Dear Sir,
A and B are partners in a firm X with a profit sharing ratio of 40:60. This firm - X -enters into a partnership with another partnership firm Y with a 10% share with four other natural persons C,D E and F and G a minor is also admitted to the benifits of partnership represented by the parent. The profit sharing ratio in firm Y is, X the firm 10%, C 25% D20%, E 25%, F10% and G the minor 10%. If there is firm in which another firm is a partner it cannot claim registration under the income tax act to avail the benefit of interest paid to partners and working partners remuneration as it is not a valid partnership firm. Then the remedy it appears is to show that A and B are the partners represented by the Firm X with a sharing capactity of 4% and 6% . Assuming that this is a valid way out, how should the profit and interrest derived by firm X from firm Y in their books of account. Can an amended partnership deed with a recital that A and B shall have a sharing of 4% and 6% and that they shall be jointly represented by the firm X in the second firm Y, and signed by both A and B would meet the requirement of law to claim the benifits of registration the firm with the income tax authorities? While filing the income tax return how should X be shown in the status code - as a individual or AOP or BOI or Firm or should A and B alone be stated as partners as individuals. There is a compelling reason to show X as a partner in Firm Y.
May be the case of Chhotalal Devchand v Commissioner of Income Tax 1958 34 ITR 351 (Bom) and 1977 107 ITR 361 (Bom) would throw some light on the subject?
Regards
j.r.kota
CAclubindia
