Clause wise discussion on form 3CD PART B -clause 7 to Form 3 CD

[Answer]

Clause 7 (a) If Firm or Association of Persons, indicate names of partners/members and their profit sharing ratios.

Clause 7 (b) If there is any change in the partners or members or in their profit sharing ratio since the last date of the preceding year, the particulars of such change.


The term Firm, partner and partnership firm has been defined under section 2(23) as amended by Finance (no.2) Act, 2009 as under:


[(23) (i) "firm" shall have the meaning assigned to it in the Indian Partnership Act, 1932 (9 of 1932.), and shall include a limited liability partnership as defined in the Limited Liability Partnership Act, 2008 (6 of 2009);

(ii) "partner" shall have the meaning assigned to it in the Indian Partnership Act, 1932 (9 of 1932), and shall include,—

(a) any person who, being a minor, has been admitted to the benefits of partnership; and

(b) a partner of a limited liability partnership as defined in the Limited Liability Partnership Act, 2008 (9 of 1932);

(iii) "partnership" shall have the meaning assigned to it in the Indian Partnership Act, 1932 (9 of 1932), and shall include a limited liability partnership as defined in the Limited Liability Partnership Act, 2008 (6 of 2009);]

[Answer]

The names of partners of the firm or members of the association of persons and their profit sharing ratios have to be stated, where the assessee is a firm or association of persons (AOP).
In case where the partner of a firm or the member of AOP acts in a representative capacity, the name of the beneficial partner/member should be stated.

Thus, the details of partners or members during the entire Previous year (Financial Year) will have to be furnished not merely at the start or end of the previous year.

The term “profit sharing ratios” would include loss-sharing ratio also.

This do not cover payment of remuneration or interest to partners or members.

[Answer]

Clause 7(b)

If there is any change in the partners of the firm or members of the association of persons or their profit or loss sharing ratio, the particulars of such change must be stated.

If there is any change in the partners of the firm or members of the association of persons or their profit sharing ratio since the last date of the preceding year, theparticulars of such change must be stated. All the changes occurring during the entire previous year must be stated. Normally under the General Clauses Act, the word "year" refers to the calendar year. However, in this clause "preceding year" may be reckoned as the previous year ending before the commencement of the previous year for which tax audit is being conducted. Thus, for the audit of the year ended on 31st march, 2010, any change after 31st March, 2009 will have to be reported.


This clause requires particulars of change in partners or in their profit sharing ratios. The word ‘particulars’ includes the date/s of change/s also. Dates of changes in salary to partners is also to be mentioned as changes in salary to partners is as significant as changes in the profit sharing ratios among the partners. [Issues on Tax Audit published by ICAI].

These changes must be in writing through amendment in Partnership Deed or amended partnership deed.

In case of LLP, form 4 has to be filed with ROC for changes and this form must be verified by the tax auditor.

[Answer]

The tax auditor should obtain certified copies of the deeds, documents, understanding, notice of changes etc. along with certified copies of the acknowledgment, if any, supporting filing of documents.

The particulars furnished by the assessee should be verified from the instrument or agreement or any other document evidencing partnership or association of persons including any supplementary documents or other documents effecting such changes.

For this purpose, the tax auditor may also verify:
(i) whether the relevant documents, if required, have been filed with the concerned authorities,

(ii) whether notice of changes, if required, has been given to the registrar of firms, and

(iii) any minutes or any other understanding recording any changes in the partners/members or their profit sharing ratios.


In cases of association of persons where the shares of the members are not precisely ascertainable during the previous year, then in such circumstances, the relevant fact should be stated.

[gopalji]

When a partner in a representative capacity like Karta of the HUF retires from the firm and is admitted as partner in his individual capacity, it is a change in the costitution of the firm and has to be reported under this clause.

[gopalji]

Before reporting under this clause, the tax auditor must take the copies of the following documents for his audit working papares:

Certifified copy the partnership deed or change in constitution deed
notice of change to ROF (in case of registered firm)
Intimation to bankers, lenders in case of admission or retirement of partner

[gopalji]

In some case of AOP, it may not be possible that the shares of the members are precisely ascertainable during the previous year resulting in a situation whereby the shares of the members are indeterminate or unknown, in such cirumstances, the relevant fact must be stated.

[gopalji]

The Auditor must obtain the copies of the following documents in case of LLP which has been classified under firm category only:

1. Incorporation documents/LLP agreement
2. Copy of form 3 & 4 filed with ROC
3. Relevant minute book for changes in constitution
4. Verify the relevant clause of partnerhip deed authorising the interest or remuneration to make it eligible for deduction.