Two firms with same partners and same ratio

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This discussion explores the legality of having multiple partnership firms with identical partners and profit-sharing ratios, yet engaged in distinct business activities. The consensus is that such structures are permissible under the Indian Partnership Act, 1932. This arrangement allows partners to claim remuneration from each firm, potentially optimising tax benefits under Section 40(b) of the Income Tax Act, even if the businesses are different or represent different branches.

PARAS CHHAJED

PARAS CHHAJED

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25 December 2023 Can there be tow partnership firms with same partners and same profit sharing ratio, but with different business ?

Can both firm pay remuneration to partners based on their stand alone financial accounts applying limits of section 40(b) exclusively to each firm ?

Whether such firms are permissible under Indian Partnership Act, 1932.

Please guide.

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)
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25 December 2023 Such firms are allowed. Moreover it's a different business.

PARAS CHHAJED

PARAS CHHAJED

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26 December 2023 By permitting constitution of multiple firms with same partners and same sharing ratio one will be claiming higher remuneration from each firm as per provisions of s. 40(b) which allows 90% of first book profit upto 3 l acs. Thus, in each firm partners remuneration @90% of first 3 lacs of book profit would be allowed. They may have different firms for different branches whether or not the line of business is same .

Apart from Income Tax point of view, please provide insight from the perspective of Partnership Act, 1932.

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)
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26 December 2023 Salary received by the partners are Taxable in their hands. Higher salary attract 30% tax. Income tax no problem.
Partnership Act not prohibit such partnerships. No need for any prohibition under the Act.

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