Partnership Firms In Indian Tax System
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--
- The firm should be evidenced by an instrument [Section 184(1i)].
- 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)].
- 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)].
- 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.
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