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TMI BlogRemuneration and interest received by an individual partner from a partnership firm can be subjected to the presumptive taxation Under Section 44AD?X X X X Extracts X X X X X X X X Extracts X X X X ..... e subjected to the presumptive taxation regime under this section. The case arises from an appeal by an assessee who, as a partner in several partnership firms, claimed the benefit of presumptive taxation u/s 44AD for the remuneration and interest received from those firms. The judgment is significant as it clarifies the scope of Section 44AD, the definitions of "eligible assessee," "eligible business," "turnover," and "gross receipts," and their interplay with other provisions such as Section 28(v) and Section 40(b) of the Act. The ruling has substantial implications for the treatment of partnership income and the boundaries of presumptive taxation, making it a key precedent in Indian tax jurisprudence. The case sits at the confluence of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taxpayers within the tax net. The court meticulously analyzed the language of Section 44AD, emphasizing the four prerequisites for its application: * The assessee must be an "eligible assessee" (individual, HUF, or firm, but not LLP). * The assessee must be engaged in an "eligible business" (not being the business of plying, hiring, or leasing goods carriages, which is covered u/s 44AE). * The total turnover or gross receipts must not exceed the prescribed limit (Rs. 2 crores at the relevant time). * The presumptive income is computed as 8% of turnover or gross receipts. The court observed that the provision is designed for small businesses with actual business operations, not for partners who merely receive remuneration and inter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vides that interest, salary, bonus, commission, or remuneration received by a partner from the firm is chargeable as "profits and gains of business or profession" in the hands of the partner. Section 40(b) governs the deductibility of such payments in the hands of the firm. The court clarified that while Section 28(v) deems such receipts as business income for the partner, it does not convert them into "turnover" or "gross receipts" of the partner's independent business. The Tribunal's observation was quoted with approval: "...only remuneration and salary received from a firm to the extent eligible u/s 40(b) of the Act would be considered as profits and gains of the business or profession of the recipient partner." The court furt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trative burden on the tax machinery. In view of the above, to expand the scope of presumptive taxation to all businesses, the existing section 44AD has been substituted by a new section 44AD." The focus of the scheme is on businesses with actual turnover or gross receipts, not on passive income streams such as remuneration or interest from partnership firms. The court also referenced Section 44AF (retail business) and Section 44ADA (professionals), both of which use the terms "turnover" or "gross receipts" in relation to business or professional activity conducted by the assessee. This supports the conclusion that Section 44AD is intended for those actually carrying on business, not merely deriving income from a partnership. 5. Judicial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pts" of an independent business carried on by the partner. The partner is not carrying on any business in his individual capacity; the business is carried on by the firm. * Section 44AD applies only to actual business activities carried on by the assessee. The benefit of presumptive taxation cannot be extended to passive receipts such as remuneration and interest from a partnership firm. * Section 28(v) deems certain receipts as business income, but does not convert them into turnover or gross receipts for purposes of Section 44AD. * The legislative intent behind Section 44AD is to benefit small businesses with actual turnover or receipts, not partners receiving income from a firm's business. * CBDT circulars and the statutory s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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