Income Tax Law Partnership

Income Tax Law

Partnership Tax Law

• A partnership is defined as a business carried out by two or more individuals with the object of gaining commercial profits or income.
• Partners are liable to pay separate tax on their respective share in the partnership income.
• The entire partnership income is subject to corporation tax at the applicable rates for the tax year.
• Partners cannot claim tax credit for expenses and tax paid by the partnership, as they are treated as separate entities.
• The partnership income can only be assessed by the partnership itself.

Partnership Definition

• A partnership is a mutual relation between persons who have agreed to share the profits of a business carried on by all or any of them.
• Profits of the partnership are distributed among partners in the proportion agreed upon or according to their share in the partnership.

Joint Venture

• A joint venture is a partnership in which persons carry on together a joint enterprise or undertaking.
• In a joint venture, they come together to participate in an agreed-upon business activity for a specific period of time.
• They cannot claim the benefit of Section 80H, 80IA, and 80IB (as per the Income Tax Act, 1961).
• They are liable to pay income tax on their respective share of the income from the joint venture, as per the relevant provisions of the Income Tax Act, 1961.

Basic Concepts

Body of Individuals (BOI)

• BOI is the total amount of income earned by the individuals who comprise the income-earning entity plus any reasonable sum, which is not an actual income, but is only a part of the total income of the persons comprising the entity.
• Example: BOI for an educational institution includes the total income of all teachers, but not the fees being paid to them.

Difference between BOP and BOI

• BOP is calculated according to the standing, which is the cost of the trade or business.
• BOI is calculated with the amount where income is being received directly or indirectly.

Good Authority

• Good Authority is when a person, in concert with another person, does a common general undertaking where any or both of them have the authority to act as the other person's agent.
• It should be clearly established and proved that the party has a common agent.
• Good Authority should be established to ensure that the action is in common general undertaking, and there is common understanding among the parties.

Apportionment of Income in Certain Cases

• Rule 7A: Income from sale of rubber products derived from rubber plants grown in India is apportioned as 65% agricultural income and 35% business income.
• Rule 7B: Income from sale of coffee grown, cured, roasted, and grounded in India is apportioned as 60% agricultural income and 40% business income. If only grown and cured in India, it's 75% agricultural income and 25% business income.
• Rule 8: Income from sale of tea grown and manufactured in India is apportioned as 60% agricultural income and 40% business income.

Income from Farm Buildings

• Income from farm buildings owned and occupied by the receiver of rent or revenue of land, or occupied by the cultivator or receiver of rent in kind, is considered agricultural income if it's related to land where agricultural processes take place.