Circular No. 123 — 522. Whether deduction under the section is allowed from income of registered firms and on

What this is

Circular No. 123 was issued by the Central Board of Direct Taxes on 31 October 1973. Its subject is 522. Whether deduction under the section is allowed from income of registered firms and only resultant net income is distributed for assessment in partners’ cases.

What it does

Accepts the Allahabad High Court's judgment of 24th March 1971 in Commissioner of Income-tax v. Bharat Bhandar, which held that the rebate under sections 84 and 88 is to be allowed both to a registered firm and to its partners, and directs that the law so laid down be applied to all cases under sections 15B and 15C of the 1922 Act and the corresponding sections 88 and 84 of the 1961 Act, before their deletion by the Finance (No. 2) Act, 1967 with effect from 1st April 1968; departmental officers had already been told of the position by instructions of 19th July 1971. For the period after 1st April 1968 the Board points out that sections 84 and 88 were replaced by sections 80J and 80G, which give a deduction from assessable income instead of a rebate of tax, so the deduction is to be allowed from the registered firm's income and only the resulting net income distributed for assessment in the partners' hands.

Why it was issued

The Board accepted the High Court's decision and set out how the change from a rebate system to a deduction system affects registered firms and their partners.

Who it reaches

Registered firms claiming the old rebate under sections 84 and 88
Partners of such firms assessed on their share of firm income
Firms claiming deduction under sections 80G and 80J after 1st April 1968
Assessing Officers allocating firm income to partners

The provisions it speaks to

Left, the provision of the Income-tax Act, 1961 as the instrument itself names it. Right, the section of the Income-tax Act, 2025 that the department’s own concordance maps it to — which is where the same ground is now covered.

Under the 1961 Act	Now
s.15B	no counterpart recorded
s.80G	s.133, s.332, s.354
s.84	no counterpart recorded
s.88	no counterpart recorded

The instrument, as the Board published it

The words below are the department’s own, reproduced from its published text. Where the department’s copy carried a publisher’s notes after the instrument, those are not reproduced.

522. Whether deduction under the section is allowed from income of registered firms and only resultant net income is distributed for assessment in partners’ cases
1. The Allahabad High Court have held in their judgment dated 24-3-1971 in the case of CIT v. Bharat Bhandar [1974] 94 ITR 315 that rebate under sections 84 and 88 should be allowed to a registered firm as well as its partners. The Board has accepted the decision and has decided that the law as laid down by the Allahabad High Court should be applied to all cases covered by sections 15B/ 15C of the 1922 Act, and by the corresponding sections 88/84 of the 1961 Act, before their deletion by the Finance (No. 2) Act, 1967 with effect from April 1, 1968. Instructions apprising the departmental officers of this legal position had been issued on July 19, 1971.
2. Sections 84 and 88 of the 1961 Act were deleted by the Finance (No. 2) Act, 1967 with effect from April 1, 1968 and substituted by sections 80G and 80J replacing the system of tax rebate by a system of deduction in assessable income. After April 1, 1968, therefore, under the aforesaid new provisions, the deduction as prescribed has to be allowed from the income of registered firms and only the resultant net income distributed for assessment in the partners’ cases.
Circular : No. 123 [F. No. 279/112/73-ITJ], dated 31-10-1973.

What to watch

The double allowance to firm and partners belongs to the rebate era only; after 1st April 1968 the deduction is given once, in the firm's computation.
The circular names the case it follows, so the authority relied on is the Board's own acceptance of it.
Registered firms, section 84 and the whole scheme of assessing partners on their share have been replaced since; this speaks to the assessments of that period.
The instructions of 19th July 1971 preceded the circular, so older assessments may already have applied the position.

Where you meet it

In an old assessment or rectification of a registered firm and its partners where the rebate or deduction was allowed twice or not at all.

On the same provision

Other instruments in this library that name the same provision of the 1961 Act. They are not necessarily still operative, and a later one may have replaced an earlier one without saying so.

Circular No. 453 — Clarifications on issues relating to effect of filing higher estimates of income for advance tax purposes on assessment 4 April 1986
Circular No. 6/2026 — Condonation of delay in filing Form No. 10AB electronically for approval under clause(ii) of the first proviso to sectio 2 July 2026
Notification No. 166/2025 [F. No. 300176/2/2025/ITA-I] / SO 5551(E) — Minstry of Finance 2 December 2025
Notification No. 40/2024 [F. No. 176/2/2023-ITA-I] / SO 1771(E) — 2 the Gazette of INDIA : Extraordinary [Part Ii—sec. 3(ii)] 23 April 2024
Notification No. 34/2023 [F. No. 370142/13/2023-TPL] / GSR 399(E) — Ministry of Finance 30 May 2023
Notification No. 29/2022 [F. No.176/2/2022-ITA-I] / SO 1770(E) — 2 the Gazette of INDIA : Extraordinary [Part Ii—sec. 3(ii)] 11 April 2022

← Circular No. 124 · Circular No. 122 →

A circular binds the department, not you and not a court. The Board issues a circular to its own officers. An assessee may hold the department to a circular that helps him; the department cannot hold an assessee to one that hurts him, and the Tribunal and the courts decide the law for themselves.

Source: the Income Tax Department’s own published text — its page for this instrument.