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Capital gains refer to gains arising out of sale or transfer of capital assets. Similarly, any loss
arising out of sale or transfer of capital assets is known as a capital loss. Capital gains are subject
to capital gains tax payable in the year in which such sale or transfer takes place.

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Capital assets include all moveable or immoveable property which is normally held for long-
term and cannot be converted into cash easily. Hence, capital assets do not include trading goods,
gold bonds, personal effects excluding jewelry, and agricultural land not falling within 8 kms
from any notified municipal area. Examples of capital assets are: land, building, plant and
machinery, shares, debentures, units of mutual funds etc.

    

Capital gains can be computed by using the below mentioned formula:

Consideration amount received from sale of capital asset -----

Less : The asset's actual cost (if acquired after April 1, 1981), or
Asset's estimated market value as on April 1, 1981 (if acquired before
April 1, 1981) --
Less: Cost of improvement (if any) --
Less: Expenses incurred on sale/transfer of capital asset -- -----
   

  In case of long term capital assets, costs are adjusted as per cost inflation index for the
year.

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Capital gains are classified into two types, namely, long term and short term. Capital assets
which are held for a period more than 36 months are known as long-term capital assets, whereas
capital assets held for a period less than 36 months are termed as short-term capital assets.
Capital assets also include shares, debentures and units of mutual funds, but the period of
holding in case of these assets is only 12 months and not 36 months. Profit on sale/transfer of
long-term capital assets is tax-free whereas profit on short-term capital assets is taxable as
regular income.
°    
Gain arising from sale of capital assets like shares after a period of one year is known as long-
term capital gain tax. In India, long term capital gain is exempt from tax.

  
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In case of Individuals and HUF, long-term capital gains are exempt if the sale proceeds are
reinvested in certain assets.
Some examples:
Profits on sale of residential house is reinvested in a new residential house
Long term capital gains are invested in notified bonds
These exemptions are subject to certain conditions and the reinvestment has to be made within
the prescribed time.

    
Any profit/gain arising out of sale of capital assets (like shares etc.) before a period of one year is
known as short-term capital gain. Short-term capital gains are taxable at the rate of 10%.
How do you compute taxable income in the case of Co- operative societies?

Co-operative society eligible for deduction u/s 80P(2)(a)(i) on Interest Income from banks on
deposits and balance in saving account

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The funds kept in bank can be said to be ready for utilization by the co-operative society in its
business of providing credit facilities to its members; the income from such monies, kept in the
bank, can be said to be attributable to the business of providing credit facilities, so as to fall
within the ambit of section 80P(2)(a)(i) .

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c'cc (" ITAT, CHANDIGARH BENCHES (B), ' %  #$ Punjab State
Cooperative Federation of House Building Societies Ltd. v. ACIT, ))° # ITA
996/Chd/2009, c'cc# January 29, 2010

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9. The salient features of the impugned case have already been noted by us namely, that the
assessee is a Co-operative Society, set up by the Government of Punjab registered under the
Punjab Co-operative Societies Act, 1961. The Assessing Officer has duly noted that its primary
business is to grant loans to members in Urban and Rurah Co-operative Housing Societies of the
State of Punjab for construction of houses and Housing Complexes. The assessee has been
earning interest by way of providing credit facilities to its members. The Assessing Officer has
not treated the income earned from the monies kept in the commercial banks as eligible for
80P(2)(a)(i) of the Act. The point to be decided is as to whether such interest can be said to be
earned from an activity attributable to the assessee¶s business of providing credit facilities to its
members. No doubt, the direct source of income is not the loans advanced to the members of the
society. So however, in view of the expression µattributable to¶ present in Section 80P(2)(a).(. i),
the said income can be said to be incidental and in proximity to the business of the assessee of
providing credit facilities to its members. Clearly, the funds available with the assessee for its
business have been kept in the banks which has resulted in earning of the impugned interest
income. The parity of reasoning laid down by the Hon¶ble Supreme Court in the case of
Karnataka State Co-operative Apex Bank, 251 ITR 194 and that of the Special Bench of the
Tribunal in the case of Surat District .Co-operative Bank, 85 ITD 1 (SB) (And) clearly aids the
aforesaid inference. In our view./the funds kept in bank; can be said to be ready for utilization by
the Assessee in its business of providing credit facilities to its members; the income from such
monies, kept in the bank, can be said to be attributable to the| business of providing credit
facilities, so as to fall within the ambit of Section 80P(2)(a)(i) j of the Act. Accordingly, the
income in question qualifies for exemption u/s 80P(2)(a),(i) of the Act. In view of our aforesaid
conclusion, the stand of the Assessing Officer that such income is to be ³assessed as µincome
from other sources¶, is rendered academjc. In, any case, we find that the Hon¶ble Uttrakhand
High Court in the case of Iqbalpur Cooperative Cane Development Union Ltd. (supra) has held
that interest of similar nature constitutes a part of the profits &¶ gains of business of the Society.
Further, the Hon¶ble Patna High Court in the case of Bihar State Housing Co-operative Society
Ltd. (supra) also supports the proposition that income earned on deposit of surplus funds with the
bank is entitled to exemption u/s 80P(2)(a)(i) of the Act. It is noteworthy that the assessee before
the Hon¶ble Patna High Court was also an Apex Housing Cooperative Society, whose members
were primary Co-operative Societies, which is also the case before us. The judgement of the
Hon¶ble Patna High Court, in our view, fully covers the dispute in question, in favour of the
assessee.

10. Before parting, we may refer to the judgement of the Hon¶ble Madhya High Court in the case
of Devi Ahilya New Cloth Market Co. Ltd. (supra) relied upon by the learned DR. The issue
before the Hon¶ble Madhya Pradesh High Court related to the principle of mutuality and in this
connection, it was held that the Income earned from banks was to be assessed as µother sources.
The facts and the circumstances of the dispute in the present case stand on a completely different
footing than that was before the Hon¶ble Madhya Pradesh High Court and therefore, the said
decision does not help the case of the Revenue.

11. In the result, we set aside the order of the lower authorities and direct the Assessing Officer
to allow deduction u/s 80P(2)(a)(i) in relation to the income earned by way of interest from
commercial banks. Thus, on this issue the assessee succeeds.

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A partnership is a common vehicle in India for carrying on business activities (particularly

trading) on a small or medium scale. A profession is generally carried on through a partnership.
There is no restriction on a company's participation in a partnership, but this is rate in practice.

Under the general law a partnership is not a separate entity distinct from the partners, but for tax
purposes a partnership is an entity.

Partnership firm arises from a contract between two or more persons who contribute some
tangible and some intangible assets together with an objective of earning profit therefrom which
will be shared between them in predefined portion. Therefore-

1.? The firm should be evidenced by an instrument [Section 184(1i)]

2.? The individual shares of the partners in the asset of the firm and the profits (or losses)
should be specified in the instrument [Section 184(1ii)]
3.? A certified copy of the instrument of partnership shall acompany the return of income of
the previous year in respect of which assesment of the firm is first soute [Section 184(2)]
4.? Whenever Changes takes place in the constitution of the firm due to death or resignation
of the partner or in the profit sharing ratio of the existing partners, a certified copy of the
revised instrument of partner shall be submittd along with return of income of the related
year. Where a minor is admitted to the benifit of the firm and the shares of the partners
are unequal, it is necessary to specify how the shares of loss of the minor will be borne by
the major partner.

The provisions related to the taxation of partnership firms are included in Chapter XVI of the
Income Tax Act, 1961.U/s 184(1) of the Act, with effect from April 1, 1993 a firm shall be
assessed as a partnership firm (PFAS), if the given conditions are satisfied as follows:

i? Partnership is evidenced by a partnership deed and a certified copy thereof, which is duly
signed by all partners, and is filed along with the Return of Income (ROI).
i? Individual shares (profit/loss) of all the partners are also specified in the instrument i.e. in
the partnership deed
i? Whenever there is some change in the constitution of the firm, then the firm requires to
furnish along with the ROI, the certified copy of the partnership deed that is duly signed
by all the partners.
i? A change in constitution of the firm has been defined under section 187 of the Act which
includes admission of new partner(s), retirement of existing partner(s) as well as any
change in the profit/loss-sharing-ratio and excludes dissolution of the firm incase of death
of any of its partners.

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Flat rate of tax at 30% on the total income of the firm.
Surcharge: Nil
Education Cess: 2% of the amount of Income Tax
Secondary & Higher Education Cess: 1% on the amount of Income Tax





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Flat rate of tax at 30 % on total income of the firm

Surcharge: 10% of Income tax (after rebate u/s 88E, if any) if the net income exceeds Rs. 1
Crore. It is subject to marginal relief in cases where income is marginally exceeding Rs. 1 Crore.
Education Cess: 2% of the amount of Income Tax and the surcharge
Secondary & Higher Education Cess: 1% on the amount of Income Tax and the surcharge