Cumulative Income Tax Paid by Firm and Partners Not Eligible for Rule 86B Exemption: AAR [Read Order]
AAR held that cumulative income tax paid by a firm and its partners does not qualify for Rule 86B exemption unless individual partners or the firm paid the ₹1 lakh threshold independently.
Income Tax - Firm - Partners - Rule 86B - AAR - Taxscan
Income Tax - Firm - Partners - Rule 86B - AAR - Taxscan
The Rajasthan Authority for Advance Ruling (AAR) has clarified that the cumulative income tax paid by a partnership firm and its partners is not eligible for exemption under Rule 86B of the Central Goods and Services Tax Rules, 2017.
The applicant, Aadinath Agro Industries is a registered partnership firm engaged in spice processing. They have reported a monthly taxable turnover in their firm that exceeds ₹50 lakh and thereby attract Rule 86B exemptions.
The firm and its partners together paid over ₹1 lakh in income tax, neither the firm nor any individual partner paid more than ₹1 lakh themselves in the subject Financial year (FY) 2022-2023.
The applicant argued that a partnership firm and its partners are financially interdependent. As all the taxes ultimately flow to the partners, the total income tax paid by the firm and its partners, which are taken cumulatively, should qualify them for the exemption under Rule 86B.
The Tribunal noted that Rule 86B provides relief from the cash payment requirement only if any two partners have each paid more than ₹1 lakh in income tax in each of the last two financial years. There is no provision of exemption for such conditions in the said rule where exemption can be considered for total income tax paid by the partners and the firm together. In view of above, the exemption as per Rule 86B(a) is not applicable on the taxpayer.
The Advance Ruling Bench comprising Utkarsh (Central Tax Member) and Dr. Akhedan Charan (State Tax Member) observed that neither the individual partner nor the firm had paid income tax more than 1 lakh during the preceding two financial years and ruled that Aadinath Agro Industries must comply with the 99% restriction and is not eligible for the exemption from Rule 86B .
The AAR rejected the applicant’s contention of clubbing the tax paid by all partners and the firm for exemption eligibility.
The applicant was represented by CA Mukesh Chordiya.
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