Section 180A and Section 184 of Income Tax Act: Consideration for Know-how and Assessment as a Firm

Section 180A and Section 184 were provisions of the Income-tax Act, 1961 dealing respectively with certain historical lump-sum consideration for know-how and assessment of a partnership firm. The law changed materially from 1 April 2026, when the Income-tax Act, 2025 came into force. For Tax Year 2026-27 onward, assessment as a firm is governed by Section 325 of the Income-tax Act, 2025.

Current-law update: The Income-tax Act, 2025 replaced the Income-tax Act, 1961 from 1 April 2026, subject to the repeal and savings provisions. Old Section 184 corresponds to Section 325 of the 2025 Act. Section 180A is a legacy provision concerning assessment year commencing on 1 April 2000 or earlier assessment years and has no equivalent operative provision for current tax years.

Section 180A of the Income-tax Act, 1961: Consideration for know-how

Section 180A applied where an individual resident in India had taken more than twelve months to develop know-how and received or was entitled to receive a lump-sum consideration for allowing its use. The provision permitted an election to spread the qualifying gross lump-sum consideration over three years.

Historical scope: Section 180A expressly concerned consideration received or receivable during the previous year relevant to the assessment year commencing on 1 April 2000 or an earlier assessment year. It should therefore be read as a legacy provision, not as a current concession for Tax Year 2026-27 onward.

How Section 180A operated

  • The taxpayer had to be an individual resident in India.
  • The time taken to develop the know-how had to exceed twelve months.
  • The consideration had to be a gross lump-sum amount for allowing the use of the know-how.
  • On election, one-third of the amount was treated as income of the year of receipt or accrual and one-third for each of the two immediately preceding previous years.
  • Where assessments for the two preceding years had already been made, they could be rectified under Section 154, subject to the special limitation rule stated in Section 180A.

Meaning of know-how under the old provision

The Explanation to Section 180A adopted the meaning of "know-how" assigned in Section 35AB of the Income-tax Act, 1961. In substance, the provision dealt with technical or practical knowledge and information developed for use in specified business or industrial activities, subject to the statutory wording applicable to the relevant historical period.

Section 184 of the Income-tax Act, 1961: Assessment as a firm

Under Section 184 of the Income-tax Act, 1961, a firm could be assessed as a firm where the partnership was evidenced by an instrument and the individual shares of the partners were specified in that instrument.

Main requirements under old Section 184

  • The partnership had to be evidenced by a partnership instrument.
  • The individual shares of the partners had to be specified in that instrument.
  • A certified copy of the partnership instrument was required in connection with the first assessment sought in the status of a firm, subject to the return-filing procedure and rules applicable for the relevant year.
  • If there was no change in the constitution of the firm or the partners' shares, assessment continued in the same capacity in subsequent years.
  • If the constitution or partners' shares changed, the revised partnership instrument became relevant for the assessment of the changed firm.
  • Where a failure of the kind referred to in old Section 144 occurred, old Section 184(5) restricted deduction of specified payments to partners in accordance with that provision.

Current law from 1 April 2026: Section 325 of the Income-tax Act, 2025

For Tax Year 2026-27 onward, the current provision governing assessment as a firm is Section 325 of the Income-tax Act, 2025. It substantially carries forward the core conditions that the partnership must be evidenced by an instrument and the individual shares of partners must be specified in that instrument.

Requirements under Section 325

  • Section 325(1): the partnership must be evidenced by an instrument and the individual shares of the partners must be specified in it.
  • Section 325(2): a certified copy of the partnership instrument must accompany the return for the tax year in respect of which assessment as a firm is first sought.
  • Section 325(3): the provision states who must certify the copy, including the position where the return is made after dissolution or a relevant partner is deceased.
  • Section 325(4): once assessed as a firm, the entity continues in that capacity for subsequent tax years if there is no change in its constitution or partners' shares as evidenced by the instrument.
  • Section 325(5): where such a change takes place, a certified copy of the revised instrument is to be furnished with the return for that tax year.
  • Section 325(6): where the firm commits a failure referred to in Section 271 of the 2025 Act, specified payments such as interest, salary, bonus, commission or remuneration to partners are dealt with in the restrictive manner prescribed by Section 325(6).

Practical distinction between Section 180A and firm assessment provisions

Section 180A was a narrowly targeted historical income-spreading provision for qualifying know-how consideration. Section 184 of the 1961 Act, and now Section 325 of the 2025 Act, concern the conditions for recognising and assessing a partnership as a firm. The provisions address different subjects and should not be treated as alternatives to each other.

Official Income Tax references

Updated on 29 September 2026. This article is for general legal and tax information. For a transaction or assessment involving an earlier year, the law applicable to that period and the repeal and savings provisions should be checked separately.