2.          TAXATION

2.1       Query

Application of section 44 AB of the Income-tax Act 1961 where

income of an institution is exempt u/s 10 (23 B) of the Act

1.An institution, which is registered under the Bombay Public Trusts Act and Societies Registration Act, 1960 is carrying on the business of making papad. The business of the institution is being carried on by its beneficiaries.

2.The querist has informed that the said institution is exempt u/s 10 (23 B) of the Act as it is approved by the Khadi & Village Industries Commission.

 3.In this context, the querist has sought the opinion of the Expert Advisory Committee whether the provisions of section 44 AB are applicable to the said institution.

4.The querist is of the view that in case section 44 AB is made applicable to the institutions of the nature under question, it would cause untold hardships as such institutions do not have either qualified staff or resources or sophisticated accounting system which are required to generate voluminous information required for tax audit. The querist has further informed that the institution in question has several branches which would make the task even more cumbersome. The querist has further advanced the following arguments against application of Section 44 AB to the said institution.

            (a)            The inclusion of section 44 AB in Chapter IV (D) of the Income-tax Act seems to indicate that it will apply only where             the business income of the assessee is chargeable to tax and will not apply where the business income is exempt as is the case             here (emphasis supplied by the querist).

            (b)            The purpose of the tax audit is to prevent the evasion of tax which is not the case where the institution is exempt from                         tax.  

   Opinion*                                                                       August 14, 1985

1.The Committee notes that Section 44 AB of the Income-tax Act 1961 provides that every ‘person’ carrying on ‘business’ shall get his accounts audited, where the stipulations laid down in the section are met and obtain the report of such audit in the prescribed form.

2.The Committee also notes that section 2(31) (v) of the Income-tax Act, 1961, includes in the definition of ‘person’, “an association of persons or a body of individuals, whether incorporated or not.” The term ‘business’ “includes any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture”.

3.The Committee further notes that neither section 44 AB nor any other provision of the Income-tax Act 1961 stipulate exemption from the compulsory tax audit to an institution whose income is exempt from tax. Section 44 AB only requires audit of the accounts of the person and obtain a report from the auditor thereon.

4.On the basis of the above, the Committee is of the opinion that the institution in question is covered by section 44 AB of the Income-tax Act, 1961.

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* Finalised by the Taxation Committee of  the Institute.