Whether exempted share of profit of firm

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deepak (Querist)
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31 May 2014 Whether exempted share of profit of firm in the hands of partner is business income for the purpose of section 207 ( 2 ) of the income tax act-1961 for advance tax payment purpose.

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Deepak Gautam

Nikhil Kaushik

Nikhil Kaushik (Expert)
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31 May 2014 since it is exempted, it is not to be considered to computation of tax liability either under advance tax or final tax liability.

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 Your question concerns the nature of exempted share of profit from a partnership firm in the hands of a partner, specifically whether it qualifies as “business income” for the purpose of advance tax liability under Section 207(2) of the Income Tax Act, and consequently if interest under Sections 234B and 234C can be levied on non-payment of advance tax.

Key points:
Section 10(2A) of the Income Tax Act exempts the partner's share of profit from the firm from tax in their hands.

Since this income is exempt, it does not form part of taxable income of the partner and hence does not attract tax liability.

Section 207(2) requires payment of advance tax on income chargeable under the head “Profits and gains of business or profession.”

However, exempt income is not chargeable to tax and therefore advance tax provisions do not apply on exempt income.

The share of profit received by the partner is not treated as business income for the partner since it is exempt and is not computed under the head “Profits and gains from business or profession” for that partner.

Therefore, the partner is not liable to pay advance tax on exempted share of profit, and interest under Sections 234B and 234C for non-payment of advance tax cannot be levied on it.

Conclusion:
The assessee’s view is correct: exempted share of profit under Section 10(2A) is not taxable business income and is not subject to advance tax or interest for non-payment of advance tax.

The levy of interest by CPC is incorrect in such a scenario.

Additional remarks:
The income tax authorities should consider exempt income outside the ambit of advance tax provisions.

If challenged, this can be supported by referring to the provisions of Section 10(2A), Section 207(2), and judicial precedents confirming that exempt income is excluded from advance tax computation.

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