11 October 2009
According to Section 44AB, every person carrying on profession shall, if his gross receipt in profession exceeds Rs 10 lakh in any previous year, get his account of such previous year audited by a chartered accountant. In case of business, accounts are r equired to be audited if the turnover or gross receipt (as the case may be) exceeds Rs 40 lakhs. Thus, in case of every person carrying on a profession (a traditional or notified or any other profession satisfying conditions in the foregoing paragraphs), the provision of Section 44 AB will be attracted as soon as gross receipt of profession in a previous year exceeds Rs 10 lakh. From a plain reading of the section, it is clear that three conditions have to be fulfilled to attract tax audit for a profess ional person:
i) There has to be an `actual gross receipt' (that is, for determining the applicability of tax audit the most important criterion to be looked at is the actual gross receipt by a professional during a financial year and not the amount `accrued' or `rece ivable'). In other words, the basis of accounting for applicability of tax audit is `cash' so far as receipt is concerned, though in actual practice the mercantile method of accounting is employed.
ii) The gross receipt must result from the exercise of the profession.
iii) The gross receipt from profession must be above Rs 10 lakh during a financial year.
In the light of the position of law as explained, let us consider a few problems.
11 October 2009
A' is a partner in India of a global firm of chartered accountants having head office at New York. What will be the applicability of Section 44AB during the financial year ended March 31, 2000, if: a) he receives salary as partner of Rs 1 l akh per month, b) he receives salary of Rs 60,000 per month and share of profit credited to his capital account amounts to Rs 5,00,000; and if he i) chooses to retain his share of profit with the firm, ii) draws the share of profit, iii) instructs the fi rm to apply the share of profit to repay a loan for car taken from bank.
Solution: a) The salary of a partner of a firm of chartered accountants is to be treated as `income from profession' and not `income from salary', as a partner is not an employee of a firm. Thus, the charging section of such salary is Section 28. Gross r eceipt from salary for the financial year ended March 31, 2000, is Rs 12 lakhs and, hence, is liable to keep accounts under Section 44 AA and get such accounts audited under Section 44 AB.
(b)(i) Here, the gross receipt from salary for the financial year ended March 31, 2000, is Rs 7.20 lakh. The share of profit amounting to Rs 5,00,000 arising from profession has been retained in the firm as such cannot be considered to have been received by A. Hence, A is not required to get his accounts audited under Section 44AB.
(b)(ii) In this case, the gross receipt from salary as well as share of profit amount to Rs 12.20 lakh. Hence, A is required to get his accounts audited under Section 44AB. Here, a question may arise whether share of profit of a partner which is an exemp t income under Section 10 (2A) of the I-T Act will be included in the gross receipt for tax audit under Section 44AB.
12 October 2009
Agreed with the above opinions . I would like to add that share of profit cannot be said to be Receipts of business . Hence wont be added to the threshold limit of 10 lakhs . Only taxable revenue receipts should be added in the limit of 10/40 lakhs
CAclubindia
