Rule 8AA(5) — the law in short
What the courts have decided on section Rule 8AA(5), in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.
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Statutory position — Rule 8AA(5): whether the section 45(4) charge on the firm is short-term or long-term
CBDT Circulars & InstructionsCuts both ways
The firm has been charged under section 45(4) on a payout to a partner on reconstitution. Is that gain short-term or long-term, and how do I work out the split?
You look through the charge to the assets the amount has been attributed to. Rule 8AA(5) deems the amount, or a part of it, to be from the transfer of a short-term capital asset where it is attributed to an asset that is short-term at the time of the section 45(4) taxation, to an asset forming part of a block of assets, or to a self-generated asset or self-generated goodwill; and to be from the transfer of a long-term capital asset where it is attributed to any other asset that is long-term at that time. One section 45(4) charge can therefore split into a short-term part and a long-term part.
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Statutory position — Rule 8AB and section 48(iii): how the section 45(4) amount is set off when the firm later sells the asset
CBDT Circulars & InstructionsCuts both ways
My firm paid capital gains tax under the substituted section 45(4) on the money we paid a partner on reconstitution. When the firm later sells the land that was revalued, can it deduct that already-taxed amount from the sale consideration?
Only if the section 45(4) charge arose out of a revaluation of a capital asset or the valuation of a self-generated asset or self-generated goodwill, and only through Rule 8AB. Section 48(iii) allows the firm to deduct so much of the section 45(4) amount as is attributable to the capital asset being transferred, 'calculated in the prescribed manner', and the prescribed manner is Rule 8AB: the amount is spread over the assets in the same proportion as the increase in the value of each asset on revaluation bears to the total increase, and the attribution must be reported in Form 5C by the section 139(1) due date.
Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.
