Circular
No. 8/2014, F.No.173/99/2013-ITA-1,
dated 30th March, 2014
Interpretation
of Provisions of Section 10(2A) of the Income
tax Act, 1961 in
cases where income of the
firm is exempt - Clarification Regarding.
A reference has
been received in the Board in connection with the
interpretation of provision of Section 10(2A) of the Income tax Act, 1961
(‘Act’) seeking clarification as to what will be the amount exempt in the hands of the partners of a partnership firm in cases
where the firm has claimed exemption / deduction under
Chapter III or VI A of the Act.
2. The
matter has been examined. Sub Section (2A) of Section 10 was inserted by the
Finance Act, 1992 w.e.f. 1.4.1993 due to a change in the
scheme of taxation of partnership firms. Since assessment year 1993-94,
a firm is assessed as such and is liable to pay tax on
its total income. A partner is not liable to tax once
again on his share in the said total income.
3. It is
clarified that ‘total income’ of the firm for sub section (2A) of Section 10 of
the Act, as interpreted contextually, includes income which is exempt or deductible
under various provisions of the Act. It is, therefore, further clarified that
the income of a firm is to be taxed in the hands of the firm only and the same
can under no circumstances be taxed in the hands of its partners. Accordingly,
the entire profit credited to the partners accounts in the firm would be exempt from tax in the hands of such partners, even if the
income chargeable to tax becomes NIL in the hands of the firm on account of any
exemption or deduction as per the provisions of the Act.
4. This
may be brought to the notice of all concerned.
5. Hind
version to follow.
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