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.
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.
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.