Capital contribution

Capital contribution

I HAVE ONE PARTNERSHIP FIRM NAMELY m/S. XYZ HAVING 2 PARTNERS. The partners are also a supplier of goods in which xyz firm is trading. The partnes supplying the goods to the firm in which they are partners. The accumulated balance which is payable by the firm to its partnes is more than 1 crores to the partners.

Now the firm is saying that the amount payable to partners will be transferred to partners' capital accounts without paying any amount but by just passing the journal entry. It will be treated as capital contributed by the partners.

Can we do this.

What is the effect if we do this.

Asked 4 years ago in Income Tax

WHETHER THIS TYPE OF CONTRIBUTION WITHOUT TRANSFERING THE AMOUNT IS DISALLOWABLE UNDER INCOME TAX? PLEASE CLARYFY

Asked 4 years ago

Hello Sir,

To clarify the details provided by you, below is my understanding:

1. You are a partner in XYZ Partnership Firm

2. You and your partner is supplying goods to XYZ Firm

3. There is payable balance in XYZ Firm on account of you and your partner amounting Rs 1 crore.

4. Now, the XYZ firm is transferring the payable balance to capital.

If the above understanding is correct then you can proceed with the transaction and can transfer the payable balance into partner's capital.

Please let me know if there is some confusion in the understanding. I will correct the same and reply accordingly

Thanks and Regards

Divya Chugh

CA, Noida

190 Answers

3 Consultations

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Hello,

Yes, you can convert the payable account of the partners into their capital account.

There is no disallowance for the same. However, Sec. 40A(2) needs to be taken care of for the sale transaction.

Regards,

CA Hunny Badlani

Hunny Badlani

CA, Madhya Pradesh

2608 Answers

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Hi,

Partner can decide to contribute the money in the business by passing such journal entry.

it should be allowed.

Lakshita Bhandari

CA, Mumbai

5687 Answers

910 Consultations

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Talk to Lakshita Bhandari

Hi,

Yes, you can do this without any disallowance.

Payal Chhajed

CA, Mumbai

5188 Answers

289 Consultations

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Talk to Payal Chhajed

Yes it can be done and partner can bring goods as capital contribution.

Hope you find the information helpful if you do please rate it 5 and provide your valuable feedback for my improvement.

Thank you.

Naman Maloo

CA, Jaipur

4272 Answers

97 Consultations

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No, it is not disallowed.

Payal Chhajed

CA, Mumbai

5188 Answers

289 Consultations

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