Case Law Details
Mr. A. Anandkumar Vs ACIT (ITAT Chennai)
Conclusion: Partners’ remuneration from firm should not be subject to the application of presumptive interest rate under section 44AD as the same could not be construed as gross receipts or turnover of a business independently carried on by a partner.
Held: Assessee had applied presumptive rate at 8% under section 44AD on remuneration and interest received from partnership firms. AO denied the benefit of section 44AD as section 44AD could be availed only by an eligible assessee engaged in eligible business. Assessee claimed that the interest and salary received by him from firms in which he was a partner had to be construed as business income by virtue of section 28(v) and hence assessee was eligible for applying presumptive interest rate under section 44AD It was held from reading of section 40 it was noted that it was clothed in a negative language. It said that certain amounts shall not be deducted while computing income under the head “profits & gains of business or profession. However, it exempts from the rigors of such prohibition, payment of salary, bonus, commission and interest to the extent specified in sub-clause (iv) and (v) of sub-section (b) thereof. Intention of the above Section, was that partner should not be dis entitled from claiming reasonable remuneration where he was a working partner and also should not be denied reasonable interest on the capital invested by him in a firm. If these charges were not made in the accounts of the firm, then pro-rata profits of the firm would be higher, resulting in higher taxes to the firm. The payments therefore had to be construed indirectly as a type of distribution of profits of a firm, for which otherwise, a firm would have been taxed. It seemed that legislature in its wisdom chose such remuneration and interest to be a part of profits from business or profession. This by itself, would not translate such remuneration and interest, to gross receipts or turnover of a business of being partners in firms. It could not be construed as gross receipts or turnover of a business independently carried on by a partner. Also, it was clear from the reading of the Explanatory Note to the provisions of Finance (No.2) Act,2009 vide Circular No.5/2010 dated 03.06.2010, that the intention was to help small business to comply with the taxation provisions. The intention was not at all to construe a partner’s remuneration or interest as business income.
Also Read High Court Order in this case= Section 44AD not eligible on Interest/Remuneration Income of Partner from partnership firm
FULL TEXT OF THE ITAT JUDGMENT
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