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Welcome to. Pune Branch of WIRC of The Institute of Chartered Accountants of India. Residential Refresher Course Taxation of Partnership Firms. CA CHANDRASHEKHAR V. CHITALE. Taxation of Partnerships. Partnership – Meaning Assessment Business Income Capital Gains

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  1. Welcome to

  2. Pune Branch of WIRC of The Institute of Chartered Accountants of India

  3. Residential Refresher Course Taxation of Partnership Firms CA CHANDRASHEKHAR V. CHITALE

  4. Taxation of Partnerships • Partnership – Meaning • Assessment • Business Income • Capital Gains • Organizational Changes • Way Forward

  5. Partnership – Meaning

  6. Partnership – Meaning Two friends studying in a secondary school decide to sale crackers in Diwali holidays and share profits equally. They earn profit of Rs. 1.20 lac How the profits will be assessed?

  7. Partnership – Meaning Section 2 (31) (iv) Section 2(23): Firm Partnership Partner LLP

  8. Partnership – Meaning • Partnership Deed • Registration under the Indian Partnership Act, 1932? • Stamp Paper?

  9. Partnership Business • Lawful Business • Illegal Act

  10. Minor • Can a ‘minor’ be a partner? • Signature on the Deed • Signature on the certified copy • Assessment of remuneration • Assessment of interest

  11. HUF • Can a ‘HUF’ be a partner? • Why to admit HUF in firm? • Partnership of Two HUFs • Partnership of HUF and coparcener • Assessment of remuneration • Assessment of interest

  12. Partnership Issues • Can a ‘Firm’ be a partner? • How to admit ‘Firm’ as a partner? • Two Firms with same partners • Partnership of Two Firms • Joint Development Agreement and Partnership

  13. Assessment

  14. Assessment • Partnership firm is constituted on 9-5-2015. Remuneration is paid to one working partner and to a HUF partner. Interest to all the partners @ 15% p.a. It wants to furnish return of income. • What procedure firm should follow? • What precautions firm should take in income computation?

  15. Assessment • Section 184 • E- filing of Return • File of Return Papers

  16. Registration Section 184 • Instrument of Partnership • Signature on the Certified Copy • Sign by a ‘minor’ • Section 40(b)

  17. Change in Constitution • Partnership firm is constituted on 9-5-2014. It sustained loss of Rs. 3 lacs for A. Y. 2015-16. One partner with 30% share retired and the firm continued by the remaining two partners. It wants to furnish return of income. • What procedure firm should follow? • What precautions firm should take in income computation?

  18. Change in Constitution • Section 185 • Section 78 (1)

  19. Change in Constitution • Partnership firm is dissolved on 9-12-2015. It has property of Rs. 50 lac (FMV Rs. 80 lac) and stock of Rs. 12 lac (FMV Rs. 20 lac). The business was taken over and continued by one partner as a proprietary entity. • What procedure firm should follow? • What precautions firm should take in income computation?

  20. Change in Constitution • Section 188 • Section 45 • ICDS 2 • Supreme Court judgments

  21. Business Income • ICDS 2 • 24. In case of dissolution of a partnership firm or association of person or body of individuals, notwithstanding whether business is discontinued or not, the inventory on the date of dissolution shall be valued at the net realisable value.

  22. Business Income • A.L.A. Firm 102 ITR 622 (SC) • Sakthi Trading Co vs CIT118 TAXMAN 301 (SC)

  23. Business Income

  24. Business Income • Business Income • Remuneration • Interest • Estimated Income Scheme

  25. Business Income • Mr. Apple is receiving salary from employment amounting to Rs. 20 lacs. He has invested in capital of his Son’s firm Rs. 50 lacs. Should firm pay interest to him? • Mr. Bell has borrowed Rs. 50 lacs to invest in firm’s capital Rs. 50 lacs. Should firm pay interest to him?

  26. Business Income • M/s. Goa Cashew Company for F.Y. 2015-16 has a turnover of Rs. 80 lacs. • Accounts reflect Net Profit of Rs. 20 lacs. • For reducing income should it pay interest and remuneration to partners? • Reporting of the entire income is mandatory for the firm?

  27. Capital Gain

  28. Capital Gain • Section 45 (1) • Section 45 (3) • Section 45 (4) • Section 54 D • Section 54 EC • Section 54 G • Section 54 GA

  29. Capital Gain • Elora Constructions admits a partner Deva. • Deva enters into a development agreement with the firm for a plot of land he owns and receives four flats (FMV of flats Rs. 1 cr.) • How to ascertain capital gains tax? • Will answer change, where FMV of land is 1.20 cr.?

  30. Taxation • Baga Constructions admits a partner Deva. • Deva enters into a development agreement with the firm for a plot of land he owns and receives four flats (FMV of flats Rs. 1 cr.) • Can Deva save capital gains tax as he is acquiring 4 adjoining flats? • Is there any other way to save tax?

  31. Loss

  32. Loss • Return • Section 78 (1) • Section 32 (2)

  33. Organizational Changes

  34. Organizational Changes Conversion into: • LLP • Company • Proprietorship

  35. Organizational Changes Tax Liability Section 188A Section 189

  36. Way Forward

  37. Way Forward • Risk • Participants • Tax Advantages • Combination of Entities • Professionals

  38. Thank You! it was a C. V. Chitale & Co. presentation

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