PARTNERSHIP FIRM UNDER INCOME TAX ACT

S.K. Gulati, Advocate
President, Income Tax Bar Association

Partnership firm is treated differently while comparing it with other assessees i.e. individual/HUF, for the purpose of charging income-tax under the Income Tax Act. Therefore, for the assessment year 2007-08 a different new form ITR–5 has been introduced for filing the income-tax return by the firm. Apart from the particulars of income and tax charged thereupon, this form contains the particulars related to the computation of Fringe benefits and Fringe benefits Tax. The said form can also be used by the firms/AOP/BOI/Co-operative Society/Local Authority etc. It is obligatory for every firm to furnish the return where it has income or loss during the year.

A partnership firm is liable to pay income-tax @ 30% with surcharge @ 10% and Education Cess @ 2% on its income for the assessment year 2007-08. It is obligatory on all the firms to get their accounts audited under Section 44AB if the turnover of the firm carrying business exceeds Rs. 40 lacs or the gross receipt for the firm carrying on profession exceeds Rs. 10 lacs. The firms, carrying on business and calculating its income under the provisions of Sections 44AD, 44AE, 44AF, 44BB or 44BBB as the case may be and claiming its income to be lower than the profit as the same is deemed to be the profit under these Sections, are also required to get their accounts audited.

ITR-5 is an Annexure less form for filing the income-tax return; therefore, no document, including Report of Audit, is required to be attached to this form. A firm has the option to file its return either in paper form or electronically under Digital Signature. But a firm which is liable to get its accounts audited under Section 44AB is compulsorily required to furnish its return electronically under Digital Signature or by transmitting the data in the return electronically and thereafter submitting the verification form ITR-5 in duplicate to the Income Tax Department.

While filling the return of a firm in the newly introduced form ITR-5, some of the details have to be filled with relevant codes which describe the nature of business and the Sections under which the return is filed. A firm as specified employer is also liable to pay fringe benefit tax @ 30% with surcharge and education cess under Chapter XII-H of the Income Tax Act on the value of fringe benefits provided or deemed to have been provided as prescribed under Section 115-WB read with Section 115-WC of the Act.

Return form to be used by a firm has been divided into three parts. First part of the form is further divided into five sub-divisions. The first three divisions of Part A of the form require the assessee to give identification details and furnish the details of Balance Sheet and Profit and Loss Account. While rest of the two divisions are optional and are required to be filled up mandatorily only by the firm who are required to get their accounts audited under Section 44-AB. Part B of the form gives the detail of income chargeable to tax and the tax computation thereupon. Part C gives the detail of fringe benefits on which the firm is required to pay fringe benefit tax and the tax computation thereof. Form contains 31 schedules wherein the different kind of information is required to be submitted as applicable in the case of different assessees.

Although, the Department is claiming the ITR-5 as Annexure less form but the true fact is that most of the details which are usually given in the annexures are required to be reproduced in different schedules of the form. For example, no TDS/TCS certificate is required to be attached with form but the entire detail of the said certificates is required to be filled in the Schedule TDS-2 and Schedule TCS. Similarly, the details of challans of advance tax and self-assessment tax paid by the assessee are required to be filled up in Schedule IT. The entire Balance Sheet and Profit & Loss Account of a firm is required to be filled up in the manner as prescribed in Part

A-BS and Part A-P&L respectively alongwith quantitative details of opening and closing stock in Part A-QD. Part C of the return require the assessee to give the details of computation of fringe benefits and fringe benefit tax. The ITR-5 in itself is full of schedules filling of which is more difficult for the assessee than to submit the annexures with the return as it used to be in the past. As the new prescribed form is only for the assessment year 2007-08, there is a hope that the Department will reconsider the formation of these forms and make it more easier and friendly user for the assessees in future.