Section 8 — Income on receipt of capital asset or…

Section 8 of the Income-tax Act, 2025 corresponds to s. 9B of the Income-tax Act, 1961. STATUTORY ARCHITECTURE Section 8 taxes a firm, association of persons or body of individuals (other than a company or a co-operative society) when a…

Section 8 — INCOME ON RECEIPT OF CAPITAL ASSET OR STOCK-IN-TRADE BY SPECIFIED PERSON FROM SPECIFIED ENTITY

Section 8 of the Income-tax Act, 2025 corresponds to s. 9B of the Income-tax Act, 1961.

Statutory text — Income-tax Act, 2025

Marginal note — Dividend income

(1) Where a specified person receives during the tax 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, to the specified person in the year in which such capital asset or stock-in-trade, or both, are received by the specified person.

(2) Any profits and gains arising from the deemed transfer mentioned in sub-section

(1) by the specified entity shall be—

(i) deemed to be the income of such specified entity of the tax year in which such capital asset or stock-in-trade, or both, were received by the specified person; and

(ii) chargeable to income-tax as income of such specified entity under the head “Profits and gains of business or profession” or under the head “Capital gains”.

(3) For the purposes of this section, fair market value of the capital asset or stock- in-trade, or both, on the date of its receipt by the specified person shall be deemed to be the full value of the consideration received or accruing as a result of such deemed transfer mentioned in sub-section (1).

(4) If any difficulty arises in giving effect to the provisions of this section and section 67(10), the Board may, with the previous approval of the Central Government, issue guidelines for removing the difficulty.

(5) Every guideline issued by the Board under sub-section (4) shall be laid before each House of Parliament while it is in session for a total period of thirty days which may be comprised in one session or in two or more successive sessions, and if, before the expiry of the session immediately following the session or the successive sessions aforesaid, both houses agree in making any modification in such guideline or both Houses agree that the guideline, should not be issued, the guideline shall thereafter have effect only in such modified form or be of no effect, as the case may be; so, however, that any such modification or annulment shall be without prejudice to the validity of anything previously done under that guideline.

(6) For the purposes of this section,—

(a) “specified entity” means a firm or other association of persons or body of individuals (not being a company or a co-operative society);

(b) “specified person” means a person, who is a partner of a firm or mem- ber of other association of persons or body of individuals (not being a company or a co-operative society) in any tax year;

(c) “reconstitution of the specified entity” means, where—

(i) one or more of its partners or members, of such specified entity ceases to be partners or members; or

(ii) one or more new partners or members are admitted in such speci- fied entity in such circumstances that one or more of the persons who were partners or members, of the specified entity, before the change, continue as partner or partners or member or members after the change; or

(iii) all the partners or members, of such specified entity continue with a change in their respective share or in the shares of some of them. Income deemed to accrue or arise in India.

Corresponding provision — 1961 regime

INCOME-TAX ACT, 2025	INCOME-TAX ACT, 1961
s. 8 — Income on receipt of capital asset or stock-in-trade by specified person from specified entity	s. 9B — Income on receipt of capital asset or stock in trade by specified person from specified entity

STATUTORY ARCHITECTURE

Section 8 taxes a firm, association of persons or body of individuals (other than a company or a co-operative society) when a partner or member receives a capital asset or stock-in-trade, or both, from it during the tax year in connection with its dissolution or reconstitution. The resulting profits and gains are taxed as the income of the entity.

KEY ELEMENTS

Sub-section (1): deemed transfer by the specified entity to the specified person in the year in which the specified person receives the asset.
Sub-section (2): the profits and gains are income of the specified entity of the tax year of receipt, chargeable under the head "Profits and gains of business or profession" or the head "Capital gains".
Sub-section (3): fair market value on the date of receipt by the specified person is deemed to be the full value of the consideration.
Sub-section (4): the Board may, with the previous approval of the Central Government, issue guidelines to remove difficulties in giving effect to this section and s. 67(10).
Sub-section (5): every guideline is laid before each House of Parliament for a total of thirty days; if both Houses agree to modify it or that it should not be issued, it has effect only as modified or not at all, without prejudice to anything previously done under it.
Sub-section (6): defines "specified entity", "specified person" (a partner or member) and "reconstitution of the specified entity", which covers a partner or member ceasing to be one, admission of a new partner or member while at least one existing one continues, and all continuing with a change in the shares of all or some of them.

CHANGES FROM THE 1961 ACT

The counterpart is s. 9B of the 1961 Act. The charging mechanism is substantively the same, with "previous year" replaced by "tax year". The difficulty-removal power now refers to s. 67(10) instead of s. 45(4) of the 1961 Act and requires the "previous approval" of the Central Government. Section 9B(5) of the 1961 Act required guidelines to be laid before each House and made them binding on the income-tax authorities and the assessee; s. 8(5) instead prescribes a thirty-day laying period with a modification or annulment procedure and omits the words about being binding. The definitions move from an Explanation into sub-section (6) and are reordered.

PRACTITIONER NOTES

Reconstitution includes a mere change in sharing ratios where all partners or members continue.
Where money or a capital asset is received on reconstitution, s. 67(10) should also be examined, as sub-section (4) treats the two provisions together.

CROSS-REFERENCES

s. 67(10) — the capital gains provision on receipt of money or a capital asset by a specified person on reconstitution, referred to in sub-section (4).
s. 9B of the 1961 Act — the corresponding provision.
s. 45(4) of the 1961 Act — referred to in s. 9B(4) of the 1961 Act.

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