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Partnership under Income Tax Act

A partnership to be recognised for the purpose of income Tax liability of the partners and their firm is required to comply with certain provisions of the Income Tax Act. While therefore drafting a deed of partnership the provisions of the Act are required to be taken in to account. For detail discussion on this question  See Chapter 3 part VIII.

Partnership and other bodies of Individuals

A partnership is distinguishable from several other associations or bodies of individuals. A partnership is different from co-owners in several respects. The distinguishing features are stated by the Supreme Court in Champaran Cane Concern Corporation v. State of Bihar. It is different from a club which is an association of persons formed for the purpose other than carrying on business and therefore there is no object to earn profit. Partnership is different from a company or any other corporate body which is a legal entity. Partnership is also different from Hindu Joint family firm, the latter being a creation of law while the former is a creation of contract. It is not necessary to discuss the subject in more detail as each of these bodies are dealt with separately elsewhere.

Registration

A partnership firm is required to he registered under sections  58 and  59 of the Partnership Act, though it is not compulsory.

Every change in the constitution of a partnership is also required to be registered. But if it is not registered, then there are certain handicaps stated in S.69 of the Act.

The main handicap being that a partnership firm or its partner cannot file a suit against a third party. In Maharashtra, the Section is made more stringent making registration almost compulsory. For the purpose of income tax benefits It is necessary to register a partnership with the Department under S. 184 and S.185 of the Income Tax Act, 1961. For the Influence of the Income Tax Act on partnership, see Ch. III in Part Viii.

Limited partnership

The concept of limited partnership is not recognised by Indian Law. It is prevalent in England and America and other countries. In England, the limited partnership is governed by the Partnership Act of 1907. It consists of general partners who are the main partners with exclusive right of management and their liability is unlimited. But they can take any linilted partner who contributes some capital to the Firm and whose liability is limited to that amount provided he does not participate in the management or withdraw any part of the capital contributed by him during the term of partnership. However a limited partnership is not a separate legal entity like a limited company. Generally a limited partner joins a firm to participate in a particular scheme or adventure of the firm.

Stamp Duty and Registration

Stamp Duty : On a Deed of Partnership the stamp duty under the Indian Stamp Act is a fixed one. The same duty is payable on a deed of retirement or a deed of dissolution. But in Maharashtra, if the deed of retirement or deed of dissolution effects any transfer of an immoveable property, it will attract stamp duty as on a conveyance on the market value of the property. For the law in different States, see Ch.1 in Part VIII.

Registration : A partnership deed is not required to be registered even if an immoveable property is brought in the firm. Similarly, a deed of retirement or a deed of dissolution is not required to be registered. According to Supreme Court a division of even immoveable properties on dissolution is not required to be registered as it does not amount to a transfer. The correctness of this view is doubtful and it is desirable to get such a deed of dissolution or retirement registered for the sake of caution or safety.

 


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