In this article we will deal with the assessment of firms with one brief
example,
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 First question is What is a partnership firm?
 In entire income tax act,1961 partnership is not defined any where,
therefore we can refer section 4 of Indian partnership act,1932
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 "Partnership is the relationship between persons who have agreed to share
the profits of a business carried on by all or any of them."
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 Firms are assessed as a separate entity, as per section 2(31) definition of the
person includes firm. Therefore assessment of the same is done separately.
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 Secondly, There are certain conditions which are required to be satisfied by
partnership firm to be assessed as a firm and for claiming deductions of
interest , salary to the partners. Conditions are mentioned in section 184 of
the act,
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 A) In case where firm is assessed for the first time,
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 The following conditions are required to be fulfilled by partnership firm to
be assessed as a firm:
 1) Partnership should be evidenced by a registered deed: Partnership deed
should be registered clearly explaining all the terms and conditions mutually
decided between the partners of the said firm.
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 2) Share of each partner must be specified in the deed: This is the essential
condition as to how the profits of the firm to be shared between the partners.
Profit sharing ratio must be clearly specified.
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 Profits include losses also. For fulfilling the condition as mentioned in
section 184, ratio of losses should also be stated clearly.
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 3) Self attested and certified copy of the deed must be filed: The first
return of the firm should be accompanied with the certified copy of partnership
deed. As per explanation to Section 184(2), the certified
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 Copy means that the copy of the deed is to be certified in writing by all the
partners except minors.
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 B) In Subsequent Assessment years: Once the firm is assessed as a firm under
the the act for any assessment year, it shall be assessed in the same capacity
for every subsequent assessment year but, when if there is no change in the
constitution of the firm or share of the partners. If there is any change in the
constitution of the firm or sharing than amended deed should be filed with the
return in the year of change.
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 If the required conditions are satisfied as mentioned in section 184 than the
firm is eligible to claim deduction as specified in section 40(b).
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 Example: There are three friends namely Pushp Kumar Sahu, Adnan Ali,
Pawan Kumar. These three started a business by forming a partnership firm by
making an orally verbal agreement. But when they are required to file the return
of the firm for the first time. They came to know that their partnership firm
should be registered with the registrar of firms and valid deed should be
executed clearly stating the profit and loss sharing ratio as it is the
prerequisite condition for assessing as a firm under income tax act 1961 and
filing return and claiming deductions of interest and remuneration to partners
from book profits of the firms. Thereafter consulting with the Chartered
accountants. All the three partners agreed to register their firm with ROF and
executed the valid deed clearly stating the profit and loss sharing ratio of the
partners for claiming the benefit under the various provisions of income tax
act, 1961.
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 Written by: Pushp Kumar Sahu ( C.A. Final Aspirant )
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