Remuneration from Partnership Firm cannot be treated as Professional reciept for Tax Audit applicability: HC

In this case, the return of income of Petitioner was treated as invalid because according to Income Tax Department, the petitioner failed to get her accounts audited u/s 44AB though her gross receipts/turnover after including remuneration received from the partnership firm was more than the threshold limit of Rs. 50,00,000/-.

Petitioner is an individual deriving her income under the heads salary, income from house property, business/profession, and income from other sources. Petitioner is an Actor by profession. Petitioner also is a partner in two partnership firms.

On 27th June 2019, the petitioner received a notice alleging a defect in the return on the ground that the petitioner failed to get her accounts audited in accordance with provisions of Section 44AB of the Act.

Petitioner replied to the said notice and explained that she was not required to get her account audited under Section 44AB, by letter dated 3rd July 2019. This explanation was rejected and an order dated 25th February 2020 was passed treating the return of income filed by the petitioner as invalid due to non-auditing of accounts as required under Section 44AB of the Income Tax Act.

Dr. Shivram counsel of Petitioner submitted that the provisions of Section 44AB are not applicable to the facts of the present case because:

(a) the business is carried on by the partnership firm and not the assessee,

(b) becoming the partner of a partnership cannot be construed as carrying on business,

(c) partners’ remuneration cannot be construed as total sales turnover or gross receipts in business,

(d) partners’ remuneration does not arise out of carrying on profession,

(e) partners’ remuneration cannot be construed as gross receipts from profession and

(f) Section 44AB is not applicable where the assessee is carrying on a profession as well as business simultaneously in different fields.

As per the High Court, the petitioner’s stand that she was not required to get her accounts audited under Section 44AB, is correct. Thus the orders of the Department were quashed and it was ordered that petitioners’ returns should be treated as a valid return.