Amol Gopal Kabra (CA,CS,DISA) (Practicing CA) (8539 Points)
29 October 2009What it the definition of profession for the purposes of Section 44AB or for any other reference under the Income Tax Act.? in the Act its only given profession includes vocation.
Gaurav Raichura
(CA-Final Student)
(82 Points)
Replied 29 October 2009
As the act doesn't specify the term Profession or Vocation, one has to judge on the basis of its natural meaning and the conditions and situations of the fact. I give some of the illustrative case law which may help in deciding the term profession.
i) United States V. Laws (1896) 163 US 258.
ii) Robbins Herbal Institute V. Federal Taxation Commissioner (1923) 32 CLR 457
iii) Partridge V. Mallandaine (1886) 18 QBD 276
iv) CIT V Ram Kripal Tripathi (1980) 4 Taxmann 149 (All.)
Amol Gopal Kabra (CA,CS,DISA)
(Practicing CA)
(8539 Points)
Replied 29 October 2009
I will have a look over these case laws. Thanks for sharing.
Ratan Deep Saxena
(Asstt Manager (Accounts & Finance))
(2998 Points)
Replied 29 October 2009
Dear Amol,
Please see the attached judgement. It think it may help you.
regards,
ratan
Sunil
(Trader)
(2611 Points)
Replied 29 October 2009
I think you need to refer to Taxmann's Direct Taxes manual No. 3 for meaning of the word Vocation.
Profession is not defined per se in the Act. It is just said to include Vocation.
Strangely even the word business is not defined per se. In the same section
business includes any trade , commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture. For the definition of trade, commerce, adventure and 'nature of trade' you have to refer to the same Taxmann's Direct Taxes manual No. 3.
Both these terms are not independtly defined but both include other definitions. Now when something is not defined, you would have to take an acceptable dictionary meaning.
Therefore you take the dictionary meaning of profession and include the meaning of vocation as per the Taxmann Manual.
You take the dictionary meaning of business and include the definitions of definition of trade, commerce, adventure and 'nature of trade' from Taxmann's Direct Taxes manual No. 3. for the phrase 'business includes any trade , commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture.'
For 44AB, if the activity fits into business then business and if not then profession. My view. Please refer to that Taxmann Manual as I am not a professional and do have reason to own one. Now that you have ruined my sleep on this, please let me know what you find out.
If you follow both definitions, even business comes under professions and professions can be business.
Amol Gopal Kabra (CA,CS,DISA)
(Practicing CA)
(8539 Points)
Replied 29 October 2009
I referred the file. I think it will help to some extent.
Thanks for sharing it Ratan..
But in my view, there is no certain deifnition for profession in the Act. However, the Act has given a list of specified profession for Section 44AA. In many cases it happens that people construe that merely trading, manufacturing, etc. in goods and commodities is business and profession is what it involves no sales turnover, but only gross receipts.
I came across a person who is a CF agent for a Cement Company. He doesnot directly deal in cement. He has stock with him but not under his trading. He issues invoices to the customers that too in the name of the Cement Supplier Company. He earns only a commission out of that. His annual commission goes around 20 lakhs. His CA is of view that as he is not trading in cement, and his receipt includes commission only, it is a profession and needs to be audited u/s 44AB. But looking to the activity undertaken by him, it cant be considered as a profession only on the basis that he doesnot have a sales turnover but gross receipts.
Sunil
(Trader)
(2611 Points)
Replied 29 October 2009
Thanks Ratan Deep. Today you are the Merchant of Good Nights Sleep. What is decided as per this judgement is the question of law. It is concluded that stock broking is a business and profession is vocation requiring skill. Moreover it requires special qualifications like CA, Lawyer, Doctor, Engineers, Architects etc. It also includes Actors, Advertising (designing and models), designers and other Technical vocations due to acquired qualifications and skill. It also includes those without qualifications working in these domains (interior decorator, designer, fashion designer, jewellery designer) as they are working in the domain of a qualified professional as even though they do not possess qualification they possess the skill.
the same may be assumed about those in the accounts profession. You have people in this profession who do not have qualification of ACA or FCA but they do account maintenance etc. and therefore they are having their vocation in the domain of the CAs etc. and therefore get included. Even Practitioners in Sales tax or Excise do not possess the required qualification but are working in the domain of a qualified pofessional whether accounting or legal. therefore they too get included in these professions.
Sunil
(Trader)
(2611 Points)
Replied 29 October 2009
Amolji. A C&F Agent does billing and collection for his client. However, you cannot take billing as an accounting profession. making bills and collecting is an activity of an auxiliary nature to the business and is not something that would be an accounting profession. It is in the nature of business and commerce and the commission he earns is for organising the business and carrying out the business of the client. Billing is just part of it. He receives the goods,arranges the dispatch, stores it. Eventually you have to test him for the nature of his entire activity in total and not just the billing part as that is an included package in the main activity that is his business. C&F Agent Cannot be profession.
Likewise, a person passes an exam and is licenced to be a CHA. This too is a business. You get a license to do the business of arranging the entry of imports and exports for a client. It is not a profession.
To run a chemist shop the owner or one of the partners at least has to qualify as B Pharm to run the business. However, finally the activity is organised as a business and not a profession basedon the qualification. However, a doctor running a nursing home is organised as a professional only.Even if he dispenses medicine it is in the profession and not a trade.
About hospitals you may have better knowledge. Even though a hospital is a business or commercial organisation, usually it is treated as a profession as it also includes people in the medical field without whose presence and decisions the hospital cannot run.
My knowledge is limited to just my activities but I am interested to learn more about this to helpmy son who is aspiring to be part of the profession.
Amol Gopal Kabra (CA,CS,DISA)
(Practicing CA)
(8539 Points)
Replied 29 October 2009
No.. No.. Mr. Sunil, its not my view that billing forms part as an accounting profession. Read my post carefully, it is the view of his CA and not on the basis of billing but on the basis of the nature of receipts. his receipts are not in nature of sales but in nature of commission. On this stand, his CA has considered it as a profession. But in my view its in the nature of business only.
I also agree with you on the points of the chemist, doctors, hospitals, etc.
Amol Gopal Kabra (CA,CS,DISA)
(Practicing CA)
(8539 Points)
Replied 29 October 2009
Mr. Sunil, i appreciate your contribution and also your interest in the discussion and also the urge to help your son. Keep going.
Sunil
(Trader)
(2611 Points)
Replied 29 October 2009
Commission is normally a business receipt. Even in service tax a commission agent is one who causes sales and purchase of goods or services on behalf of another person. That activity is remunerated by a commission or any lump sum charge and would be a business and not profession. However, all commission receipts cannot be termed as business. Manpower consultants who charge comission on recruitment (they carry out interviews etc. also) are considered as professional receipts.
The reason why I pointed out billing is that it is a financial activity and logically that is the only accounting work that a C&F Agent does. However that is too auxiliary in character and cannot be termed as accounting. Eventually C&F is an auxilliary activity to the business and is an organisation of many support activities under one roof (warehousing, transportation, handling). It is organising a business on behalf of your client and therefore it is an adventure in trade.The CA in question may not have analysed the activity fully and may have made a conclusion based on little fact. If your client gives a detailed analysis of his activity, I hope the CA changes his views.
Max Payne
(employed)
(2574 Points)
Replied 29 October 2009
| Originally posted by :Amol Gopal Kabra | ||
| " | I referred the file. I think it will help to some extent. Thanks for sharing it Ratan.. But in my view, there is no certain deifnition for profession in the Act. However, the Act has given a list of specified profession for Section 44AA. In many cases it happens that people construe that merely trading, manufacturing, etc. in goods and commodities is business and profession is what it involves no sales turnover, but only gross receipts. I came across a person who is a CF agent for a Cement Company. He doesnot directly deal in cement. He has stock with him but not under his trading. He issues invoices to the customers that too in the name of the Cement Supplier Company. He earns only a commission out of that. His annual commission goes around 20 lakhs. His CA is of view that as he is not trading in cement, and his receipt includes commission only, it is a profession and needs to be audited u/s 44AB. But looking to the activity undertaken by him, it cant be considered as a profession only on the basis that he doesnot have a sales turnover but gross receipts. |
" |
Dear Sir,
Pls find the attached file. The CA would be right about the applicablity of tax audit in my opinion.
Applicability to commission agents - If the commission agent does not sell the goods of his principal as his own and only charges commission for bringing two persons to holy marriage of sale and purchase, then he will not come within the ambit of section 44AB, except when his professional receipts exceed Rs. 10 lakhs - Abhay Kumar & Co. v. Union of India [1987] 164 ITR 148 (Raj.).
sivaram
(Asst Mgr-Taxation)
(6918 Points)
Replied 30 October 2009
Thanks for Having a Good Discussion on the above to all
Amol Gopal Kabra (CA,CS,DISA)
(Practicing CA)
(8539 Points)
Replied 30 October 2009
I referred the file.. But still in ,my opinion all the commission agents can not be taken under one roof as "profession". The nature of transactions also need to be considered. As i mentioned, my opinion is that for the CF Agent for a Cement Company, the person is not a professional. The commission he receives should be considered as business receipts. On the other hand, the receipts of an Insurance agent can be considered as professional receipts. No, doubt, the Court has given the decision in some case that commission agents receipts should be considered as professional receipts, but still there is lot of controversy on the matter. There is no specific thing given in the Act.
Ganesh
(Student)
(40 Points)
Replied 30 October 2009
Hi!
Pofession has been defined u/s 2(36), which includes vocation.
i.e application of skill and knowledge. and not the the list specified u/s 44AA.
The list specified u/s 44AA, is only for the purpose of maintenance of Books and not for 44 AB
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