A partnership firm will be assessed as a firm in Income Tax Act if the following conditions are satisfied
- Partnership is evidenced by an instrument
Normally a partnership agreement is made for the purpose and is a valid instrument. Instrument also includes any other formal document. - Individual shares of the partners are specified in that instrument
Such instrument must specify the individual shares of the partners in the profits of the partnership firm. - Certified copy of instrument should be submitted
A certified copy of the instrument of partnership shall accompany the first return of income of the firm.
- Revised instrument should be submitted whenever there is change in the constitution of firm/profit sharing ratio
If there is a failure of any conditions of section 144 in any year then no deduction of interest, salary, bonus, commission or remuneration paid to partners is allowed as deduction in that year.