2.2 Query: Applicability of section 44AB to a finance business carried on by a partnership firm.
1. A partnership firm is doing mainly finance business and earning interest income in respect of advances made by it to various parties. During the relevant years in question (i.e., previous years relevant to assessment years 1988-89 and 1989-90) as per bank transactions, the receipts and payments in its bank account exceed the statutory limit of Rs. 40.00 lakhs as prescribed by section 44AB of the Income-tax Act, 1961.
2. The Income-tax Officer of the above said firm is of the opinion that it is liable for audit under section 44AB of the Income-tax Act, 1961. In the view of the querist, since the term gross receipts has so far not been defined in the Income-tax Act as such, the said term will only include all receipts arising from carrying on of business which would normally be assessable as business income under the Income-tax law. The querist has stated that, in the present case, the income assessable under the head business is only interest receipts arising out of various finance advanced by the firm and as such it is not liable for any audit under section 44AB unless and until its gross interest income exceeds statutory limit of Rs. 40.00 lacs even though the bank transactions reflect gross receipts and payments of more than Rs. 40 lacs.
3. The returns of income for both the above mentioned years have been already filed by the firm without getting its accounts audited by a chartered accountant under section 44AB of Income-tax Act, 1961.
4. The querist has sought the opinion of the Expert Advisory Committee as to whether the firm is liable to audit under section 44AB of the Income-tax Act in view of the facts and circumstances stated above.
Opinion April 11, 1991
1. The Committee notes para 4.10 of the ‘Guidance Note on Tax Audit under Section 44AB of the Income-tax Act’, issued by the Institute of Chartered Accountant of India which recommends, inter alia, as below:
“4.10 The term “gross receipts” is also not defined in the Act. It will include all receipts arising from carrying on of business which would normally be assessable as business income under the Income-tax Law. Broadly speaking, the following items of income and/or receipts would be covered by the term “gross receipts” in business:
(i)…………….
(ii)……………
(iii) The aggregate of gross income by way of interest received by the money lender;…….”
2.The Committee also notes para 1.12 of the ‘Issues on Tax Audit (A Compilation of issues discussed at Tax Audit Seminars) published by the Institute of Chartered Accountants of India, the relevant extracts of which are reproduced below:
“Issue
1.12 (i) The assessee is engaged in a money lending business. Total turnover of money by way of loans and repayments of loans given are as under:
(a) Loans given Rs. 2 crores.
(b) Repayments of loans Rs. 1.80 crores.
His interest income for the year worked out to Rs. 20 lacs. Interest paid on his borrowings amounted to Rs. 18 lacs.
Whether the assessee will be required to get his accounts audited under section 44AB?
Comments
(i) In the case of a moneylender it cannot be said that the turnover of the money given on loan and re-paid by the borrowers is to be considered for the purpose of determining the limit for tax audit under section 44AB. In this case, only the interest income can be taken into consideration as part of his gross receipts. If the gross receipts from interest and all other gross receipts do not exceed Rs. 40 lacs the provisions of section 44AB will not be attracted…”
3. The Committee notes that keeping in view the nature of the business of the partnership firm, the receipt and payments occurring in the bank account, apart from interest on loans, can be on account of loans given and repaid. The Committee is of opinion that loans given and repaid should not be included for the determination of the limit of Rs. 40.00 lakhs for the purposes of section 44AB. In the present case, since the firm had only interest income assessable under the head “Income from Business or Profession”, which did not exceed Rs. 40.00 lakhs, the firm is not liable to tax audit under section 44AB of the Income-tax Act. ____________________________ |