Professional Documents
Culture Documents
s –
Assessment of Firms
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PFAS PFAOP
• Partnership Firm Assessed as such (PFAS) –
To be assessed as PFAS, a firm should fulfil the
following conditions -
(h) It should be evidenced by a Partnership Deed.
(i) Shares of partners should be specified in the
Partnership Deed.
(c) A copy of the Partnership Deed certified by all
the partners shall be filed with the Return of
Income of the P. Y. in which it comes into
existence.
(d) In case of change in the constitution of the firm
or in the Profit Sharing Ratio, a certified copy of
the revised Deed shall be filed with the Return of
Income of the relevant A. Y.
(e) There should not be a failure on the part of the
firm of the nature specified in S. 144 of the I.T.
Act.
Where a certified copy of the Deed was not filed
with the Return, Revised Return with such copy
may be filed.
Once assessed as PFAS, it will continue to be
assessed as such in case of no change in the
constitution or PSR and no failure u/s. 144.
Computation of Income –
In computing income of PFAS under the head
Business or Profession, the following
deductions are allowable –
• Remuneration to Working Partners –
The following conditions u/s. 40(b) should be
satisfied.
(a) Remuneration should be paid to a working partner –
Working partner – Individual partner actively engaged
in conducting the business or profession of the firm.
Where H.U.F. is a partner in a firm and remuneration is
paid to the karta, remuneration shall be taxable in the
hands of the karta, if karta has rendered services and
the salary has no connection with the investment of
H.U.F. assets in the firm. Such remuneration shall be
deductible in the hands of the firm.
Rasik Lal & Co. v. C.I.T. 229 ITR 248 (S.C.)
C.I.T. v. Trilok Nath Mehrotra 231 ITR 278 (S.C)
(b) Should be authorised by the Partnership Deed –
The deed should provide for remuneration in
clear terms and not in vague terms.
(c) It should be prospective in effect.
(d) Prescribed Limit u/s. 40(b) –
In the case of a firm engaged in Profession –
On first Rs.100000 of book – Rs.50,000 or 90%
profit or in case of loss of book profit
whichever is more
On the next Rs.100000 of – 60% of book
book profit profit
On the balance of book Profit – 40% of such book
profit
In the case of any other firm –
On first Rs.75,000 of book - Rs.50,000 or 90% of
profit book profit whichever
is more
On next Rs.75,000 of book - 60% of such book profit
profit
On the balance of book - 40% of such book
profit profit