Applicability Of Presumptive Taxation To Partners Of A Partnership Firm

Sections 44AD and 44ADA provide presumptive taxation of business or professional income. A Controversy exists as to whether partner remuneration and interest constitute "gross receipts" for the purpose of these schemes. The Madras and Bombay High Courts have held that these receipts are distributions of firm profits rather than independent turnover, thereby making partners ineligible. Conversely, the Delhi ITAT allowed a professional partner to avail the benefit of section 44ADA, holding that there is no legal requirement for independent activity. While the restrictive view currently carries judicial weight, the Supreme Court must ultimately resolve this conflict.

ISSUE FOR CONSIDERATION

Section 44AD and 44ADA deal with the presumptive scheme of taxation for computing the profits and gains from business or profession respectively, subject to fulfillment of the prescribed conditions. Quite often, the issue arises as to whether these provisions, dealing with computation of profits and gains on a presumptive basis, can be applied in respect of the interest and remuneration received by a partner from a partnership firm.

The Chennai bench of the tribunal had earlier taken a view that the provisions of section 44AD are not applicable for com