferred that asset to him in the year of receipt (sub-section (1)); the profits and gains from that deemed transfer are deemed to be the income of the FIRM of that year and are chargeable as its income under the head 'Profits and gains of business or profession' or under the head 'Capital gains', according to the character of the asset (sub-section (2)); and the fair market value of the asset on the date of its receipt by the partner is deemed to be the full value of the consideration received or accruing as a result of the deemed transfer (sub-section (3)). The Board may issue guidelines to remove difficulties in giving effect to s.9B and s.45(4) (sub-section (4)), and every such guideline, once laid before each House of Parliament, is binding both on the income-tax authorities and on the assessee (sub-section (5)).
Not a judicial route. The legislative technique is to create a deeming transfer where the general law and s.2(47) supply none: on a distribution to a partner the firm parts with the asset but receives no consideration, and before 2021 the charge on the firm depended on whether the transaction answered the description in the then s.45(4). Section 9B substitutes a deemed transfer keyed to receipt by the partner, and a deemed consideration equal to fair market value, so neither the absence of a sale nor the absence of consideration defeats the charge. The provision deliberately covers stock in trade as well as capital assets, which is why sub-section (2)(ii) offers two heads of charge rather than one.
Where a specified person receives during the previous year any capital asset or stock in trade or both from a specified entity in connection with the dissolution or reconstitution of such specified entity, then the specified entity shall be deemed to have transferred such capital asset or stock in trade or both, as the case may be, to the specified person in the year in which such capital asset or stock in trade or both are received by the specified person.
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Handle my notice → Ask a CA on WhatsAppYes. Section 9B, inserted by the Finance Act 2021 with effect from 1 April 2021 (AY 2021-22), deems the firm to have transferred the capital asset or stock in trade to the partner in the year he receives it, and deems the fair market value on the date of receipt to be the full value of consideration. The charge falls on the FIRM, not the partner, and it arises on both dissolution and mere reconstitution — a partner retiring or a new partner coming in is enough. This was decided by the CBDT Circulars & Instructions (Not applicable — statutory text) and bears on section 9B, section 45(4), section 48(iii), section 2(47) of the Income Tax Act 1961. It is reported as Income-tax Act 1961, s.9B; inserted by Act No. 13 of 2021 (Finance Act 2021), w.e.f. 1-4-2021, i.e. from AY 2021-22. This is a charge on a transaction in which the firm receives nothing. Practitioners still working from the pre-2021 law look for a 'transfer' within s.2(47) and, finding none, conclude there is no charge; s.9B removes that argument by deeming the transfer. Two further points are routinely missed. First, s.9B catches STOCK IN TRADE as well as capital assets, and where it is stock the profit is charged under 'Profits and gains of business or profession', not under capital gains — so no indexation, no s.54 series, and it enters book profit. Second, s.9B and the substituted s.45(4) can both operate on one and the same event, and Explanation 2 to s.45(4) says in terms that the two are to be worked out independently; the firm can therefore face two separate computations arising out of a single retirement deed. Note also that s.9B(5) makes the Board's guidelines under s.9B(4) binding on the income-tax authorities AND on the assessee — an unusual provision, since a circular ordinarily binds only the department. If it applies to you, the first step is this: Fix the year by the date the partner RECEIVED the asset, not the date of the retirement deed or the date the accounts were settled — s.9B(1) keys the deemed transfer to the year of receipt.
Not a case. The provision applies where a 'specified person' — a person who is a partner of a firm, or a member of an association of persons or body of individuals other than a company or a co-operative society, in any previous year — receives during the previous year any capital asset or stock in trade or both from a 'specified entity' (that firm, AOP or BOI) in connection with the DISSOLUTION or the RECONSTITUTION of the entity. 'Reconstitution' is defined by the Explanation to cover three situations: one or more partners or members ceasing to be partners or members; one or more new partners or members being admitted in circumstances where one or more of the pre-change partners or members continue after the change; and all the partners or members continuing with a change in their respective shares or in the shares of some of them. The matter was decided on 2021-04-01 by the CBDT Circulars & Instructions (Not applicable — statutory text). On those facts the CBDT Circulars & Instructions held as follows. Where a partner receives a capital asset or stock in trade from the firm on dissolution or reconstitution, the firm is deemed to have transferred that asset to him in the year of receipt (sub-section (1)); the profits and gains from that deemed transfer are deemed to be the income of the FIRM of that year and are chargeable as its income under the head 'Profits and gains of business or profession' or under the head 'Capital gains', according to the character of the asset (sub-section (2)); and the fair market value of the asset on the date of its receipt by the partner is deemed to be the full value of the consideration received or accruing as a result of the deemed transfer (sub-section (3)). The Board may issue guidelines to remove difficulties in giving effect to s.9B and s.45(4) (sub-section (4)), and every such guideline, once laid before each House of Parliament, is binding both on the income-tax authorities and on the assessee (sub-section (5)).
Not a judicial route. The legislative technique is to create a deeming transfer where the general law and s.2(47) supply none: on a distribution to a partner the firm parts with the asset but receives no consideration, and before 2021 the charge on the firm depended on whether the transaction answered the description in the then s.45(4). Section 9B substitutes a deemed transfer keyed to receipt by the partner, and a deemed consideration equal to fair market value, so neither the absence of a sale nor the absence of consideration defeats the charge. The provision deliberately covers stock in trade as well as capital assets, which is why sub-section (2)(ii) offers two heads of charge rather than one. In the words reproduced by the source cited on this page: "Where a specified person receives during the previous year any capital asset or stock in trade or both from a specified entity in connection with the dissolution or reconstitution of such specified entity, then the specified entity shall be deemed to have transferred such capital asset or stock in trade or both, as the case may be, to the specified person in the year in which such capital asset or stock in trade or both are received by the specified person."
It was decided by the CBDT Circulars & Instructions on 2021-04-01 and is reported as Income-tax Act 1961, s.9B; inserted by Act No. 13 of 2021 (Finance Act 2021), w.e.f. 1-4-2021, i.e. from AY 2021-22. Binding on the department, not on the assessee or the courts. An assessee may rely on a circular that is beneficial to them. A CBDT circular or instruction binds officers of the department but not the assessee and not the courts. Where a circular helps you, you may hold the department to it. Where it hurts you, it cannot override the Act or a judgment. On section 9B, section 45(4), section 48(iii), section 2(47), the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It cuts both ways and is cited by both sides. Where a partner receives a capital asset or stock in trade from the firm on dissolution or reconstitution, the firm is deemed to have transferred that asset to him in the year of receipt (sub-section (1)); the profits and gains from that deemed transfer are deemed to be the income of the FIRM of that year and are chargeable as its income under the head 'Profits and gains of business or profession' or under the head 'Capital gains', according to the character of the asset (sub-section (2)); and the fair market value of the asset on the date of its receipt by the partner is deemed to be the full value of the consideration received or accruing as a result of the deemed transfer (sub-section (3)). The Board may issue guidelines to remove difficulties in giving effect to s.9B and s.45(4) (sub-section (4)), and every such guideline, once laid before each House of Parliament, is binding both on the income-tax authorities and on the assessee (sub-section (5)). It arises in Capital Gains and How Tax Law Is Read matters, on section 9B, section 45(4), section 48(iii), section 2(47) of the Income Tax Act 1961, and was decided by Not applicable — statutory text. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Split the assets taken out into capital assets and stock in trade before computing anything: the two are charged under different heads by s.9B(2)(ii). Get a fair market value on the date of receipt for each asset, and keep the valuation on file — s.9B(3) makes FMV the full value of consideration and the assessing officer will otherwise fix it himself. Check whether the same event also triggers the substituted s.45(4) (money or a capital asset received in excess of the partner's capital account balance) and compute that separately; do not net one against the other. For a reconstitution, test it against the Explanation to s.9B — a partner merely ceasing, a new partner merely being admitted, or the continuing partners merely changing their shares are each a 'reconstitution'. There is no de minimis. If the year in dispute is AY 2020-21 or earlier, s.9B does not apply at all and the old law governs; say so expressly in the reply to the notice.
Still good law. In force from AY 2021-22. No decision construing s.9B was located: an indiankanoon search on 7 September 2026 for the phrases 'section 9B' with 'reconstitution' and 'specified entity', and for 'self-generated goodwill' with 'specified entity' and 'reconstitution', returned only the bare-act and Finance Act 2021 pages and four ITAT Chennai orders, each for AY 2017-18, which hold only that the 2021 amendments do not apply to years before AY 2021-22. I did not check for any writ challenge to the provision. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
This is a statutory entry, not a decision. A genuine search of indiankanoon on 7 September 2026 produced no judgment or Tribunal order construing s.9B on its own facts — every order that mentions it (Gokulakrishna, Sathyabama Ramachandran, Manikandan, all ITAT Chennai) concerns AY 2017-18 and says only that the provision does not apply to that year. The provision is recent and the assessments are only now coming through. The 'tier' value 'cbdt' is used because the library's fixed tier vocabulary has no value for a statutory entry; the source is the Income-tax Department's own section page, not a Board circular. The date in 'decided_on' is the date from which the section takes effect, not a decision date. Indiankanoon's bare-act listing suggests the Income-tax Act 2025 re-enacts this provision as its s.8, but the brief for this library forbids stating a statutory position from an indiankanoon act page and I did not verify that number against a departmental source — treat it as unchecked. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
Where a partner receives a capital asset or stock in trade from the firm on dissolution or reconstitution, the firm is deemed to have transferred that asset to him in the year of receipt (sub-section (1)); the profits and gains from that deemed transfer are deemed to be the income of the FIRM of that year and are chargeable as its income under the head 'Profits and gains of business or profession' or under the head 'Capital gains', according to the character of the asset (sub-section (2)); and the fair market value of the asset on the date of its receipt by the partner is deemed to be the full value of the consideration received or accruing as a result of the deemed transfer (sub-section (3)). The Board may issue guidelines to remove difficulties in giving effect to s.9B and s.45(4) (sub-section (4)), and every such guideline, once laid before each House of Parliament, is binding both on the income-tax authorities and on the assessee (sub-section (5)).
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