The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) has held that a Chartered Accountant receiving remuneration as a working partner from a partnership firm is entitled to opt for the presumptive taxation scheme under Section 44ADA of the Income Tax Act, 1961. 

The bench of Satbeer Singh Godara (Judicial Member) has observed that the statute does not require a professional to carry on an independent practice outside the partnership firm to avail the benefit of the provision and rejected the Revenue’s restrictive interpretation of the law. 

The appellant/assessee challenged the order of the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), which had upheld the Assessing Officer’s denial of the benefit under Section 44ADA. Although the assessee remained unrepresented during the hearing, the Tribunal proceeded to decide the matter on the basis of the record and submissions made by the Revenue. 

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The assessee, a Chartered Accountant and partner in a chartered accountancy firm, had received remuneration of ₹27 lakh from the partnership firm. He declared 50% of the remuneration as taxable income by opting for the presumptive taxation scheme under Section 44ADA, which permits eligible professionals to declare 50% of their gross receipts as income without maintaining detailed books of account or claiming actual business expenses. 

The Assessing Officer rejected the claim, holding that the remuneration was received by the assessee in his capacity as a working partner and not as an individual carrying on a specified profession. According to the Revenue, professional activities were carried out by the partnership firm, while expenses relating to the profession were borne by the firm itself. Consequently, the remuneration received by a partner could not be treated as “gross receipts” from an independently carried on profession for the purpose of Section 44ADA. 

The department also relied upon CBDT Circular No. 3 of 2017 explaining the objective behind Section 44ADA and argued that the provision was intended only for small professionals carrying on their own practice. It further referred to Section 28(v) and Section 40(b) of the Income Tax Act to contend that partner’s remuneration does not constitute professional receipts eligible for presumptive taxation. 

The Commissioner (Appeals) agreed with the Assessing Officer and observed that although the remuneration received by a partner is taxable under the head “Profits and Gains of Business or Profession”, it remains distinct from income earned by independently carrying on a profession.

The appellate authority noted that the partnership firm earns the professional income, distributes exempt profit shares among partners, and separately pays remuneration to working partners. Therefore, according to the CIT(A), the remuneration received by the assessee could not be equated with gross professional receipts for the purposes of Section 44ADA. 

The Commissioner further relied upon the Madras High Court’s decision affirming the Chennai ITAT ruling in A. Anand Kumar, where remuneration and interest received from a partnership firm were held not to constitute turnover or gross receipts for claiming presumptive taxation under Section 44AD. Applying similar reasoning, the CIT(A) concluded that Section 44ADA also could not be invoked. 

The tribunal disagreed with both the lower authorities and held that the Revenue’s interpretation imposed conditions that are absent from the statutory language.

The Tribunal observed that Section 44ADA nowhere prescribes that an eligible professional must first establish independent professional activity separate from a partnership firm before availing the presumptive taxation scheme. Likewise, there is no statutory requirement that the assessee must first claim actual expenditure before opting for the presumptive scheme under Section 44ADA. 

The Bench emphasized that subsection (2) of Section 44ADA itself contemplates a presumptive mechanism and therefore does not make the allowance dependent upon prior proof of expenditure.

Rejecting the Revenue’s arguments, the Tribunal observed that importing additional conditions into a beneficial statutory provision would amount to rewriting the law rather than interpreting it. 

The Tribunal invoked the Supreme Court’s decision in Commissioner v. Dilip Kumar & Co. to underline that tax authorities cannot read into a statutory provision conditions that the legislature has consciously omitted.

Applying this principle, the ITAT held that there was no legal basis for denying Section 44ADA merely because the professional income was earned through a partnership firm or because the assessee did not separately conduct an independent professional practice. 

Allowing the appeal, the Tribunal directed the Assessing Officer to assess the assessee under Section 44ADA in accordance with law.

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