Section 184 of ITA, 1961 : Section 184: Assessment As A Firm

Explanation using Example

Imagine a scenario where three friends, Aarav, Bhavya, and Chetan, decide to start a business together. They form a partnership firm called 'ABC Traders' to sell organic products. To ensure that their firm is assessed as a firm for tax purposes under the Income-tax Act, 1961, they draft a partnership deed. This instrument specifies that Aarav will receive 40% of the profits, Bhavya 35%, and Chetan 25%.

When it's time to file their tax returns for the year, they include a certified copy of the partnership deed with their return, as required by Section 184(2). This deed is signed by all three partners, none of whom are minors. Since they have complied with the conditions of Section 184(1), 'ABC Traders' is assessed as a firm, allowing them to take advantage of certain tax benefits available to partnership firms.

In the following year, they do not make any changes to the partnership agreement or the profit-sharing ratio. Therefore, according to Section 184(3), 'ABC Traders' continues to be assessed as a firm without needing to submit a new partnership deed.

However, in a subsequent year, they agree to change the profit-sharing ratio due to changes in their contributions to the firm. They update the partnership deed accordingly, and as per Section 184(4), they submit a certified copy of the revised partnership deed with their tax return for that year.

If 'ABC Traders' failed to comply with tax filing requirements, as mentioned in Section 184(5), they would face consequences such as disallowance of deductions for interest, salary, or other payments made to the partners, which would otherwise be deductible expenses in the firm's tax computation.