|ABC partnership firm is engaged in retail business. It sale for F.Y. 2016-17 is Rs. 40/- lakhs. Net profit, before remuneration to partners, but after interest to partners is Rs. 1,40,000/-. The firm gives remuneration Rs. 1,50,000/- to partners and thus, there is a net loss of Rs. 10,000/- In this situation, are books of account of firm liable to Audit under section 44AD r.w.s 44AB?
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|CA. H. N. Motiwalla
|44AB, 44AD r.w.s. 44AB
|Audit of accounts – Business – Profession -Tax Audit u/s. 44AD r.w.s. 44AB)
From the above stated fact, it is clear that during the financial year 2016-17, a firm has incurred loss of Rs. 10,000/-, however, its turnover is less than Rs. 1/- crore, so a firm is eligible assessee under section 44AD of the Act.
GST (Goods & Services Tax) is applicable from July 1, 2017. GST has replaced the Excise Duty, Service Tax, Countervailing Duty (CVD), Special Additional Duty of Customs (SAD), Value Added Tax (VAT), Central Sales Tax (CST), Octroi, Entry Tax, Purchase Tax, Luxury Tax, Taxes on Lottery, States cesses and surcharges and Entertainment Tax (other than tax levied by the Local Bodies). Thus GST is one tax which covers all the above taxes and which is destination based tax.
The requisites of succession, as the Supreme Court laid down in CIT v. K. H. Chambers [55 ITR 674] are:
i) There shall be a change of ownership.
ii) The integrity of the business shall remain – the whole business should devolve upon the successor.
iii) The identity and continuity of the business should be substantially preserved. The same business shall be carried on by the person succeeding.
In V. D. Dhanwatey v. CIT [68 ITR 365 (SC)], V. D. D. as a member of a bigger HUF was looking after the family business of lithography and printing and was remunerated for the same between 1930 and 1939. After partition the business was converted into partnership but VDD continued to be with one eighth share on behalf of his smaller HUF which had contributed proportionate capital. Under clause 7 of the partnership deed the general management and supervision of the business was to be in the hands of VDD, who under clause 16, was to be paid remuneration.
From the fact, it is clear that the company has not started construction business but received electricity charges by letting out wind mill; which is presumed to be not business of the company.
The main object of the company is leasing of the premises. The company is having only one property shown as investment in the books of account and the said property is given on lease to third party as per the object of the company. Therefore, income from leasing is to be shown under the head “Profits and gains of business or profession”.
Though, the assessee being a developer and developed housing complex with intention to sell the flats. Due to circumstances, he could not sell the flats and therefore he has rented out the same. The income from renting outould be assessed under the head “Income from house property”.
‘Owner’ for the purpose of section 22 may be an individual, a company, a firm, an association of persons or an artificial juridical entity. The term “owner” includes a legal owner such as a trustee, an executor and an official assignee or an official receiver etc. Thus, the trustee of the Trust or trust can be owner.
Income derived by charitable or religious trust is exempt from tax to the extent to which such income is applied to charitable or religious purposes or is accumulated or set apart, in accordance with the provisions of Income-tax Act, for application to such purpose.
Section 164(2) of the Income-tax Act, 1961 provides that in case of relevant income which is derived from property held under trust wholly for charitable or religious purposes, tax shall be charged on so much of the relevant income as is not exempt under Section 11, as if the relevant income not so exempt were the income of an association of persons.