2022 (3) TMI 621 - HC - Income Tax

Court quashes order rejecting revision application under Income Tax Act, clarifies Section 44AB interpretation.

Perizad Zorabian Irani Versus Principal Commissioner of Income-Tax (Central) -1 Mumbai & Ors

The court allowed the petition, quashing the order rejecting the revision application under Section 264 of the Income Tax Act 1961. It held that the ... Revision u/s 264 - requirement to get accounts audited u/s 44AB - determination of turnover - inclusion of remuneration from the partnership firm in the gross receipt from from the profession (in the hands of partner) - as submitted return of income was treated as invalid was because according to respondent, petitioner failed to get her accounts audited u/s 44AB though her gross receipts / turnover after including remuneration received from partnership firm was more than the threshold limit of ₹ 50,00,000/- - HELD THAT:- Profession is defined under Section 2(36) of the Act as under: “Profession includes vocation”. The income earned by petitioner as remuneration received as working partner or partners’ remuneration, cannot be held as carrying on profession as well as business simultaneously in different field. That is because the provisions of Section 44AB(a) which says “every person carrying on business shall, if his total sales, turnover or gross receipts, as the case may be, in business exceed or exceeds one crore rupees in any previous year” and clause (b) of Section 44AB which says “every person carrying on profession shall, if his gross receipts in profession exceed fifty lakh rupees in any previous year”, are mututally exclusive, i.e., the former dealing with the assessee carrying on business and later dealing with the profession. None of the clauses under Section 44AB envisages the situation where the assessee is carrying on both the profession as well as business. In a matter which is similar to this matter at hand, where the scope of Section 44AD of the Act came up for consideration, is the judgment of Madras High Court in Anandkumar [2020 (12) TMI 994 - MADRAS HIGH COURT] while upholding the contentions of Revenue observed that the assessee should establish that he is an eligible assessee engaged in an eligible business and such business should have a total turn over or a gross receipt. Admittedly, the assessee who was an individual in that case was not carrying on any business and the remuneration and interest received by the assessee from the partnership firm cannot be termed to be a turn over of the assessee (individual). The court concluded that the Revenue was right in its contention that remuneration and interest from the partnership firm cannot be treated as gross receipt of the assessee. We respectfully agree with the view expressed by the Hon’ble Madras High Court. In fact, in the case at hand, petitioner’s case is the same that petitioner’s remuneration from the partnership cannot be treated as gross receipt in profession.In the circumstances, in our view petitioner’s stand that she was not required to get her accounts audited under Section 44AB, is correct. - Decided in favour of assessee. Issues:Impugning order under Section 264 of the Income Tax Act 1961, validity of return of income filed for A.Y.-2017-2018, applicability of Section 44AB to partnership firm income, interpretation of profession under Section 2(36) of the Act, reliance on ITAT Kolkata decision in Amal Ganguli case, mutual exclusivity of Section 44AB clauses, comparison with Madras High Court judgment in Anandkumar case.Analysis:1. The petitioner challenged an order rejecting the revision application filed under Section 264 of the Income Tax Act 1961, concerning the validity of the return of income filed for A.Y.-2017-2018. The respondent rejected the return as invalid due to the petitioner's failure to get her accounts audited under Section 44AB, citing gross receipts exceeding the threshold limit.2. The petitioner, an individual deriving income from various sources including acting and partnership firms, filed her return declaring total income for A.Y.-2017-2018. The respondent alleged a defect in the return, leading to the rejection based on non-auditing of accounts as required by Section 44AB.3. The petitioner contended that Section 44AB is not applicable as the business is conducted by the partnership firm, and remuneration received as a partner should not be considered gross receipts in business or profession. The respondent, however, relied on the ITAT Kolkata decision in Amal Ganguli case to support their position.4. The crux of the matter lies in the interpretation of Section 44AB and the definition of profession under Section 2(36) of the Act. The petitioner argued that remuneration from the partnership firm should not be considered as gross receipts in profession, as the clauses under Section 44AB are mutually exclusive for business and profession.5. Drawing a parallel with a similar case in the Madras High Court, the judgment in Anandkumar case highlighted the distinction between individual business and partnership firm income. The court emphasized that remuneration from a partnership firm cannot be equated to the gross receipts of the individual, supporting the petitioner's stance.6. Ultimately, the court agreed with the petitioner's argument that her accounts were not required to be audited under Section 44AB, leading to the allowance of the petition and issuance of appropriate writs to quash the impugned orders and validate the return of income for A.Y.-2017-2018.7. The judgment serves as a significant clarification on the applicability of Section 44AB to partnership firm income and the distinction between individual business and professional income, providing a favorable outcome for the petitioner based on the specific circumstances and legal interpretations presented in the case.