Latest Expert Exchange Queries

GST Demo Service software link:
Username: demouser Password: demopass
Get your inventory and invoicing software GST Ready from Binarysoft
sitemapHome | Registration | Job Portal for CA's | Expert Exchange | Currency Converter | Post Matrimonial Ads | Post Property Ads
News shortcuts: From the Courts | News Headlines | VAT (Value Added Tax) | Placements & Empanelment | Various Acts & Rules | Latest Circulars | New Forms | Forex | Auditing | Direct Tax | Customs and Excise | ICAI | Corporate Law | Markets | Students | General | Mergers and Acquisitions | Continuing Prof. Edu. | Budget Extravaganza | Transfer Pricing | GST - Goods and Services Tax
Popular Search: ACCOUNTING STANDARD :: articles on VAT and GST in India :: ICAI offer Get Windows 7,Office 2010 in Rs.799 Taxes :: list of goods taxed at 4% :: ACCOUNTING STANDARDS :: Central Excise rule to resale the machines to a new company :: TDS :: TAX RATES - GOODS TAXABLE @ 4% :: VAT Audit :: cpt :: VAT RATES :: empanelment :: due date for vat payment :: ARTICLES ON INPUT TAX CREDIT IN VAT :: form 3cd
News Headlines »
 Tax Return Preparer (Amendment) Scheme, 2018
 Tax-saving for young earners simplified
 How to save income tax? Here are 6 investments with tax free income
 10 Top salary deductions that can save tax for you
 What are the tax saving options beyond Section 80C?
 The penalties for not paying tax on time
 How to make your salary tax efficient
 I-T Department may go into overdrive this quarter
 Ways to reduce the TDS deduction from your salary
 4 Tips for choosing who prepares your 2017 Tax Returns
 Processing of income-tax returns under section 143(1) of the Income-tax Act which were filed in Forms ITR-1 to 6 & applicability of section 143(1)(a)(vi)

The profession, business hiatus
February, 17th 2007
The touchstone for determining whether one is pursuing his business or profession should not be whether it is run on organised lines with support of other people.

Is a doctor carrying on his professional work in a clinic in business or in profession? This question craves for an answer because under the income-tax law a professional is required to get his accounts audited if the gross receipts from his profession during the relevant previous year were in excess of Rs 10 lakh, whereas the cut-off point for this purpose for businessmen, corporeal or incorporeal, is Rs 40 lakh.

There is a view that when a doctor sets up a clinic and runs it with a clutch of helpers nurse, attendant, etc he morphs into a businessman and, hence, can evade the clutches of tax audit till he starts grossing Rs 40 lakh per annum.

This view appears to be slightly over-optimistic if not misplaced because the doctor concerned is after all pursuing his profession albeit with the help of a few people. In other words, running a profession with help on organised lines does not by itself change the character of his pursuit from profession to business. If the business argument were to be accepted, every CA and every advocate would be running a business and not profession because both employ extensive support services, such as that of data entry operators, assistants, and so forth. The truth is both are very much pursuing their profession.

How to identify

The touchstone for determining whether one is pursuing his business or profession should not be whether it is run on organised lines with support of other people. Rather it should be whether the buck stops with the professional: Is he going to share/hog profits as well as share/hog losses? This touchstone can easily apply both to sole-proprietorships and firms.

If, on the other hand, if the professional works in a company-hospital and is paid only his fees, obviously the company is in business and the doctor alone is in profession. The company-hospital obviously cannot be assessed as a professional because it runs with shareholders' money who have admittedly set up a business of hospital. Ditto for a trust-run hospital.

Therefore, if a doctor runs a clinic and takes both the profits and losses in his stride, he ought to be assessed as a professional and mandated to get his accounts audited if his gross receipts are in excess of Rs 10 lakh. That such receipts include cost of medicines and diagnostic services should not change the character of his pursuit.

Ditto for a professional firm of doctors or chartered accountants. Of course the taxman would be at his wit's end if and when limited liability partnerships (LLPs) take off in this country because the LLP Bill itself does not throw much light on the tax status of an LLP.

Why dual norms

Of course, one must be a professional in the first place to fall under the category of professionals for the purpose of tax audit under Section 44AB. The list of professions enumerated in Section 44AA for the purposes of maintenance of accounts should be helpful in this regard. Even otherwise, it is now well settled that a professional is one who is a member of an esoteric body endowed with powers to grant membership subject to possession of the prescribed qualifications and to discipline the erring members.

The reason why Parliament has chosen dual norms for mandating tax audit is easily discernible professional fee has a high amount of profit margin vis--vis the turnover of a trader. Perhaps Parliament feels that as a rule of thumb this differential is four times. It should, therefore, not allow professionals to thumb their noses at it on the specious ground that they are in business when they are in fact carrying on their profession.

S. Murlidharan
(The author is a Delhi-based chartered accountant.)

Home | About Us | Terms and Conditions | Contact Us
Copyright 2018 CAinINDIA All Right Reserved.
Designed and Developed by Binarysoft Technologies Pvt. Ltd.
Binarysoft Technologies - Our Vision

Transfer Pricing | International Taxation | Business Consulting | Corporate Compliance and Consulting | Assurance and Risk Advisory | Indirect Taxes | Direct Taxes | Transaction Advisory | Regular Compliance and Reporting | Tax Assessments | International Taxation Advisory | Capital Structuring | Withholding tax advisory | Expatriate Tax Reporting | Litigation | Badges | Club Badges | Seals | Military Insignias | Emblems | Family Crest | Software Development India | Software Development Company | SEO Company | Web Application Development | MLM Software | MLM Solutions