TaxTMI 
TaxTMI 
Continuity and Change in the Taxation of Partnership Firms : Clause 325 of the Income Tax Bill, 2025 Vs. Section 184 of the Income-tax Act, 1961
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....her than as an association of persons (AOP), and set forth the procedural and substantive requirements for such assessment. This commentary provides a detailed analysis of Clause 325 of the Income Tax Bill, 2025, examining its objectives, practical implications, and potential areas of ambiguity. Thereafter, it compares and contrasts Clause 325 with the existing Section 184 of the Income-tax Act, 1961, highlighting both continuity and change in legislative approach and interpretation. Objective and Purpose Legislative Intent and Policy Considerations The primary objective of both Clause 325 and Section 184 is to establish a clear and consistent framework for the assessment of partnership firms. This framework ensures that only genuine pa....
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....uirement is procedural but critical, as it provides the tax authorities with documentary evidence at the outset, reducing the scope for later disputes. Certification Requirements Clause 325(3) for the certification of the partnership instrument, Clause 325(3) requires that the copy be certified in writing by all partners (other than minors). In the event of dissolution, certification must be by all persons who were partners immediately before dissolution and by the legal representative of any deceased partner. This ensures authenticity and prevents fraudulent claims regarding the partnership's constitution. Continuity of Assessment Clause 325(4) once a firm is assessed as such, Clause 325(4) provides for continuity in assessment in ....
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....ip deeds are comprehensive, up-to-date, and specify individual shares. * Timely submission of certified copies is mandatory, especially in the event of any changes. * Non-compliance can result in the disallowance of significant deductions, materially increasing the firm's tax liability. For Partners * Partners may be denied the benefit of being taxed on interest, salary, etc., if the firm fails to comply, potentially leading to double taxation or denial of income recognition. * Clarity in the partnership deed regarding shares and remuneration is essential to avoid disputes and adverse tax consequences. For Tax Authorities * The provision streamlines the assessment process by requiring documentary evidence upfront. * It emp....
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....ed partnership deed in the event of any change, and reapplication of all assessment conditions. * Consequences of Non-Compliance: Both provisions deny deductions for interest, salary, bonus, commission, or remuneration to partners in cases of specified failures, and prevent such amounts from being taxed in the hands of the partners. Key Differences and Legislative Evolution * Reference to Penalty Provisions: * Section 184(5) (as substituted by Finance Act, 2003) refers to failures mentioned in section 144 (best judgment assessment), whereas Clause 325(6) refers to failures mentioned in section 271 (penalty for concealment, etc.). This is a notable shift, as section 144 deals with procedural defaults (such as failure to file retu....
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....rs to familiarize themselves with the new section numbers and definitions under the 2025 Bill. Ambiguities and Potential Issues * The precise scope of "failure as mentioned in section 271" (in Clause 325(6)) may give rise to interpretational issues, especially if the corresponding section in the new Act has a broader or narrower ambit than section 144 under the 1961 Act. * The requirement for certification by "all partners (not being minors)" could create practical difficulties in large or frequently changing partnerships, especially after dissolution. * The consequences of non-compliance are severe, and firms must be vigilant to avoid inadvertent lapses, particularly in updating and certifying partnership deeds. Practical Complianc....