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2019 (2) TMI 165 - AT - Income TaxDenial of claim for estimating income u/s 44AD on remuneration and interest received from firms - Claim of the assessee is that interest and salary received by him from firms in which, he was a partner had to be construed as business income by virtue of section 28(v) of the Act and hence assessee is eligible for applying presumptive interest rate under section 44AD - Held that:- Intention of the Section 40, in our opinion, is that partner should not be disentitled from claiming reasonable remuneration where he is a working partner and also should not be denied reasonable interest on the capital invested by him in a firm. If these charges are not made in the accounts of the firm, then pro-rata profits of the firm would be higher, resulting in higher taxes to the firm. The payments therefore have to be construed indirectly as a type of distribution of profits of a firm, for which otherwise, a firm would have been taxed. It seems that legislature in its wisdom chose such remuneration and interest to be a part of profits from business or profession. This by itself, in our opinion, would not translate such remuneration and interest, to gross receipts or turnover of a business of being partners in firms. In other words, it cannot be construed as gross receipts or turnover of a business independently carried on by a partner. Having a look section 44AD which was substituted by Finance (No.2) Act, 2009 with effect from 01.04.2011. Prior to this substitution, the said Section allowed application of presumptive tax rate only for business of civil construction or supply of labour for civil construction. Presumptive tax rate application was widened to include any business which had turnover or gross receipts of less than one crore through such substitution. In the Explanatory Notes to the provisions of Finance (No.2) Act,2009 vide Circular No.5/2010 dated 03.06.2010, CBDT has explained the reason for widening. It is clear from the reading of the above Explanatory Note, that the intention was to help small business to comply with the taxation provisions. Intention was not at all to construe a partner’s remuneration or interest as business income. - Decided against assessee.
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