Expenses under the head business and profession
This query is : Resolved
18 March 2016
Dear Experts,
I have incurred expenditure of furniture and fixtures , electric fittings etc. and bill is/will be in the name of individual (me) however these all expenses are related to my office which will be started in the month of May 2016 as ill get firm registration no. from ICAI in May only and at present Name of Firm is not Approved from ICAi and hance bill can no be taken in the name of firm itself.
My query is whether these all expenses will be allowable as revenue/ capital expenditure as bill is in the name of individual and not in the name of proprietorship firm?
please also explain whether expenditure in the nature of revenue should be recorded as preliminary and preoperative expenditure?
I have incurred expenditure of furniture and fixtures , electric fittings etc. and bill is/will be in the name of individual (me) however these all expenses are related to my office which will be started in the month of May 2016 as ill get firm registration no. from ICAI in May only and at present Name of Firm is not Approved from ICAi and hance bill can no be taken in the name of firm itself.
My query is whether these all expenses will be allowable as revenue/ capital expenditure as bill is in the name of individual and not in the name of proprietorship firm?
please also explain whether expenditure in the nature of revenue should be recorded as preliminary and preoperative expenditure?
18 March 2016
The expenditure of capital nature, incurred by the individual can be shown as capital contribution and the corresponding assets shown as fixed assets in the proprietorship firm and even in a partnership firm, even though the invoices are in the individual's name. If the capital expenditures are shown as capital contribution there would be no hassles in the income tax assessments.
For revenue expenditures, in case of non corporate entities (barring LLP's) there is no scope for recording preliminary & pre-operative expenses - because revenue income and expenditures are financial year specific and there is no time lag between the decision to start an enterprise and start functioning. Agreed in case of professional practice till the approval comes from the Governing Council (like ICAI for Chartered Accountants) there is a time lag between setting up the business and starting operations, but no operation can be undertaken till the approval comes through. Hence there is no scope for recording revenue expenditures as preliminary and pre-operative expenses. However in cases with long gestation periods like setting up a factory etc. pre-operative expenditures are incurred, but they too have to be capitalized as Capital Work in Progress and allocated to various fixed assets in case of non-corporate enterprises.
For revenue expenditures, in case of non corporate entities (barring LLP's) there is no scope for recording preliminary & pre-operative expenses - because revenue income and expenditures are financial year specific and there is no time lag between the decision to start an enterprise and start functioning. Agreed in case of professional practice till the approval comes from the Governing Council (like ICAI for Chartered Accountants) there is a time lag between setting up the business and starting operations, but no operation can be undertaken till the approval comes through. Hence there is no scope for recording revenue expenditures as preliminary and pre-operative expenses. However in cases with long gestation periods like setting up a factory etc. pre-operative expenditures are incurred, but they too have to be capitalized as Capital Work in Progress and allocated to various fixed assets in case of non-corporate enterprises.
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26 March 2016
Dear sir,
Thank you for your valuable advice.
in addition to above i would like to ask that currently i am practicing in my individual name since may 2015 and earned professional fees and TDS is also deducted on the same u/s 194J.
Now whether i have to show it compulsorily under the head business or profession or alternatively it can be shown u/h other sources?
Thank you for your valuable advice.
in addition to above i would like to ask that currently i am practicing in my individual name since may 2015 and earned professional fees and TDS is also deducted on the same u/s 194J.
Now whether i have to show it compulsorily under the head business or profession or alternatively it can be shown u/h other sources?
28 March 2016
There is no restriction in showing your income in the current year under the head "Income from Other Sources" - but then you will have to ensure that the deductions claimed are allowable under section 57 of the Act and not all deductions available in sections 28 to 44 of the Act are allowable under section 57.
This is a call you have to take. However I feel you can safely show the income under Business and Profession and record the same as Consultancy Fees and not as Fees received as Chartered Accountant.
This is a call you have to take. However I feel you can safely show the income under Business and Profession and record the same as Consultancy Fees and not as Fees received as Chartered Accountant.
29 March 2016
thank you so much sir for sharing your expert knowledge.
29 March 2016
You are most welcome .
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