Partner’s Remuneration Eligible for Presumptive Taxation Under Section 44ADA

The assessee, an individual Chartered Accountant, received remuneration of Rs. 27,00,000 as a working partner from a CA firm, M/s SARC and Associates, during AY 2018-19. He claimed taxation of 50% of such receipts under the presumptive taxation scheme of Section 44ADA of the Income-tax Act, 1961.

The Assessing Officer rejected the claim, holding that remuneration received by a partner from a firm does not constitute “gross receipts” from a profession carried on independently, and therefore, Section 44ADA was inapplicable. The AO relied on Section 28(v), Section 40(b), CBDT Circular No. 3/2017, and judicial precedents including A. Anand Kumar. The CIT(A) affirmed the AO’s view, concluding that professional income is earned by the firm and not by the partner in an individual capacity. Aggrieved, the assessee filed an appeal before the ITAT, Delhi Bench.

Main Issue: Whether remuneration received by a chartered accountant as a working partner from a partnership firm is eligible for presumptive taxation under Section 44ADA of the Income-tax Act, 1961.

ITAT’s Order: The ITAT allowed the assessee’s appeal and held that Section 44ADA is applicable to the remuneration received by the assessee as a working partner. The Tribunal observed that there is no statutory pre-condition under Section 44ADA requiring the assessee to carry on an independent professional practice outside the partnership firm. It further held that Section 44ADA does not mandate that the assessee must first claim actual expenditure to opt for presumptive taxation, particularly in view of Section 44ADA(2).

The Tribunal applied a strict interpretation of the statute and held that a professional partner receiving remuneration for rendering professional services satisfies the conditions of Section 44ADA. The AO was directed to assess the assessee’s income under Section 44ADA in accordance with law.

To Read Full Judgment, Download PDF Given Below