Whether exempted share of profit from firm in the hands of p

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deepak (Querist)
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31 May 2014 Kindly let us know whether exempted share of profit from firm in the hands of partner is business income for the purpose of section 207(2) of the income tax act or not ? However, Assessee has considered such share of profit is not a business income and claimed benefit of 207(2).

Regards,
Deepak

Rupesh Jain

Rupesh Jain (Expert)
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31 May 2014 Profit share recd by partner from firm will exempt in his hand and show under the exempt income. u/s 10(2A)

deepak

deepak (Querist)
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31 May 2014 One of our assessee client is senior citizen having no income from business and profession but having exempted share of profit of firm as partner u/s 10(2A) of the Income Tax Act, 1961 and He filed his e- return of income under ITR-3 for Assessment Year 2013-14 claiming benefit of section 207(2) of Income tax act i.e. liability of advance tax does not arise in such case and consequently interest u/s 234B & 234 C for non-payment of advance tax does not arise

However, Client has received Assessment order u/s 143(1) from CPC Bangalore in which interest u/s 234B &234C for non-payment of advance tax have been levied

Kindly let us know whether exempted share of profit from firm in the hands of partner is business income for the purpose of section 207(2) of the income tax act or not ? However, Assessee has considered such share of profit is not a business income and claimed benefit of 207(2). If assesses’ contention is correct then CPC is wrong to levy such interest. Assessee contention is based on premise that exempted share of profit under section 10(2A) does not fall as income from business and profession u/s 28 of the act

We are eager to know the factual position whether assesses is correct or assessing authority is correct ? This matter has been brought to us for our opinion

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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03 August 2025 This is an important and somewhat nuanced question related to advance tax liability and treatment of share of profit from a partnership firm.

Key points:
Share of Profit from Firm to Partner
Under Section 10(2A) of the Income Tax Act, the share of profit received by a partner from the firm is exempt from tax in the hands of the partner.

Whether Share of Profit is Business Income for Section 207(2) (Advance Tax)
Section 207(2) states that if the income is from business or profession, advance tax is payable. The question is:

Is the exempted share of profit treated as “business income” of the partner under the Act?

Legal and Practical Interpretation

The partner’s exempted share of profit under section 10(2A) is not treated as business income in the hands of the partner for tax purposes, as it is exempt income.

Hence, for the purpose of advance tax liability under Section 207(2), this exempted share should not trigger advance tax payment.

Therefore, the partner should not be liable to pay advance tax or interest under sections 234B or 234C for non-payment of advance tax on this exempt income.

CPC's Action (Levying Interest u/s 234B & 234C)

If the partner has no other business income except exempt share of profit, the CPC should not levy interest for non-payment of advance tax.

The interest levy in this case appears incorrect.

Conclusion & Opinion:
The assessee’s contention is correct:
The exempted share of profit under Section 10(2A) is not taxable business income, so advance tax is not applicable on this exempt income, and interest u/s 234B & 234C should not be levied.

The assessing authority (CPC) is likely in error in levying interest for non-payment of advance tax in such case.

Supporting:
This view is consistent with CBDT circulars and judicial pronouncements which hold that the share of profit of a partner is exempt and not business income in his hands.

Advance tax provisions apply only on taxable income, and exempt income is not considered.

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