Assessment of Partnership-439 Chapter-20 Assessment of Partnership Chapter Synopsis/Contents: 20.1 20.2 20.3 : 20.4 : 20.5 20.6 20.7 : 20.8 20.9 20.10 Introduction Definition of Partnership (Firm) Features and Procedures of Assessment of Firm — Features of firm Assessment — Procedures of Firm Assessment — Minimum Tax of Firm, Based on Nature of Business Format of Income and Tax determination — Computation of Income from Business — Allocation of Income Among Partners — Computation of Total & Taxable Income of Partners Points to Remember Illustrations Change in the Constitution of Firm Inheritance of Partnership Firm Discontinuation of Firm Aids to Perception Questions Exercises 20.1: Introduction There are several types of business organization; Partnership is one of them. In the eyes of general law, the partnership firm has got no separate entity. Legally, the Partnership firm cannot deal with any legal activity in its own name and the partners are entitled to do so in their own names individually. But according to Income Tax Act. 2023, the partnership firm has got its own separate entity and from that point of view, the firm is required to pay tax i. e. the firm has been given right and duty to deal with tax matters, In this chapter assessment procedures of partnership firm have been discussed.Assessment of Partnership-440 20.2: Definition of Partnership There is no specific definition of partnership (Which is termed as firm) given in the Income Tax Act. 2023, but Section 2(7) of 1.T Act. 2023 refers to ‘the meaning as assigned to it by the Partnership Act, 1932.' According to the Partnership Act, 1932, Partnership is- "the reiationship between the persons who have agreed to share the profits of a business carried on by all or any one of them acting for all". The members of the firm are individually known as ‘Partner’ and collectively known as ‘Firm’ or ‘Partnership Firm’. The above definition is also accepted by the Income Tax Act but the meaning of Partner is different to some extent in the eyes of Income Tax Law. A minor or an underaged child who enjoys the benefit of a partnership firm may also be considered as the partner of a firm according to Income Tax Law. It is to be mentioned here that a partnership is not a separate legal entity like a limited company, yet it is to an extent, treated as such for tax purposes. Partnership Establishment/place: It is to be noted that the NRB through F.A has clarified permanent establishment of business & profession relevant to income from business (also for partnership business) to include: a place of management, branch, agency, office, warehouse, factory, workshop, mine, gas well, farm or plantation, building site of business, furnishing of service including consultancy. 20.3 Features and Procedure of Assessment of Firm 20.3.1. Features of Firm Assessment Following are the specific features relevant to Firm Assessment: » Taxing Entity As Individual: Firm is treated as separate entity like individual and assessed thereof under Income-tax. 2) Charging of Tax: Firm pays tax on its income, if taxable profit exceeds minimum taxable limit as per rate applicable for individual. 3) Separate Tax for Partners: Partners are taxed individually where firm's profit be fore tax is added with individual's income with different other sources. 4) Profit Computation: Profit and loss of firm is computed with reference to section 49 to 95 of I.T. Act, 2023 i.e. provision applicable for sole tradership business income or any business income. 5) Share of Spouse or Minor Child in a Firm: If the spouse or ‘minor child holds share in a partnership firm where the assessee is also a partner, then the income of ‘the spouse or minor child will be assessed along with the assessee. But if they are partners of different firms, they should be assessed separately.Assessment of Partnership-441 6) Set off and Carry Forward of Firm's Losses: (1) In case of losses sustained by a firm under any head of income this loss shall be set off only against the income of the firm under afy other head and not against the income of any of the partners of the firm. (2) Any loss from business can be carried forward for setting of against such income, if any, for 6 consecutive years (U/s-70) 7) Carry Forward of loss For Partners: Firm can carry forward business loss but partners cannot carry forward share of firms losses. 20.3.2 Procedures of Assessment of Firm Following five steps are followed in the assessment firm: Computation of Business Income of the Firm Computation of Total Taxable Income of the Firm Computation of Tax on Firm's income Allocation of Firm's Income *_among Partners Computation of Tax of Partners These steps are briefly discussed below. > D > (1) Computation of Business Income: Business income is computed by taking net profit/margin to which non-allowable expenses are added and non-business income are de ducted, Here for allowable and non- allowable expenses provision of I.T. Act. sec. 49 to 55 will be the basis. It may be pointed out that Sec. 55 incorporates some non-allowable expenses where in in the following are noticed as spot light: Payment to partners or member of Association by way of salary, commission, jorest ete. {sec, 55 (b)] Payments to cengoyuen Porwons without deduction of tax at source, where it is necessary. [sec. 5: Expenditure Sec Jaw prescribed ceiling, Like perquisite, so free sample etc. [Sec.’55(d), sec. 55 (h)} Taxation In Bangladesh-S6Assessment of Partnership-442 (2) Computation of Total Taxable Income: After finding out business income, total income will be computed. In this regarded with such business income the various non-business income that were shows in P/L A/c/Income statement will be added. If on any such income, tax were deducted at source, the net income so received be grossed up as follows: 100 i oo = Gross'income. Net income + >> "Rate of tax deduction 3. Computation of Tax: (a) Tax Rate If the computed total taxable income of the firm exceeds minimum taxable limit Tk. 3,50,000 then tax is to be imposed on the basis of the following slab rates: Tk. * On Ist Tk. 3,50,000 e= Nil On Next Tk. 1,00,000 = 3% On Next Tk. 3,00,000 10% On Next Tk. 4,00,00 = 15% On Next Tk. 5,00,000 20% On the Rest of the amount = 25% (b) Location Based Minimum Tax of Firm. It is to be mentioned here that the minimum amount of tax should not be less than Tk. 5,000, if it is operating in areas of Dhaka North and south and Ctg. city corporation, Tk. 4,000 for other city corporation area, Tk. 3,000 if it operates in areas other than city corporation. (c) Investment Allowance: Total Income (Business & other related income) is taxable as per tax rate. However, investment allowance is claimable it will be computed as follows: A= 0.03 x “A” or B=0.15 x“B” or C=Tk. 10 Jakh — Lowest one “A” = Tax assessable Income less TDS income i.e. Sec 163 income, “B” = Total investment as per part — 3, 6" Schedule. This rebate be deducted from Tax Linde as per application of set rate = Tax eeeAssessment of Partnership-443 4, Allocation of Firm's Income Among Partners: (a) The Net divisible profit of the firm excluding interest, salary and commission given to the partners is to be distributed among the partners at first instance. However, salary, interest, commission received by partners will also be added separately for respective partners to compute their total income. * (b) After distribution of share of firm's business income among partners, share of other income of the firm to be distributed among partners as per P/L sharing ratio. [It may be noted that residual profit i.e. after deducting salary, commission etc. due to partners from profit of firm, can be distributed among partner in first stage and then share of other profits of firm can be distributed among partners in second stage. 5. Computation of Tax of Partners: The share of income from the firm is to be added to the total income of different heads of the individual assessee (each partner) and tax is to be calculated as per applicable tax rates of ,individual assessment. Finally, income from firm is to be considered as tax free income and partners will get rebate at average rate on their partnership income from tax so computed. . It is to be noted here that if the income of the firm does not exceed Tk. 3,50,000, no tax is to be imposed thereon and then such total income is to be distributed among the partners completely. ‘ 6. Computation of Tax Rebate on Firms income at average rate: Section 80 of Income Tax Act provides formula for computation Average tax rebate on firms income for partner as follows: K= A x (B/c), Where: : K ‘verage Tax, A = Tax on Total income sa iholding Firms Income, B = Share of income from Firm & C = Total Income of Partner including Firms share. Share from Firm Simply = Tax of the partner x => come of PartnerAssessment of Partnership-444 20.3.3 Minimum Tax of Firms: Based on Nature of Business: As per F.A 2023, minimum tax of a firm will be as follows: Class of Arssessee Rate of Minimum tax on Gross receipts, _| i) Cigarette, Bidi, Jorda or any other tobacco products | ii) Mobile phone operator [3% [2% iii) Any other types of firms in operation 20.4: Format of Income and Tax Determination Name of the Firm Address .. Income Year Assessment Year Computation of Income From Business: [0.60% is Particulars | Net Income as per Profit and Loss Account/Income Statement Add: Inadmissible Expenses shown in the Profit and Loss A/C./Income Statement. a) Depreciation as shown in Accounts (Considered later on) b) Other Inadmissible Expenses as per Sec. 50 c) Donation / Gift Taka ** + + Taka Add : Income from Business or Profession as'per Section 45-46 which are not shown in the Profit and Loss A/C./Income Statement Less : Allowable Other Expenses: a) Admissible Depreciation as per Income Tax Ordinafice b) Admissible Expenses as’per Section 50 which are not shown in the Profit and Loss A/C Less : Non-Business Income which are shown in the Profit and Loss A/C: a) Interest on Securities b) Income from House Property + a ord +Assessment of Partnership-445 c) Interest on Drawings, etc. of ony Business or Professional Income add Add : Non-business Income of the Business: a) Interest on Securities 9 b) Income from House Property . * c) Interest on Drawings, etc. ** ee Total Income of the Business or Profession Lacs Tax: On Total Income as per Rate bch Plus: Tax on Non-allowable exp. relevant to Sec. 55(b) Lace Total tax ose Allocation of Income Between/Among Partners: . Partners | Particulars Total Taka A B Tk. Tk. Income of the Partners Received from the Business: a) Salary ao a + b) Interest on Capital _ ‘s — c) Interest on Loan oe bd mnt d) Other Receipts of Partners aa a * ¢) Commission, etc. af nf oe f) Interest on Drawings (Let, Partner B) [The total of Items a) to e) is to be deducted from Total Business Income and this amount of Interest is to be adjusted with the deducted result and then finally such interest on drawing is to be deducted from the income of the respective partner.] cmy a) g) Allocation of the rest Business Income as per Profit and Loss sharing ratio (i. e., from Total Business Income Partners’ personal receivables are to be deducted and interest on drawings is to be adjusted. After doing so, the resulted figure is to be allocated — between/among _ partners . according to Profit and Loss Sharing *. * = Ratio.) Total Partnership Income iad bad hadAssessment of Partnership-446 Computation of Total Taxable Income of Partners: Partners Particulars A Bot Taka Taka Income From Partnership oe 5% Add: Private Income Mh oe (Here all other sources of Income of the Individual Partner are to be shown) Total Income of Individual Partner ee om Tax: As per Rate Applicable From tax rebate on investment as per prescribed rate be deducted to compute net tax payable] 20.5: Points to Remember 1) Income tax paid by the firm would not be deducted from the Total Income of the Business, while allocating firm's income between/among the partners. 2) Source-wise private income of the individual partner is to be added to the share of business income from firm at the time of determining Total Taxable Income of each partner. 3) _ At the time of calculating total income of the individual partner, income from firm is to be added. But as the firm itself pays tax, so, partners will get rebate at average rate on their partnership income from tax so computed. 20.6: Short & Broad Illustrations: (A) Short Illustrations: Illustration-1: : Chaffia Morshed Enterprise is a partnership firm of A and B, which showed following income for the year 2022-23: i) Business profit Tk. 5,00,000. ii) Income from securities Tk. 90,000. iii) Bank Interest Tk. 25,000 & Dividend Tk. 45,000. 7 ____ It is revealed that in computing Business profit, among other expenses, it charged interest on Partners' capital Tk. 15,000 for A & Tk. 25,000 for B. Compute tax to be paid-by the firm.Assessment of Partnership-447 Solution: Assessee: Chaffia Morshed Enterprise Income year-2022-2023 Assessment year-2023-2024 Computation of Total Taxable Income Particulars Taka Taka A) Business profit as shown 5,00,000 Add: Non-allowable exp: Int. on partners Capital. A 15,000 B 25,000 40,000 40,000 Taxable Business Income | 5,40,000 B) Income from other Sources: i) Int. on securities = 90,000 90,000x100 Grossed up = 2220x208 . 94,737 ii) Bank Int. 25,000 }0,000x100 grossed up = 520002400 20,778 iii) Dividend = 45,000 5,000x100 Grossed up = — 50,000} 1,72,515 Total Taxable Income Z12515 Computation of Tax of the Firm: On Tk. 7,12,515 < Tk. On Ist Tk. 3,50,000 = 00 = 00 On Next Tk. 1,00,000 = 5% = 5,000 On Next Tk. 3,00,000 (Here on 2,62,515) = 10% 26.215 Gross Tax 31,215 Less: Tax Deducted at sources. a) Security = Tk. 4,737 b) Bank Int. = Tk. 2,778 c) Dividend = Tk. 5,000 42515 Tax to be paid Tk. 18,700 Note: (i) Any payment to partner in any form is not treated as allowable expense. (ii) Tax deducted at source on securities is 5%, on Bank interest is 10% & on Dividend is @ 10%, Thus these have been grossed up & TDS on these are adjusted from gross tax to find out net tax payable.Assessment of Partnership-448 Tilustration-2: Rahman & Rahim are partners of a Firm sharing P/L equally. The Income statement of the firm for the year ended on 30-6-2023 were as follows: Particulars Taka Gross Margin Expenses: i) General exp. ii) Salaries to staff iii) Commission to Rahman Net Margin Other Income: i) Dividend ii) House property Income Total Margin Note: General exp. include advertisement exp. Tk. 50,000 which is for permanent sign board & Tk. 15,000 fines charged by City Corporation. Partner's private income were as follows: Rahman: Salary Income 3,60,000, Agricultural income from sale of crop Tk. 80,000. Rahim: Income from House property Tk. 2,40,000 & Interest on securities 70,000. Compute taxable Income of Firm & Portnsry. Solution: Rahman & Rahim Firm Income year-2021-2022 Assessment year-2022-2023 A) Computation of Taxable Income: Particulars Taka Net Margin as per Income statement Add: Non-allowable exp: a), Advertisement for permanent sign board being 50,000 Taka 3,80,000 capital exp. b) Fines imposed by city corporation 15,000 Commision to Rahman as payment to partner, 50,000 Taxable Business Income Add: Other income: i) Dividend = 80,000‘Taxation In Bangladesh-S7 Assessment of Partnership-449 Grosse up = fo.gnnxsoe ii) House property Income: {Assumed Rent) Less: Repair = 25% of AV. Total Income Taxable Note: (1) Business will pay tax on this as per prescribed Rate. (2) TDS on Dividend is 10% if there is TIN, if not @ 15% Assume firm has TIN; other than company where it is deducted @ 20% for company. B) Computation of Taxable Income of Partners: Particulars 2 Total__| Rahman | Rahim i) Commission 50,000 50,000 - ii) Rest of Total income of the firm (6,73,889] 6,23,889] 3,11,945| 3,11,944 — 50,000) Income from firm} 6,73,889} 361,945} 3,11,944 iii) Private Income: ‘ a) Salary 3,60,000} 3,60,000 - b) Agricultural Income 80,000 Less: exp. allowable @ 60% ~ 48,000 32,000 32,000 ¢) House property 2,40,000 Less: repair (25% of AV) 60,000} —1,80,000 : 1,80,000 d) Int. on Securities 70,000 70,000 70,000 Total Taxable Income * 53,945 561,944 Note: (1) As Income from agriculture is gross, allowable exp. @ 60% has been deducted. So also the case with House property where repair deducted @ 25%. (2) Int. on securities is fully taxable. (3) Both the partners will pay tax on they Taxable Income at average rate.Assessment of Partnership-450 (B) Broad Illustrations: Illustration-3: Othelo and Debdas are equal partners of a firm. You are given the following Profit and Loss Account for the year ended 31st December, 2022 and other relevant information from which you are asked to determine the Total Income of the Business and Partners and Tax to be paid. Profit & Loss Account Dr. ~ Particulars Tk. Particulars Salaries'to the Staff 1,31,200 | Gross Profit General Expenses 88,500 | Interest on Commercial Rent and Taxes 85,700 | Securities Misc. Income Salaries: Dividend Income Othelo 24,000 Debdas 22,000 46,000 Interest on Capital: Othelo 12,000 Debdas 11,000 23,000 Commission to Debdas 12,000 Net Profit 4 4,14,400, 8,00,800 8,00,800 Rent includes Tk. 40,000 paid to Othelo for the use of his house for business purpose. Private income of the partners were as follows: Othelo: Income from House Property Tk. 2,40,000 (including receipt from business) and income from sole tradership Tk. 2,50,000. Debdas: Income from Dividend Tk. 80,000 (Gross).Assessment of Partnership—451 Solution: Othelo-Debdas Partnership Income year: 2022-23 Assessment year: 2023-24 1, Computation of Total Income from Business: Particulars Taka, Taka Net Profit as per Profit & Loss A/C 4,14,400 Inadmissible Expenses: under Sec. 55(b) Salaries to the Partners: Othelo 24,000) Debdas 22,000) 46,000 Interest on Capital: Othelo 12,000} Debdas 11,000} 23,000 Commission to Debdas 12,000 81,000 81,000 4,95,400 Less: Non Business Income: i) Int, On commercial securities 40,000 ii) Dividend income . 1,30,000 1,70,000 Business Income 3,25,400 Total Income = 7 i Business Income 3,25,400 Interest on securities 40,000 . itt) Dividend 4,95,400 2. Computation of Tax on Firms Income = Tk. 4,95,400 lie On Ist Tk. 3,50,000 = Nil On Next Tk. 1,00,000 @ 5% = 5,000 On Next Tk. 3,00,000 @ 10% (Here on 4,95,400 — 4,50,000) = on Tk. 45,400 @ 10%) = EA 4540 Gross Tax = 9,540 Less: Tax deducted at sources: i) On security income @ 5% = 2,000 ii) On dividend income @ 10% = 13.000 “ 15,000 Net Tax payable (5,460) Note: TDS is greater than net tax payable, so firm is entitled to refund of Tk. 5,460] 3. Allocation of Income Between Partners: Particulars Othelo (Tk.)_|_Debdas (Tk.) Interest on Capital 12,000 11,000 Salary to Partners 24,000 Commission ~ Share of Divisible Profit 2,07,200 [(Tk. 6,45,400-81,000) + 2] Share of Total Income of the FirmAssessment of Partnership-452 4. Computation of Total Income of Partners: Particulars a. Income from Business b. Income from House Property (assumed to be net) Income from sole tradership c. Income from Dividend Total Income 2,43,200} 2,52,200 240,000 el 280,000 80,000 7,63,200| 3,32,200 5. Computation of Tax of the partners: 4 Deb Das will not pay tax as his income is below taxable limit i.e. Tk. 3,50,000. Tax to be paid by Othelo (on Tk. 7,63,200). : Rate ‘| Tax Amount On Ist Tk. 3,50,000 Nil 00 On Next Tk. 1,00,000 5% - 5,000 On Next Tk. 3,00,000 10% 30,000 On Next.Tk. 4,00,000 (Here on 13,200) . 15% 1,980| * 36,980 Less: Rebate on Firms Income = : According to sec. 80 of Income tax Act. 2023, Average tax of partner of firm or Member of AOP, will be computed as follows: K=AxX (Bic), were: K=Tax at average rate : ‘ax on Total Income (With partners/member income) hare of Firms Income/AOP’s Income C = Total Income (along with share of partners, members portion So, it will be as follows: : . Average Tax =A x (B/c), = 36980 x (2,43,200/7,63,200) = 36,980 x .3186 = 11,783 So Net tax payable = 36,980 — 11,783 = Tk. 25,197. Notes: 2 (1) The Firm shall have to pay no tax as its net tax liability is less than TDS. (2) It is assumed that house rent paid to Othelo is his private house property income and it is included. in his house property income of Tk, 2,40,000. Repairs, etc. of '/4th of such income is assumed to have been deducted from that income & it is net. (3) Partners will get tax rebate on firm's income at average rate if firm pay tax. They will also be able to adjust tax paid in advance from and items of income that has been added to income as gross, (4) Tax @ 5% on Securities & 10% on Dividend are deducted at source. Assumed shown amount are gross & thus tax deducted on these have been deducted from * Gross tax due.Assessment of Partnership--453 Ilustration—4: Bush and Gorvachev started a Departmental Store as a Partnership Firm as on Ist July, 2022. Their profit sharing ratio was 2 : 1 and initial capital was Tk. 50,00,000. During the initial period of the accounting year ie in July 2022, they took loan from Janata Bank amounting to Tk. 2,00,000 @ 8% interest p. a. payable half yearly in Dec. & June & loan amount was invested in the firm to meet the working capital requirement. As on 30th June, 2023 the transactions summary of the business for the year was as follows: ‘aka 1) Salary 1,25,000 2) Interest ob bank loan 16,000 3) Rent 50,000 4) Electricity 25,000 5) Other Expenses 28,000 6) Sales 26,40,000 7) Purchases 10,50,000 8) Wages and Purchases Expenses 28,000 During the relevant income year, Government Security worth Tk. 50,000 and Savings Certificate worth Tk. 25,000 were purchased on behalf of the firm. Prepare Tax Statement of the firm as per the prescribed Format of the IT Rule. Solution: ‘ Bush-Garvachey Partnership Firm Address:. a 2 Status: Partnership Firm, Residential Status: Resident G.I.R.No.. ? : Income Year: 2022-23 Assessment Year: 2023-24 PART: A Statement of Income for the year ended on 30-06-2023 Description of Income I. Income from Salary: Sec. 21 2. Income from Securities: Sec. 22 3. Income from House Property: Sec, 24 4. Income from Agriculture: Sec, 26 5. a) Income from Business and Profession See, 28 b) Income from Firm (See Computation -1) 6. Income from Capital Gain: Sec. 31 7. Income from Other Sources: Sec, 33 a) Dividend b) Interest c) Others (Details) 8. Total (1-7) 9. Foreign IncomeAssessment of Partnership-454 10. Total Income Tax on Total Income Tax Credit: Sec. 44(2) Tax Payable (See Note) Tax Paid PART: B Tax Credit Income/Investment { Deseription . Life Insurance Premium . Contribution to Deferred Annuity Fund Contribution to Providend Fund Under Provident Fund Act, 1925 Employee's and Emplayer's Contrbution to Recognised Provident Fund Contribution to Old age Fund Purchase of Shares and Debenture of Recognised Company Purchase of Govt. Securities and Savings Certificate (50,000 + 25,000) . Contribution to Deposit Pension Scheme . Zakat Fund 10. Welfare and Group Insurance 11. Other Deductions (if any) Actual Total Tax Credit Investment * Here tax credit investment would be: a) 3% of Total Income = 3% or 13,02,000 = 39,060 or b) 15% of Investment = 75,000 @ 15% = 11,250 or c) Tk. 10 lakh = Lowest one Thus 11,250. Computation-1: Computation of Total Income of the Firm: CS RAAAEY NS . Taka Sales r 26,40,000 Less: Purchases 10,50,000 Wages and Other Expenses 28,000 10,78,000 Gross Profit 15,62,000 Less: Operating Expenses Admissible Expenses: a) Salary 1,25,000 b) Interest paid 16,000 Payable 16,000 32,000 c) Rent 50,000 d) Electricity 25,000 e) Other Expenses 28,000 (Assuming Allowable) _2,60,000 Net Profit 13,02,000Assessment of Partnership-455 Note: The Partnership Firm pays tax at the same rate as applicable in case of individual assessee. Therefore, the amount of tax of the firm would be: Computation-2: Tax to be paid on Tk. 13,02,000 = Tk. On Ist Tk. 3,50,000 = Nil On Next Tk. 1,00,000 @ 5% = 5,000 On Next Tk. 3,00,000 @ 10% = 30,000 On Next Tk. 4,00,00 @ 15% = 60,000 On Next Tk. 5,00,000 @ 20% (Here on 1,52,000)= _ 30,400 Gross Tax = 1,25,400 Less: Tax credit on Investment @ 15% 11.250 Net tax payable 1,14,150 (Tax rebate to firm is allowed as per provision relevant to individual assessee) Mlustration-5: Mr. Khane Alam and Mrs. Jane Alam are partners of a firm. They share profit and losses equally. From the following Income statement for the year ended 30th June, 2021 and related information compute the total income and Tax of the firm and partners: Gross Margin Less: Expenses: Salary and Allowances Bonus to Staff Municipal tax Time barred bad debt Rent paid to K. Alam Donation Sundry expenses Add: Other non-operating income: Income from house property (Net) Income from tax-free Govt. securities Int. on Drawing: Mrs. J. Alam Net margin Private Income of the Partners: Khane Alam: Income from House Property Tk. 4,00,000 (net) & Dividend income 1,50,000. ‘ Mrs, Jane Alam: Income from Sole tradership Business Tk. 2,67,000.Assessment of Partnership-456 Investigation disclosed that Khane Alam maintains on account with Prime Bank & interest there on amounted to Tk. 30,000 on which Tax deducted at sources was 3,000 @ 10%. Tax at source on dividend income @ 10% was deducted. It was also scen that salary & allowances include taka 50,000 each ‘paid to K. Alam & Mrs. Jane. Alam. Solution: K. Alam & Mrs. J. Alam Firm Income Year: 2021-22 Assessment Year: 2022-23 1, Computation of Business Income of the Firm: Particulars Taka Taka Net Profit as per Profit & Loss A/C. . 7,19,250 Add: Inadmissible Expenses: Under Sec. 55(b) Salary: _Khane Alam 50,000 Mrs. Jane Alam 50,000 1,00,000 1,00,000 Add: Non allowable Expenses: Donation 42,500| _1,42,500 8,61,750 Less : Non-Business Income: Income from House Property 1,30,000 Interest on Tax-free Govt. Sec. 5,800 Interest on Drawing: Jane Alam 1,250 1,37,050 Business Income ~ |__ 7,24,700] 2. Computation of Total Income of the Firm: Particulars Taka a) Interest on Tax-free Govt. Security (Fully Exempted) ae b) Income from House Property (Net) 1,30,000 c) Income from Business 7,24,700. ¢) Interest on Drawing 1,250 Total Taxable Income 8,55.950Assessment of Partnership-457 3. Allocation of Income between the Partners: Particulars | Total Tk. | Khane Alam A) Share of income from Business: i) Salary ii) Interest on Drawing (Mrs. Jane Alam) iii) Share of Rest of the business income (7,24,700 — 1,00,000 + 1,250) B) Share of other income of the business: i) Share of house property income (net) ii) Share of int. on tax free Govt. securities (exempted in full) Share of total income from the firm 8,54,700| _ 4,27,975 4,26,725 | 4, Computation of Total Income of the Partners: Particulars Khane Alam | Mrs. Jane | Tk. Alam Tk. Share of Total Income of the Firm 427,975 ae Add : Private Income: Income from House Property (Net) 4,00,000 — Income from Dividend Rent Received from Firm for House let out. (1,52,000 — Repair @ 30% = 45,600) Int. on Bank Deposit (30,000 + 3,000) Business Income (Sole tradership) Total Income 5. Computation of Tax liability of the Firm: Total Income 8,55,950 Taka (A) On Ist Tk. 3,50,000 = Nil On Next Tk. 1,00,000 @ 5% = 5,000 On Next Tk. 3,00,000 @ 10% = . 30,000 On Next Tk. 4,00,00 @ 15% (Here on 1,05,950) = 50,892 6. Computation of Tax Liability of The Partners: Total Income: Mr. Khane Alam Tk. 11,17,375 Mrs. Jane Alam Tk. 6,93,725 Taxation In Bangladesh-S8Assessment of Partnership—458 Tax Liability of Khane Alam: on Tk, 11,17,375: Particulars On Ist Tk. 3,50,000 On Next Tk. 1,00,000 @ 5% = On Next Tk. 3,00,000 @ 10% = Less: Tax rebate at average rate on Firm's income = 427,975 K=AXx (Bic) = 90,106 x Too = 90,106 x .383 = 34,512 34,512 Less: TDS on Bank Interest 3,000 Less: TDS on Divident 15,000 LL Net tax Payable On Next Tk. 4,00,000 @ 15% (Here on 3,67,375 @:20%) = Amount of Tax | Tax Liability of Mrs. Jane Alam: on Tk. 6,93,725 Particulars On Ist Tk. 4,00,000 On Next Tk. 1,00,000 @ 5% = On Next Tk. 3,00,000 @ 10% (Here on 1,93,725 @ 10%) Less: Tax rebate on Firm's income at average rate 4,26, K=AXx (Ble) = 24,375 x Amount of Tax 6,93,725, = 2473 x 0.615 = 14,992 Net Tax Payable Notes: (1) For women Minimum Taxable Income is Tk. 4,00,000 & Thus on Ist Tk. 4,00,000 tax rate is Nil. (2) Sundry Expense is assumed to be Business Expense. (3) Rent paid to Khane Alam by the firm has been considered.as Gross Rent and his personal Property Income has been considered as Net Rent Income. Repair for commercial house is allowable @ 30%. (4) It is assumed that Income Tax Authority is satisfied about the time barred Bad Debt. (5) Partner's of a’ firm get rebate at average rate on firm income, if firm pays tax. Rebate has been computer as per provision of sec. 80 of L.T. Act. (6) Tax deducted at sources are deductible from gross tax to arrive at net tax payable.Assessment of Partnership-459 Illustration-6: From the following particulars compute the Total Income & Tax of the Firm and the Partners A, B and C: Income Statement For the year ended 30th June, 2023 [ Particulars Taka Particulars [Taka Loss on Stock destroyed by fire 2,56,000 | Gross Profit ° 10,98,000 Management expenses 4,55,000 | Income from Property 84,000 Interest on Capital: Interest on commercial A 12,000 Securities (Gross) 30,800 B 0,500 22,500 | Dividend from Public Ltd, Interest on A's Loan. 21,800 | Co, (Net) 81,200 Rent Paid to C 42,000 | Interest on Drawings : B 3,160 Salary paid to B 94,200 Net Profit 4,05,660 12,97,160 Personal Income of the Partners: A: Salary B : Income from Property C: Income from Business Tk. 1,80,000 & Agricultural Income Tk. 75,000. Tk. 80,000 (Net) & business Tk. 1,70,000 Tk. 70,000 & Agriculture Tk. 2,00,000 (Net) A, B & C share the profit and losses in the ratio of 1 : 2: 3. Solution: . Income year: 2022-23 Assessment year: 2023-24 1. Computation of Business Income of the Firm: Particulars Net Profit as per Income Statement * Salary to Partner: B Interest on Capital: A 12,000 B 10,500 Interest on A's Loan Less : Non-business Income: Income from House Property Interest on commercial Security Dividend Interest on B's Drawing * «. Business Income Add: Inadmissible Expenses: [U/S-52(b)] 94,200 32,500 21,800 1,38,500Assessment of Partnership-460 2. Computation of Total Income of The Firm: Particulars a) Business Income: b) Income from Rent of Property (Assuming Net) c) Interest on Drawings - 4) Int. on commercial securities e) Dividend (Grossed up = 81,200 x 100/99 = 90,222) .. Total Income_* [* Interest on drawing may be treated in two ways, First, as business income. If so, it is not to be deducted here and as a result it is not to be added to the total income of the firm once again. However, Second, it is better to consider interest on drawing as non- business income as second method. In this case it has been done so.] Note: Tax @ 10% is deducted at source on dividend. So it is to be grossed up as: Me Net Dividend 2010/9, Gross amount be shown as income. Tax deducted be adjusted with gross tax. 3. Allocation of Income of Firm among partners. Particulars Total Tk. ATk. B. Tk. CTk. Salary 94,200 = 94,200 = Int. on capital 22,500 12,000 10,500 - Int. on loan 21,800 21,800 _ Int. on Drawing G,160) 3,160) Rest of Business, Income =| 2,09,660 34,943 69,887 1,04,830 3,45,000 - 1,38,500 + 3,160) i) Share of Business Income 3,45,000 68,743] _1,71,427] _ 1,04,830 ii) Share of house property Income 84,000 14,000] 28,000 42,000 iii) Share of Sceurity Income 30,800 5,133 10,267 15,400 iv) Shar of Dividend Income 90,222 15,037 30,074 45,111 {Total Income from Firm 5,50,022 1,02,913[__2,39,738] _3,07,341 | Total income of the firm is Tk. 5,53,182. From this figure interest drawing paid by "B" Tk. 3,160 has been deducted because it was charged on B. So income of the firm for disposal stands at Tk. (5,53,182-3,160) = 5,50,022. 4, Tax to be paid by the Firm Taxable Income = 5,53,182 — Taka On Ist Tk. 3,50,000 = Nil On Next Tk. 1,00,000 @ 5% = 5,000 On Next Tk. 3,00,000 @ 10% (Here on 1,03,182) 10,318 : 15,318 Less: i) on Dividend = 9,022 ii) on Security 1,540 10,562 Net tax payable 4,756 Hate ex deducted at sources be deducted from gross tax payable to compute net tax payable.Assessment of Partnership-461 5. Computation of Total Income of the Partners: Particulars Share of Total Income from Firm Add : Personal Income: a) Salary b) Income from Property c) Income from Property (rent for house) (Received from Firm) [Tk. 42,000-Repairs @ 30%] d) Business Income e) Agricultural income CT. _.] 3,07,341 *. Total Income 6. Tax to be paid by the partners: ae On Total Income upto Tk. 3,50,000 Nil On Next Tk. 1,00,000 @ 5% = For-A_ = (3,57,913 — 3,50,000) = On 7,913 396 For-B = (4,39,738 — 3,50,000) = On 1,00,000 first & on 39,738 next 5,000 For-C = (5,56,741 — 3,50,000) = 1,00,000 first & 1,56,741 next On Next 3,00,000 @ 10% Here: For-B @ 10% On 39,738 3,974 For C @ 10% on 1,56,741 Gross Tax 396 8,974 Less: Rebate on Firm's income at average rate = . Tax x Share of firm income 14 4,398 282] 4562 Notes: 1) A.will have to pay Tk. 282, B will have to pay tax Tk. 4567 & C is to pay tax Tk. 10,202 after adjustment of Tax rebate on Firm's share of income, 2) Income from House Property of B has been considered as net amount. 3) House Rent from the firm received by C has been considered as gross amount and as a result, repairs 30% on of such rent has been deducted. (Repair @ 30% is fee when house is used for commercial purpose. It is 25% in case of residence louse, 4) _ Interest on commercial securities is now fully taxable. 5) Agricultural income is reportedly net. So no allowances (such 60% for cultivation cost) has been deducted.Assessment of Partnership-462 Illustration-7: Abid, Rashid and Khurshid are partners of a Firm. They have decided to share the Profit and Loss in the ratio of 2: 2 : 1. The Profit and Loss Account for the year ended 31st Dec., 2022 is given below: [Particulars [Taka Particulars «| _——‘Taka Sundry Business Expenses 1,74,000 | Gross Profit 13,85,000 Interest on Capital: Income from Property 22,500 Abid 12,000 Int. on Tax-free Govt. Security 59,500 Rashid 13,000 Dividend 51,000 Khurshid 11,500 36,500 | Interest on Drawing: Salary: Abid 5,000 | Rashid 200 Commission: Rashid 4,000 | Profit on Sales of Investment 33,000 Interest on Loan: Khurshid 11,600 House Rent: Abid 5,000 Loss on Sale of Machineries 2,500 Time Barred Bad debt 1,500 Donation 3,000 Sales Tax 500 Advertisement 11,000 Reserve Account 2,000 Net Profit 13,05,400 15,62,200 15,52,200 Other Information: (1) Sundry business expenses include legal expense of Tk. 11,000 paid for preparing new partnership deed. (2) Advertisement expenses include cost of permanent signboard of Tk. 5,000 and purchase of business journal of Tk. 1,250. . (3) Private Income of the Partners: a) Abid : Agricultural Income 'b) Rashid c) Khurshid : Business Income Tk. 90,000 (Net) & Cattle rearing 80,000 : Business Income (soletradership) Tk. 1,80,000 Tk. 20,000 Interest on Commercial Securities Tk. 2,800 Determine the tax liabilities of the firm and the partners, Investigation revealed that the Gross profit has been under estimated to the extent of Tk, 60,000., Assessment of Partnership—463 Solution: 1, Determination of Total Income of the Firm: Abid, Rashid and Khurshid Income Year: 2022-23 Assessment Year: 2023-24 Total Income as per statement of the Firm Note: . 1, Payments to partners (non-allowable U/S-55(b): i) Int. on capital of partners = 36,500 ii) Salary to Abid 5,000 iii) Commission to Rashid 4,000 iv) Int. on loan = Khurshid 11,600 52,100 Particulars Taka Taka Net Profit as per Profit & Loss Account 13,05,400 Add: Inadmissible Expenses: Other than Sec. 50; Loss on Sales of Machineries 2,500 Donation 3,000 Advertisement: Cost of Permanent Sign Board 5,000 Legal Exps. paid for Partnership deed 11,000 Reserve Account 2,000 23,500 13,28,900 Add: Payments to partners [sec. 55(b)] Note: 57,100 : 13,86,500 Less: Non-business Income: Income from Property 22,500 Interest on Tax-free Govt. Securities 69,500 Dividend 51,000 Interest on Drawings: Rashid 1.200 Profit on Sale of Investment 33,000 1,77,200 12,09,300 Income from Business: Add : Non-Business Income as per Income Statement Income from Property 22,500 — Repairs, etc. !/4th 5,625 16,875 Interest on Tax free Govt. Securities Tk. 39,500 Nil (Exempted in Full) Dividend 51,000 Interest on Drawings: Abid 1,200 Profit on Sale of Investment 33,000 — Loss on Sale of Machineries 2,500 30,500 99,575Assessment of Partnership-464 2. Computation of Taxable Income of the Firm: Taka i) Business income as per computation = 12,09,300 ii) Income from Property 16,875 iii) Interest on Drawing 1,200 iv) Dividend: 51,000 Grossed up as tax @ 10% is deducted at source + 56,665 = $1,000 2010/99 v) Net profit on sale of assets 30,500 ‘vi) Gross profit under estimated now written back 60,000 Total Taxable Income 13,74,540 3. Computation of Tax on Firm on Tk. 13,74,540 Tk. On 1* Tk. 3,50,000 Nil On Next Tk. 1,00,000 @ 5% 5,000 On Next Tk. 3,00,000 @ 10% 30,000 On Next Tk. 4,00,000 @ 15% : 60,000 On Next Tk. 5,00,000 @ 20% (Here on : 2,24,540) 44,908 Gross Tax 1,39,908 Less: TDS on Dividend @ 10% 5,100 Net tax payable Tk. 1,34,808 Note: Minimum tax of the firm is .60% on gross receipts i.e. sale price. As there is no data of gross receipts i.e gross sale, this cannot be computed and taken into consideration. Thus the firm is assumed to pay tax Tk. 1,34,808. §. Allocation of Business Income Among the Partners: Rashid | Khurshid Particulars Total Abid Taka Taka Interest on Capital 36,500] 12,000 Salaries 5,000] 5,000 Commission 4,000 Interest on Loan 11,600 Interest on Drawings (1,200) Rest amount of Business income and other income of the business: 13,74,540 — 57,100 + 1,200) Distributed in Ratio & 2:2:1, 13,74,540 Note: Firm's income can be distributed among Partners at an aggregate figure OR it can be distributed first as a business income portion and then as share of other income of firm.Taxation In Bangladesh-59 Assessment of Partnership-465 6. Computation of Total Income of the Partners: Particulars . Abid Rashid | Khurshid Taka Taka Taka a) Income from Business 5,44,456| 5,43,356] 2,86,826 b) Personal/Private Income: Property Income 5,000 — Repairs “ 1,250 3,750 Agricultural Income (Net) 90,000 Cattle rearing Income 80,000} * ‘ Business Income 1,80,000 20,000 Income from Com. Securities (Assuming Gross) 2,800 Total Income 7,18,206 | _7,23,356| _3,09,626 Comment: Khurshid does not require to pay tax because his total income does not exceed the minimum taxable income limit of Tk. 3,50,000. 7, Tax Liability of Abid and Rashid: (Tk. 7,18,206 & 7,23,336 respectively) Abid Rashid ‘On Ist Tk. 3,50,000 00 00 On Next Tk. 1,00,000 @ 5% 5,000 5,000 For Abid on Tk. 2,68,246 26,820 For Rashid further on Tk. 2,73,356 @ 10% 27,336 Gross Tax - 31,820 32,336 Rebate on income from Firm at average rate. a 544,456 * Abid = 31,820 x 7, 24,122 Rashid = 32,336 x 723,356 24,290 Net Tax payable 7,698 8,046 Notes: 1, Time barred Bad debt is irrecoverable. So, it has been considered as admissible loss. 2. It is assumed that Investment has been transferred within the period of five years. Loss on sale of machineries has been deducted from the profit on sale of investment and the rest amount of capital gain has been included in the total income, 3. Repairs, etc., !/4th of the property income have been deducted assuming that such income is a gross income. 4. Legal expenses for preparing deed and cost of making permanent sign board are capital expenses and so they are inadmissible expenses. 5. Interest on Tax free Govt. Securities is exempted in full. 6. It is assumed that the house is used for business purpose for which rent is paid to the partner and so it is admissible expense.Assessment of Partnership-466 Ilustration-8: ‘The Partnership Firm consisting of A, B and C submitted return showing net income of Tk. 3,90,000 for the assessment year 2023-2024. The shares of all partners were equal and their Profit and Loss A/C was as follows: Other Information disclosed on investigation: 1) 2) 3) 4) 5) 6) Dr. Salaries Rent and Taxes Interest Conveyance Expetises Legal Expenses Bad Debt Other Expenses Net Profit Cr. Particulars Particulars 5,20,000 | Gross Profit 89,000 | Profit on Sale of Car 14,30,000. 14,30,000 Salaries: Included Tk. 10,000 per month paid to each partner. Rent and Taxes: Included Tk. 50,000 paid to the land lord A and Municipal Tax Tk. 9,000 (Paid by the Firm). Moreover, Income Tax on Firm's income Tk. 30,000 charged in the last year was also included in this item. Interest: Included interest on capital paid to each partner Tk. 8,000 and interest on loan Tk. 1,20,000 @ 10% given by B to the Firm. Conveyance Expenses: Included Tk. 1,50,000 paid to C for visiting abroad and opening a branch therein. Legal Expenses: Included Fine Tk. 30,000 charged by the Custom Authority for false declaration. : Bad debt: Included an advance payment of Tk. 60,000 to the staff (which is irrecoverable). An embezzled amount of Tk. 15,000, which was misappropriated by the cashier-cum-accountant, was also included in this item. Information relating to the sale of car: Taka Original cost of car 4,00,000 Accumulated Depreciation 2,56,000 (Shown in the Accounts) Written down value as per Accounts 1,50,000 Depreciation approved by the Tax Authority 2,00,000 Written down value based on approved by the Tax Authority 2,00,000 Sales Value 3,00,000 8) Personal Income of Partners: ATk. 2,55,000, B Tk. 2,65,000 and C Tk. 5,70,000. Determine the Total Income of the Firm and Total Income of the individual Partner and also compute the tax liability of the Firm and Partners.Assessnient of Partnership-467 Solution: $ A,B & C Firm Assessment year: 2023-24 Income year: 2022-23 1, Computation of Business Income: Total Tax payable Particulars Tk. Tk. | 1, Computation of Business Income of the Firm Net Profit as per Profit and Loss A/C. 3,90,000 Add : Inadmissible Expenses: a) Rent and Taxes (Income Tax) 30,000 b) Conveyance Allowance (To C for visiting abroad — as] —1,50,000 capital expenditure) c) Legal Expenses (Fines for false declaration) ~ 30,000] _2,10,000 Business Income before adding non-allowable exp. Under sec. 55(b) 6,00,000 d) Business Income from sale of Car: o Tk. Sales value 4,00,000 Less: Written down value (Approved by ITA) 2,00,000 | Business Profit = 2,00.000 P/L A/C shows such business profit Tk. 1,50,000 So Rest (2,00,000 — 1,50,000) has been added 50,000 6,50,000 ¢) Add: Non allowable exp. U/S-55(b) : i.e payments to partners: i) Salaries to partners = 10,000 x 12x 3 = 3,60,00 Int. on cost. to partners = 8,000 x 3 = 24,000 Int. on Loan to B on Tk. 1,20,000 @ 10% = 12,000 3,96,000 Total Business Income 10,46,000 Less: Non-Business Income il) So Taxable Income of the Firm 10,46,000 2. Computation of Tax on Firm on Tk. 10,46,000. Tax on 1* Tk. 3,50,000 Nil Tax on Next Tk. 1,00,000 @ 5% 5,000 Tax on Next Tk. 3,00,000 @ 10% 30,000 Tax on Next Tk. 4,00,000 @ 15% (Here on 2,96,000) 44,400Assessment of Partnership—468 2. Computation of Total Income of the Individual Partner: Add : Personal Income Property Income from Firm= 50,000 — Repairs, etc. 30% 15,000 Private Income «. Total Income Particulars Total A B Cc (Tk) | (rk) | rk) | rk) Salaries . 3,60,000] 1,20,000} 1,20,000} 1,20,000 Interest on Capital 24,000 8,000} ~ 8,000 8,000 Interest on Loan 12,000 -} 12,000 Gs Rest of the Divisible . 2,16,667| 2,16,667| 2,16,666 Profit (Tk. 10,46,000-3,96,000) 6,50,000 Share of Business Income 10,46,000) 3,44,667| 3,56,667| 3,44,666 35,000 2,55,000 |_2,65,000|_5,70,000 At 6,34,667| 6,21,667| 9,14,666 3. Computation of Tax liability of the Partners: 6,34,667, 6.21, 667 and 9,14,666 respectively. Tax Slab vis-a-vis Rate of Tax A B c Tk. Tk. Tk. On Ist Tk. 3,00,000 - - - Oni Next Tk. 1,00,000 @ 5% 5,000 5,000 5,000 On Next Tk. 3,00,000 @ 10% = For-A: On Tk. 1,84,667 18,466 : For-B: On Tk. 1,71,667 17,166 For-C: On Tk. 3,00,000 (Rest will be taxed latter) 30,000 On Next Tk. 4,00,000 @ 15% For C, here on Tk. 1,64,666 24,700 Gross Tax 23,466] 22,166} 54,700 Less: Tax rebaté on income from Firm at average rate vi Firm'sshare of Income x Gross Tax Respective Total Income of partners In case of A = 244:567%23,466 12,744 In case of B 12,712 3,4 In case of C= 914,666 20,612 Net tax payable _ 10,202| 2.454] 34,088"Assessment of Partnership-469 Notes: (1) Municipal Tax paid by: the firm has been considered as business expense and hence it is admissible. (2) Advance payment to the staff Tk. 1,000 (Which is irrecoverable) is a business loss and so it is admissible. (3) Embezzlement of cash Tk. 5,000 due to misappropriation of accounts by the cashier cum-accountant has been considered as business loss with in the office hours. So it is treated as admissible loss. (4) Repairs, ete. 30% of the House Rent used for business received by A has been deducted as per Finance Act-provision. In case of residential house repair is allowed @ 25%. Illustration-9: : Ruma, Rekha & Seema are equal partners of a firm. According to their accounts, after considering the following income and expenditure, the business house is showing a net loss of Tk. 6,000 for the year ended 31st March, 2023. Expenditures: Salary: Ruma Tk. 42,000, Rekha Tk. 25,000 and Seema Tk. 28,000. Interest on Capital: Ruma Tk. 6,000, Rekha Tk. 3,000 and Seema Tk. 4,000. Commission Tk. 7,000, Loss on Sale of Investment Tk. 1,26,000, Compensation for avoiding competition Tk. 1,43,000. Income: Tk. Interest on Drawing (Seema) 800 Interest on commercial security 45,000 Private Income of the partners: Ruma: Income from Property Tk. 97,000 (net), interest on Security 90,000 & Dividend 90,000. ‘ Rekha: Income from Sale of Timber Tk. 2,35,000 & Interest on Bank Deposit Tk. 3,000 Seema: Income from Business Tk. 66,000. : Compute the Tax Liability of the firm and the partners.Assessment of Partnership-470 Solution: Ruma, Rekha & Seema Income year: 2022-23 Assessment year: 2023-24 1, Determination of Tax Liability of the Firm: - Particulars Taka Net Loss of the Firm Add: Inadmissible Expenses: a) Loss on Sale of Investment 1,26,000 b) Compensation for avoiding Competition 1,43,000 2,69,000 Income 2,63,000 Less: Non-business Income: Interest on Drawing 800 Interest on Commercial Security 45,000 45,800 2,17,200 Business Income Before adjusting exp. U/S-55(b): " Non-allowable exp. U/S-55(b) be added: i) Salary to partners (42,000 + 25,000 + 28,000) 95,000 ii) Int on capital of partners (6,000 + 3,000 + 4,000) 13,000 : : 1,08,000 Computation of Total Income of the firm: Taka 1. (A) Business income before taking in to consideration exp. U/S 55(b) 2,17,200 (B) Non-allowable U/S 55(c), treated as income 1,08,000 Total Business Income = 3,25,200 Add: Non-business income: 2. Interest on Drawing 800 3. Interest on Commercial securities 45,000 45,800 Total Income that is taxable 3.71,000 Tax liability: Taxable Income = Tk. 3,71,000 On Ist Tk. 3,50,000 Nil on Next slab of Tk, 1,00,000 @ 5% Here on 21,000 @ 5% 1,050 Tax due 1,050 Note: As total Income of the Firm exceeds Tk. 3,50,000 in total it will have to pay tax. For different segment of income rate may vary but tax on each be computed after adjustment by earlier slab.Assessment of Partnership-471 2. Determination of Total Income and Tax Liabilities of the Partners: a) Allocation of Income Among the Partners Particulars Total Ruma Tk. . Salaries Interest on Capital Interest on Drawing Business Income Plus: Int. on securities Rest of Business Income (3,25,200 -(1,08,000 -800) 95,000 13,000 b) Computation of Total Income of The Partners: Particulars Ruma Tk. Rekha Tk. | Seema Tk. a) Income from the Firm 1,35,666 1,15,666 1,18,868 b) Personal Income: 2 Income from Property (Net) 97,000 ~ _ Interest on Security 90,000 Dividend income 90,000; Grossed up 1,00,000 amount = 90,000 x 100/99 = 1,00,000 : Sale of Timber _ 2,35,000 = Interest on Bank Deposit Gross = 3,000 x 10/9 — 3,333 = Business Income = = 66,000 -. Total Taxable Income 4,22,666 3,53,999 184,868 C) Computation of Tax Liability: i) Rekha & Seema: They donot require to pay tax because their total income is less than that of minimum taxable income limit of Tk. 4,00,000. (For female assessee minimum tax limit is Tk. 4,00,000) ii) Ruma: Taxable Income = Tk. 4,22,666 Tax: On Ist 4,00,000 Less Rebate: Refund to be claimed On next 1,00,000 @ 5% (Here on 22,666) i) On Firm's income at average rate ( ii) On taxable Dividend @ 10% on 1,00,000 (on added amount) (Not claimable) Gross Tax = But minimum Tax is 1,35,666 x 3,000 666 So tax to be paid = 3,000 which is minimum tax to be paid,Assessment of Partnership-471 2. Determination of Total Income and Tax Liabilities of the Partners: a) Allocation of Income Among the Partners Particulars Total Ruma | Rekha | Seema Tk. 7 Tk. Salaries 95,000 Interest on Capital Interest on Drawing Rest of Business Income (3,25,200 -(1,08,000 -800) Business Income _ Plus: Int. on securities Tk. ‘ 25,000] 28,000 3,000 b) Computation of Total Income of The Partners: Particulars Ruma Tk. [Rekha Tk. | Seema Tk. | a) Income from the Firm 1,35,666 1,15,666 1,18,868 b) Personal Income: Income from Property (Net) 97,000 _ _ Interest on Security 90,000 Dividend income 90,000; Grossed up 1,00,000 : amount = 90,000 x !0%g9 = 1,00,000 ; Sale of Timber = 2,35,000 _ Interest on Bank Deposit Gross = 3,000 x 10% _ 3,333 _— Business Income es = 66,000 -: Total Taxable Income 4,22,666| 3,953,999] 84,868 C) Computation of Tax Liability: i) Rekha & Seema: They donot require to pay tax because their total income is less than that of minimum taxable income limit of Tk. 4,00,000. (For female assessee minimum tax limit is Tk. 4,00,000) ii) Ruma: Taxable Income = Tk. 4,22,666 Tax: On Ist 4,00,000 On next 1,00,000 @ 5% (Here on 22,666) Gross Tax = Less Rebate: i) On Firm's income at average rate ( ii) On taxable Dividend @ 10% on 1,00,000 (on added amount) (Not claimable) Refund to be claimed But minimum Tax is 1,35,666 x 3,000) _ 4,22,666 So tax to be paid = 3,000 which is minimum tax to be paid.Assessment of Partnership-472 Notes: : 1. For women assessee Minimum taxable limit is Tk. 3,50,000. 2. Loss on Sale of Investment and Compensation for avoiding the Competition are inadmissible. . 7 3. Income from Sale of Timber is assumed to be net figure and considered under Agricultural Income. 4, Income from Property is net figure and hence Repairs, etc.!/sth has not been deducted. 5. Partners will get rebate at average rate on their partnership income from tax so computed. 6. Tax @ 10% is deducted at source on Bank interest and Dividend. So these are to be grossed up and deducted tax be adjusted with gross tax. Rebate on taxable amount be allowed. 7. Int. on drawing has been charged on Seema So disposable income of the firm income has been computed after deducting the same. 8. Minimum tax for assessee living in area other than city corp. is Tk. 3,000. It is assumed that she lives in other areas. 20.7: Change in'the Constitution of Firm The constitution of -a Partnership Firm will be changed in the following circumstances: a) Death of a Partner; b) Retirement of a Partner; c) Admission of a Partner; d) Departure of all old Partners; e) Formation of a New Firm with all New Partners. According to Income Tax Ordinance 1984, if there is any change in the constitution of a Firm due to any of the above reasons, the new firm with the changed Constitution would be imposed tax i. e. the firm with the changed constitution would pay tax. In the Judgement of a case in the Dhaka High Court (C. I. T. Vs. Messers East Bengal Agencies), it has been stated that in any previous year (i. e. accounting year) if there is a sha ii stitution of a firm then both the firms be ta: separately i.e. the existing firm with the old constitution and the new firm with the changed constitution would be imposed tax separately. Because thé firm before the change of constitution and the firm after the change of constitution are not the same firm. However, the profit of the firm, undoubtedly, would be allocated among the partners who were in the partnership during the previous year, The partners are to pay tax on the actual share of profit received from the firm during the previous year,Assessment of Partnership-473 It is noted here that at present there is no difference between registered firm and unregistered firm. As a result, there would be no differentiation of the amount of tax payable due to change of the constitution. In both cases, same rates of taxes would be applicable like individual assessee. The profit of the firm is to be allocated according to profit sharing ratio among the partners to determine the total income of the existing or disassociated partners. The partners will have to pay tax on their share of profit of the firm if the total income of the firm does exceed the minimum taxable income limit of Tk. 2,20,000. If old or disassociated partners fail to pay tax, then that amount of tax Would be collected from. the firm. On the contrary, according to the aforesaid rules, if there is any change in the constitution of a firm then the total income of the firm during the previous year is to be determined and such tota' icome is to be allocated among the all partners as per their profit sharing ratio. Each partner is to pay tax on their individual share of profit and if any partner fails to pay tax, in that case such burden of tax is to be borne by the firm itself. 20.8: Inheritance of Partnership Firm . Inheritance means the transfer of proprietorship. Any successor of the firm possesses the total proprietorship of his/her predecessor. It is stated in the Act. that the successor and the partner have to pay tax on their share of profit received from the firm during the income year in the same way. Therefore, the income of the firm for the relevant previous year is to be apportioned between the predecessor and the successor according to their allocation ratio and both of them have to pay tax on the basis of their total income. But exception of this rule is observed in the following cases: a) Ifpredecessor is not available, i. e., if it is not possible to find out the predecessor; b) If predecessor fails to pay tax, i. ., if it is not possible to collect tax from the predecessor. In the above circumstances, the successor would be responsible for the payment of taxes. 20.9: Discontinuation/Dissolve of Firm (sec. 256) Tax be computed as if it in running till date of dissolution & tax be collected from Partners; it possible from each partner separately & if not from others who can pay; as the Partners are jointly liable. To this tax, fines if any, be added & collected as per rule of z Income-tax.