Income Tax 31 Jan,2020
Whether Section 269SU will be applicable to persons carrying on profession?
Y.G. ShahPartner with Deloitte Haskins & Sells LLP
Parshva MehtaAssistant Manager with Deloitte Haskins and Sells LLP.

In order to achieve the mission of "less-cash" economy and to reduce the circulation of black money by promoting digital economy, the government vide the Union Budget 2019, took another step on the horizon by introducing section 269SU in the Income Tax Act, 1961 (the Act). This section mandates every person carrying on business, to provide certain facilities for accepting payment through the prescribed electronic modes.

Section 269SU was made applicable from 01 January 2020, after the specified modes of payments and threshold limit of Rs. 50 crore was prescribed vide Notification No.105/2019 dated 30 December, 2019.

The section specifically mentions that it is applicable to every person carrying on "business". The term business is very vast. The issue under consideration is whether rendering professional services can be covered in the ambit of 'carrying on business' as the amount of penalty which can be levied in case of default is very high i.e. Rs.5,000 per day from 01February 2020. The question that remains is whether the said section will also be applicable to persons carrying on profession.

To aid our understanding of interpretation, reference is made to Hon'ble Supreme Court decision in case of G.K. Choksi & Co. v. CIT [2007] 165 Taxman 299 (SC) where the Hon'ble Apex Court while interpreting section 32 held that -

"In fact, wherever the Legislature intended that the benefit of a particular provision should be for both business or profession, it has used the words 'business or profession' and wherever it intended to restrict the benefit to either business or profession, then the Legislature has used the word either 'business' or 'profession', meaning thereby that it intended to extend the benefit to either 'business' or 'profession', i.e. the one would not include the other.

If the expression 'business' is interpreted as including within its scope 'profession', it would not mean that the lacuna has been made good by giving a wider interpretation to the word 'business'................ Such interpretation would amount to first creating an imaginative lacuna and then filling it up, which is not permissible in law."

The Hon'ble Supreme Court held that unless the word profession is specifically stated in the provisions of the Act, the word business cannot be construed to include profession within its ambit.

Attention is also invited to decision in the case of Dr. K. Premraj [2014] 41 81 (Chennai-Trib.) wherein it was held that -

"It could be safely construed that business and profession are two different streams and treatment had to be given differently in case the statute provides for taxing any income under the head 'business' only. A perusal of section 55(2) (a) would show that the term used in the Act is business.............. The Assessing Officer was accordingly directed to delete the addition made on account of Long Term Capital Gains from goodwill arising from profession."

Thus, to bring the goodwill arising from profession to tax, the department had to amend clause 2(a) to include the words "profession" vide Finance Act, 2016.

Also, reference can be drawn from Section 44AB where the phrases used in framing the provisions are identical:

"Every person,-

(a) Carrying on business shall, if his total sales, turnover or gross receipts, as the case may be, in business exceed or exceeds one crore rupees in any previous year; or

(b) carrying on profession shall, if his gross receipts in profession exceed fifty lakh rupees in any previous year."

In section 44AB also, we can find that the words sales, turnover or gross receipts, are used not to include profession but to exhaustively include revenue from operations as well as other incomes for the purpose of determining applicability. The section is made applicable to professionals by way of sub-clause (b).

Based on the above, we can deduce that as the same frame of words is used in section 269SU also, the intention of the Act is not to include the persons carrying on profession, but to exhaustively cover the revenue from operating as well as non-operating income.

In the light of above judgements and provisions, it is possible to take a view that section 269SU is not applicable in case of persons carrying on profession even if their gross receipt is beyond the prescribed limit.

Information for the editor for reference purposes only

Y.G. Shah is Partner and Parshva Mehta is Assistant Manager with Deloitte Haskins and Sells LLP.