Section 44AB of the Income Tax Act, 1961 and many other sections provide for audit of the accounts/statements of the assessee by an accountant. Section 288 also provides appointment of an accountant as authorized representative.

 The Finance Act, 2015,  wef 01-06-2015 has substituted the explanation 2 to sub section (2) of section 288 which contains the definition of the accountant. As per the definition accountant means a chartered accountant in practice and holds a valid certificate of practice   subject to exceptions listed therein

In the newly substituted list of exceptions, clause (viii) of the said Explanation-2 prohibits appointment of auditor/ chartered accountant who, whether directly or indirectly, has business relationship with the assessee of such nature as may be prescribed.

Now by the following Notification No. 50/2015, Rule 51A has been inserted to prescribe the nature of the business relationship.

GOVERNMENT OF INDIA
MINISTRY OF FINANCE
DEPARTMENT OF REVENUE
CENTRAL BOARD OF DIRECT TAXES

NOTIFICATION

New Delhi, the 24th June, 2015

INCOME-TAX S.O. 1683(E).— In exercise of the powers conferred by section 295 read with sub-clause (viii) of Explanation to sub-section (2) of section 288 of the Income-tax Act, 1961 (43 of 1961), the Central Board of Direct Taxes hereby makes the following rules further to amend the Incometax Rules, 1962, namely:-

1.    (1) These rules may be called the Income-tax (Ninth Amendment) Rules, 2015.

(2) They shall come into force on the date of its publication in the Official Gazette.

2. In the Income-tax Rules, 1962, after rule 51, the following rule shall be inserted, namely:-

 “51A. Nature of business relationship — For the purposes of sub-clause (viii) of Explanation below sub-section (2) of section 288, the term “business relationship” shall be construed as any transaction entered into for a commercial purpose, other than, –

 (i) commercial transactions which are in the nature of professional services permitted to be rendered by an auditor or audit firm under the Act and the Chartered Accountants Act, 1949 (38 of 1949) and the rules or the regulations made under those Acts;

(ii) commercial transactions which are in the ordinary course of business of the company at arm’s length price – like sale of products or services to the auditor, as customer, in the ordinary course of business, by companies engaged in the business of telecommunications, airlines, hospitals, hotels and such other similar businesses.”

[Notification No. 50/2015, F.No.142/9/2015-TPL]

(RAJESH KUMAR BHOOT)
DIRECTOR (TAX POLICY& LEGISLATION)

Download Explanation-2 (updated by finance Act, 2015) Click Here >>