05 May 2012
sir, in case where a partner receive remuneration from a firm (remuneration exceed 1500000), whether partner will liable for tax audit as partner's gross receipt exceed 15,00,000.?
05 May 2012
Normally, when a partner receives remuneration of 16.00 lac from a business firm, in which he is a partner, the income received is treated as business income and not professional income. Hence question of tax audit does not arise. . The query becomes quite interesting if we think so about a professional receiving remuneration of 16.00 lac from his professional firm or a businessman receives remuneration of 61.00 lac from his firm. . In such situations the Gross Receipts exceed the limits prescribed U/s 44AB and requires an elaborate discussion. .
06 May 2012
Section 44AB starts with the words : Every person,- . a. Carrying on business shall, ..... b. Carrying on professions shall,..... c. ....... d. ....... . Hence the basic question is whether the firm is running the business or the partner is running the business in his name ? .
06 May 2012
The Firm's accounts are already audited when the respective limits of turnover or gross receipts are crossed. . Whatever is being distributed to the partner; is in the "real" nature of distribution of profits. . (If it is in the nature of Salary; then salary is not required to be brought under tax audit whatever is the amount). .
06 May 2012
In partnership firms; many times there are one or more working partner(s) and others are sleeping partners. . The concept of allowing remuneration to working partner(s) is to boost the business (thereby earning more profits and more taxes to the government ).
When the taxation of partnership firms were amended by the Finance Act,1992; the following criteria was taken into account. . It was observed that Companies are being run by directors and they are paid remuneration which is allowed to the Companies while computing its taxable income. . The provisions were amended accordingly in the case of partnership firms also and higher rate of taxation in line with the companies were proposed. . The point of discussion is : Working partner is also like a Professional Director ( or Executive Director ) who is running the business activities of the firm. .
06 May 2012
. Working partner(s); if not allowed to share the profits in the form of remuneration in addition to the profits; might not be interested to do "additional efforts" to develop the business. . Moreover; due to shortage of funds; they would never find to apply their skills to be as entrepreneurs. . ( After introduction of Service Tax in 1994; service is also considered as Industry ).
Further; neither they would be personally liable to work done by them. .
06 May 2012
To make the things workable; lawmakers have decided to provide such provisions in the tax laws so that working partner is "treated" like professional employee . .
To conclude with reference to Tax Laws :
.
1. Actual business is being run by the Firm and it is separately assessed. . 2. Firm's business activities are already audited when required limit is crossed. . 3. To make it more clear : . It means' all the business transactions are already audited and distribution of the profits are in accordance with the partnership deed. . 4. Hence; logically also; there is no need to do the audit of the same transactions where the entries are merely related to the partners' capital account in the firm
and
their capital accounts are also the part of audited statements. .
07 May 2012
thank you surendra sir.. Sir, i have also one question.. if audit is done under section 44AD then whether it will be counted in tax audit limit of 45?
CAclubindia
