Partner Remuneration is Not added to Turnover for Calculating Tax Audit Limit

The Petitioner in this case is a person who earns income from various sources such as salary, income from house property, business/profession, and other sources. The Petitioner is an Actor by profession and is also a partner in two partnership firms named M/s Zorabian Sales and Marketing and M/s Zorabian Foods. The Petitioner had filed her return of income declaring a total income of Rs. 1,75,88,360/-, out of which a sum of Rs. 1,09,65,411/- was declared under the head of business and profession. Of this amount, the Petitioner derived a sum of Rs. 8,45,220 as the net income from her acting profession and a sum of Rs. 1,01,20,191/- as remuneration received as a working partner from the firm M/s Zorabian Sales and Marketing.

The revenue treated the remuneration as invalid on the grounds that the assessee had failed to get her accounts audited, as the gross receipts/turnover, including the remuneration received from the partnership firm, was more than the threshold limit under section 44AB of the Act.

The Petitioner filed a revision application under section 264 of the Act, challenging the order passed by the respondent. The Petitioner submitted that the partners’ remuneration could not be considered as gross receipts in the profession or business for the following reasons:

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

(b) becoming a partner in a partnership cannot be considered as carrying on business,

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

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

(e) partners’ remuneration cannot be considered as gross receipts from a profession, and

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

Thus, the assessee was not required to get her accounts audited under section 44AB.

However, on 25.03.2021, the respondent passed an order dismissing the revision application and rejecting the Petitioner’s submissions, upholding the order of the Assessing Officer.

It was held that since the assessee was not doing any business independently but the firm was carrying on business in which the assessee was only a partner, the remuneration received by the assessee from the partnership firm could not be treated as the gross receipt of the assessee in the profession or business. Therefore, the assessee was not required to get her accounts audited under section 44AB.

This case was ruled in favor of the assessee (Perizad Zorabian Irani v. PCIT (2022) 287 Taxman 406 : 139 164 (Bom.)). The assessment year in question was 2018-19

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