REGISTRATION OF FIRMS UNDER INCOME TAX ACT, 1961

Chapter V of Income Tax Rules, 1962 (‘Rules’ for short) provides for the registration of partnership firms under the Income Tax Act, 1961 (‘Act’ for short) from Rule 22 to Rule 25.

Application for registration

There are two incidents when the application is to be filed before the end of the relevant previous year-

• Where no change in the constitution of the firm or the shares of the partners has taken place during the previous year before the date of the application, the application to be filed shall be in Form 11. This application shall be accompanied with the original instrument evidencing the partnership at the date of the application together with a copy thereof. A certified copy of the instrument together with a duplicate copy thereof may be attached to the application if, for sufficient reason, the original instrument cannot be produced.
• Where any change or changes in the constitution of the firm or the shares of the partners have taken place during the previous year before the date of the application, the application to be filed shall be in Form 11A. The said application shall be accompanied by the original instrument or instruments, evidencing the partnership as in existence from time to time during the previous year up to the date of the application together with copies thereof. A certified copy of the instrument or instruments together with a duplicate copy thereof may be attached to the application if, for sufficient reason, the original instrument or instruments cannot be produced.

Where the application is made after the end of the relevant previous year and if there is a change in the constitution or not, the application shall be in Form 11A.  The said application shall be accompanied by the original instrument or instruments evidencing the partnership as in existence from time to time during the previous year and up to the date of the application together with copies thereof. A certified copy of the instrument or instruments together with a duplicate copy thereof may be attached to the application if, for sufficient reason, the original instrument or instruments cannot be produced.

The application shall be signed by all the partners, as on date of application, personally (excluding the minors).  In case of dissolved firm, the application shall be signed personally by all partners before dissolution of the firm (excluding the minors) and by the legal representatives of the deceased partners.  If any partner is absent from India or is a lunatic or is an idiot the application may be signed by any person duly authorized by him in this behalf, or, as the case may be, by a person entitled under law to represent him.

Changes in firm

After the registration of a firm under the Act, if there is any change in the constitution of the firm or the shares in the firm in the previous year.  Where any such change had taken place in the previous year, the firm shall furnish a certified copy of the revised instrument of partnership along with the return of income for the assessment year relevant to such previous year.

Intimation of change

After the date of the application, for registration of a firm for any assessment year and before the assessment for that assessment year is completed by the Assessing Officer, so far as known to the firm, any change or changes take place in the constitution of the firm or the shares of the partners, the details of such change or changes shall be communicated by the firm to the Assessing Officer as soon as possible after each such change takes place.

Assessment of a Firm

A firm shall be assessed as a firm, if the partnership is evidenced by an instrument and the individual shares of the partners are specified in that instrument.  A certified copy of the instrument of partnership shall accompany the return of income of the firm of the previous year relevant to the assessment year. 

A firm shall be assessed in the same capacity for every subsequent year if there is no change in the constitution of the firm or the shares of the partners as evidenced by the instrument of partnership on the basis of which the assessment as a firm was first sought.  If any change had taken place in the previous year, the firm shall furnish a certified copy of the revised instrument of partnership along with the return of income for the assessment year relevant to such previous year.

Best judgment method

Where, in respect of any assessment year, there is failure to file income tax return, the firm shall be so assessed that no deduction by way of any payment of interest, salary, bonus, commission or remuneration, by whatever name called, made by such firm to any partner of such firm shall be allowed in computing the income chargeable under the head 'Profits and gains of business or profession' and such interest, salary, bonus, commission or remuneration shall not be chargeable to income-tax under clause (v) of section 28.