Thane Branch of WIRC of ICAI e TAXING INCOME ON  INCOME ON ...
2 Legislative history Taxing income on Presumptive Basis 11-06-11
Legislative history Legislative history3  Computing profits and gains from the business of trading in certain  ...
Legislative history Legislative history4  Chapter XII‐C – S.115K to S.115N   To building an atmosphere of t...
Legislative history Legislative history5  S. 44AD (pre amendment) Special provisions for computing  profit...
Legislative history Legislative history6  S. 44AF Special provisions fo or com...
7 Presumptive taxation legal provision Taxing income on Presumptive Basis 11-06-11
Why expansion of scope of S. 44AD Why expansion of scope of S 44AD8  There has been a substantial increase in sma...
Constitutional validity  Constitutional validity9  Issue may arise whether fixing inco ome at specified rate i...
Constitutional validity  Constitutional validity10  The non obstante clause in section 44AC denying such relief...
Scheme of new pr Scheme of new pr rovisions11  Applicable to eligible assessee  Engag...
Eligible Assessee Eligible Assessee12  The scheme is applicable to  Individuals   HUFs an...
Eligible business  Eligible business13  Any business   Excluding a business already co Exclu...
Whether applies to profession? Whether applies to profession?14  S. 44AD(1) states “…engaged in an eligible bus...
Whether applies to profession? Whether applies to profession?15  Part D of Chapter IV of the Act consist ...
Whether applies to profession? Whether applies to profession?16  Limit for carrying tax audit is Rs 60 lacs for...
“Total Turnover” or “Gross Receipts”? Total Turnover or Gross Receipts ?17  S. 44AB uses similar words.  ...
“Total Turnover” or “Gross Receipts”? Total Turnover or Gross Receipts ?18  Issue may arise what would constit...
Turnover of? Turnover of?19  Whether turnover means   Purchase turnover or   Sales turnov...
Establishment of t Establishment of turnover t20  Assessee would be required to est tabli...
Multiple activities Multiple activities21  In case assessee is engaged in mmultiple activities whether issue ma...
22 Non applicability of ce ertain provisions Taxing income on Presumptive Basis 11-...
Non Applicability o Non Applicability o certain sections of certain sections ...
Non Applicability o Non Applicability o certain sections of certain sections ...
Provisions of S. 28 Provisions of S 28 to 43C 8 to 43C 825  Non App...
Implications26  Expenditure on scientific research S. 3 35(2AA) ...
27 Assessment Taxing income on Presumptive Basis 11-06-11
Assessment28  Unlike provisions of erstwhile Chapter XII‐C, assessee is required to file return  of income ...
Implications of inc Implications of inc crease in turnover crease in turno...
Filing of belated au Filing of belated au report udit report udit30 ...
Few Cases Few Cases31  Once under the special provisio exemption from maintenance of ...
Few Cases Few Cases32  The additional sales found as a result of search, was not recorded in the books ...
33 Presumptive Tax  ‐ goods carriage Taxing income on Presumptive Basis 11-06-11
Presumptive income Presumptive income for truck owners e for truck owners e3...
Assessee plying own & hired vehicle plying own ned & hired vehicle ...
Let s talk! Let’s talk!36 Taxing income on Presumptive Basis 11-06-11
Thank you Thank you37 E: par ra...
38 Appendix  Taxing income on Presumptive Basis n 11-...
Sec 44AD : Pre‐am Sec 44AD : Pre‐am mendment39 44AD. Special provision for computing prof and ...
Sec 44AD : Pre‐am Sec 44AD : Pre‐am mendment40 (3) The written down value of any asset used fo...
Sec 44AD : Pre‐am Sec 44AD : Pre‐am mendment41 (6) Notwithstanding anything contained in the f...
Sec 44AD : Post‐am Sec 44AD : Post‐am mendment42 44AD. (1) Notwithstanding anything to the c ...
Sec 44AD : Post‐am Sec 44AD : Post‐am mendment43 (4) The provisions of Chapter XVII‐C shall n...
Sec 44AD : Post‐am Sec 44AD : Post‐am mendment44 Explanation.—For the purposes of this sectio...
Sec 44AE Sec 44AE45 44AE. (1) Notwithstanding anything to the c cont...
Sec 44AE Sec 44AE46 (3) Any deduction allowable under the provisions of sections 30 to 38 shall, for the purpo...
Sec 44AE Sec 44AE47 on the 1st day of April, 1997 or any earlier asse ...
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Presumptive Taxation

Presentation gives insight on new provisions to tax SME in India on presumptive basis
Published on: Mar 4, 2016
Source: www.slideshare.net


Transcripts - Presumptive Taxation

  • 1. Thane Branch of WIRC of ICAI e TAXING INCOME ON  INCOME ON PRESUM MPTIVE BASIS MPTIVE BASIS Presented by 11 June 11 CA Paras K Savla
  • 2. 2 Legislative history Taxing income on Presumptive Basis 11-06-11
  • 3. Legislative history Legislative history3  Computing profits and gains from the business of trading in certain  goods S. 44AC  Trading in specific goods & deeme ed income  Timber obtained under a forestt lease – 35%   Timber obtained by any mode o other than under a forest lease – 15%  Any other forest produce not be g y p eing timber – 35%  Provisions deleted by FA 92 Taxing income on Presumptive Basis 11-06-11
  • 4. Legislative history Legislative history4  Chapter XII‐C – S.115K to S.115N   To building an atmosphere of trust g p t and confidence and also to widen the  tax base by encouraging small shopkeepers to pay their taxes, the  Finance Act 1992 has introduced a a new simplified procedure for  taxation.  taxation  Applicable to assessees not assesssed to tax earlier   Individuals and  Individuals and  HUFs,   Conditions  Income of not more than Rs. 35,000 0 from the business of retail trade or of  running an eating place or any vocation and,   In the case of retail trade, annual tu In the case of retail trade annual tuurnover of up to five lakh urnover of up to five lakh rupees;  Tax Rs 1,400 Taxing income on Presumptive Basis 11-06-11
  • 5. Legislative history Legislative history5  S. 44AD (pre amendment) Special provisions for computing  profits and gains of business o profits and gains of business o civil construction : of civil construction : of  Deemed income – 8%  Inserted by FA  94 & applicable till FY 2009‐10 Inserted by FA ’94 & applicable till FY 2009‐10  S. 44AE Special provisions for S 44AE Special provisions for computing profits and gains of r computing profits and gains of  r business of plying, hiring or le easing of goods carriage  Applicable till date A li bl ill d  W.e.f. 1‐4‐2010 ratio of deemed d income increased  Taxing income on Presumptive Basis 11-06-11
  • 6. Legislative history Legislative history6  S. 44AF Special provisions fo or computing profits and gains  o eta bus ess of retail business  Deemed income – 5%   Inserted by FA ‘97 and applicable up to FY 2009‐10 Inserted by FA  97 and applicable up to FY 2009 10  S. 44AD (post amendment) Special provisions for  S 44AD (post amendment) Special provisions for computing profits and gains s of business on presumptive  basis  Deemed income – 8%  Amended by Finance (No 2) Act 2009 & applicable from 1 4 Amended by Finance (No. 2) Act 2009 & applicable from 1‐4‐ 2010 Taxing income on Presumptive Basis 11-06-11
  • 7. 7 Presumptive taxation legal provision Taxing income on Presumptive Basis 11-06-11
  • 8. Why expansion of scope of S. 44AD Why expansion of scope of S 44AD8  There has been a substantial increase in small businesses with the growth of transport and communication and ge eneral growth of the economy.  A large number of businesses and s service providers in rural and urban areas who earn substantial income are out tside the tax‐net.  Introduction of presumptive tax p provisions in respect of small businesses would h l a number of small b i ld help b f ll businesses t comply with th t ti to l ith the taxation provisions without consuming their t time and resources.  A presumptive income scheme for small taxpayers lowers the compliance cost for such taxpayers and also reduces the administrative burden on the tax machinery.  In view of the above, to expand t scope of presumptive taxation to all , p the p p p businesses, the existing section 44A has been substituted by a new section AD 44AD.  Para 21.1 of Explanatory Notes to the Provisions of th he Finance (No. 2) Act, 2009 CIRCULAR NO. 5/2010/[F. NO.  142/13/2010‐SO(TPL)], DATED 3‐6‐2010 142/13/2010 SO(TPL)] DATED 3 6 2010 Taxing income on Presumptive Basis 11-06-11
  • 9. Constitutional validity  Constitutional validity9  Issue may arise whether fixing inco ome at specified rate is constitutionally valid?  ‘Income occurring in Entry 82 in List 1 of the Seventh Schedule should be construed liberally and in a v very wide manner and the power to legislate will take in all incidenta and ancillary matters including the al authorisation to make provision to prevent evasion of tax, in any ns suitable manner and the entry w take within its fold any profits or will gains not only actually received, b also income which is supposed b l ll d but l h h d by the Legislature to have notionally accrued.  Difficulties envisaged by the reven to locate the persons and to collect nue the tax due in certain trades, if the Legislature in its wisdom thought that e it will facilitate, the collection of t tax due from such specified traders the on a presumptive basis, there is nothing in the said legislative measure to offend article 14. Taxing income on Presumptive Basis 11-06-11
  • 10. Constitutional validity  Constitutional validity10  The non obstante clause in section 44AC denying such reliefs has no basis and so unfair and arbitrary and equality of treatment is denied to such persons, necessitating grant o appropriate relief. of  To the extent the non obstante clause in section 44AC excluded the provisions of sections 28 to 43C (applicable to all assessees), the provisions are unreasonable.  A. S Sanyasi Rao v G i Government of And f d dhra dh Pradesh [ 989] 2 9 ITR 330 (SC) d h [1989] 219  The new provisions incorporated a provision permitting rebuttal of presumption . Hence new provisio may not be constitutional invalid ons invalid.  There may be hardship to some as ssessee.  Whether hardship Wh th h d hi can l d t uncon tit lead to nstitunality? lit ? Taxing income on Presumptive Basis 11-06-11
  • 11. Scheme of new pr Scheme of new pr rovisions11  Applicable to eligible assessee  Engaged in eligible business  Engaged in eligible business  Which has a maximum gross turnover/gross receipts of Rs 60 lakhs.  Rate of presumptive income Rate of presumptive income  8 per cent of gross turnover/gro oss receipts. Taxing income on Presumptive Basis 11-06-11
  • 12. Eligible Assessee Eligible Assessee12  The scheme is applicable to  Individuals   HUFs and   partnership firms  Not applicable to an assessee who is  availing deductions under  sections 10A, 10AA, 10B, 10BA or  sections 10A 10AA 10B 10BA or  any provisions of Chapter VI‐A under t the heading “C.—Deductions in respect of certain  incomes”  In above case in order to claim deduc b d l d d ctions assessee is required to maintain accounts and also  d d l get accounts audited  Non residents  LLP (Indian or foreign), Company (Indian or foreign), AOP, Local Authority, artificial  jurisdiction person. Taxing income on Presumptive Basis 11-06-11
  • 13. Eligible business  Eligible business13  Any business   Excluding a business already co Excluding a business already co overed under section 44AE ie engaged  overed under section 44AE ie engaged in plying, hiring or leasing of carriages  Which has a maximum gross turnover/gross receipts of 60 lakhs g g p  Unlike old provision of S. 44AD, S. 44AE & S. 44AF, scope of amended  provisions apply to all business exc cept specifically excluded.  It covers traders, manufactures, se ervice provider. Taxing income on Presumptive Basis 11-06-11
  • 14. Whether applies to profession? Whether applies to profession?14  S. 44AD(1) states “…engaged in an eligible business, ...”  The word "business" is of widest imp port and an inclusive one and it means an p activity carried on continuously and sy ystematically by a person, by the application of his labour or skill, with a view to earn income.  It does not necessarily mean trade or manufacture only. I i b i I d il d f l It is being used as d including within its scope professions vocations and callings from a fairly long s, time. Professions are generally regarde as business. ed  The words "business connection" in section 9(1) and section 163 are comprehensive enough to include all heads of income mentioned in section 14.  The context in which the expression "business connection" is used in section 9(1) clearly shows that there is no warrant for giving a restricted meaning to it by excluding "professional connections" fr professional connections rom its scope.  Ref Barebdra Prasad Ray v ITO 129 ITR 295 (SC) 5 Taxing income on Presumptive Basis 11-06-11
  • 15. Whether applies to profession? Whether applies to profession?15  Part D of Chapter IV of the Act consist ts of sections 28 to 43 and deals with  profits and gains of business or profession.   The phrase has been used in certain s sections as ‘business or profession’, but  nowhere has the phrase been used as s the ‘business and profession’.   Wherever the Legislature intended th hat the benefit of a particular provision  should be for both business or professsion, it has used the words ‘business or  profession and wherever it intended to restrict the benefit to either business  profession’ and wherever it intended to restrict the benefit to either business or profession, then the Legislature ha as used the word either ‘business’ or  ‘profession’,   It intended to extend the benefit to e either ‘business’ or ‘profession’, i.e., the  one would not include the other.  Ref G. K. Choksi & Co. v CIT [2007] 295 I 376 (SC) R f G K Ch k i & C CIT [2007] 295 ITR ITR 376 (SC) I Taxing income on Presumptive Basis 11-06-11
  • 16. Whether applies to profession? Whether applies to profession?16  Limit for carrying tax audit is Rs 60 lacs for assessee engaged in business where as it is Rs 15 lacs for professio on  Specific reference for business or pr rofession in Act  The data collected on tax deductio in various cases of professionals and on technical experts, showed that the tax incidence is much higher than the e amount of tax collected by way of ddeduction of tax at source at the existing rate of five per cent hence higher r cent, rate of TDS of10% prescribed prescribed.  Finance Act, 2007 ‐ Explanatory Notes on provisions relating to Direct Taxes CIR. NO. 3/2008, DT. 12‐3‐2008  Better view is that amended provisions does not covers profession, vocation. s Taxing income on Presumptive Basis 11-06-11
  • 17. “Total Turnover” or “Gross Receipts”? Total Turnover or Gross Receipts ?17  S. 44AB uses similar words.  The term ‘turnover’ is not specifically defined in the Act, nor specifically for the y purpose of section 44AB its meaning should be taken as commercially and 44AB, commonly understood.  Growmore Exports Ltd. v. Asstt. CIT [2 2001] 78 ITD 95 (Mum.‐ Trib.)  Regarding the interpretation of the w word ‘turnover’ as made by the Institute of Chartered Accountants in the con ntext of section 44AB, the Publication ‘Guidance Note on Tax Audit’ under section 44AB published by the Institute of Chartered Accountants of I di i rele t Ch t d A t t f India is levant.  Asstt. CIT v. Hasmukh M. Shah [2003] 85 ITD 99 (Ahd. ‐ Trib.)  The terms ‘total sales’, ‘turnover’ and ‘gross receipts’ referred to in section , g p 44AB are those which have in them income taxable or loss allowable under the Act.  Dy. CIT v. Mangal Dayak Chit Fund (P.) Ltd. [2005] 92 ITD 258 (Hyd. ‐ Trib.) y g y ( ) [ ] ( y ) Taxing income on Presumptive Basis 11-06-11
  • 18. “Total Turnover” or “Gross Receipts”? Total Turnover or Gross Receipts ?18  Issue may arise what would constitute turnover?  Consideration on sale of fixed a Consideration on sale of fixed a assets  VAT / Service tax collected  Interest Interest   Incentives   Stock‐in‐trade Stock in trade  Transport / delivery charges   etc Taxing income on Presumptive Basis 11-06-11
  • 19. Turnover of? Turnover of?19  Whether turnover means   Purchase turnover or   Sales turnover or  Any one of it  Vijay N Maheshwari HUF v ACIT  ITAT: ITA No. 515/Bom/1991 & 1725 5/Bom/1991 Order dt. 29/9/1994  HC: ITA/924/1995 Order dt. 27/3/19996  SC: SLP(Civil) 20074/1997 Order Dt 13/10/1997   In case purchase turnover practica al difficulties? Taxing income on Presumptive Basis 11-06-11
  • 20. Establishment of t Establishment of turnover t20  Assessee would be required to est tablish that total turnover as disclosed  by him is within the limits on the b basis of Documents / records /  evidence such as   Sales invoice / cash memo / bill ls  Bank statement  Any secondary records  Returns filed under any indirect t taxes like VAT / Service tax etc. Taxing income on Presumptive Basis 11-06-11
  • 21. Multiple activities Multiple activities21  In case assessee is engaged in mmultiple activities whether issue may arise about computation eligible turnover and presumptive income?  Eg An ‘X’ is an engineer and he has f ll i i E A ‘X’ i i d h h s following income:  Consultancy fees Rs 8 lacs  Gross receipts from trading  Rs 52 lacs  Service charges Rs 7 lacs  Interest income Rs 12 lacs  Gross receipts / turnover for comp Gross receipts / turnover for compputation presumptive income would be Rs  putation presumptive income would be Rs 59 lacs (52+7), consultancy fees ar re required to excluded.  Ref Explanatory Memorandum to F FA ‘94.  Mohd. Aslam v ITO [2006] 150 Taxman 20 (JODH.) (MAG.) Mohd Aslam v ITO [2006] 150 Taxman 20 (JODH ) (MAG )  In case trading & service income e exceeds Rs 60 lacs, S. 44AD would not have  any application Taxing income on Presumptive Basis 11-06-11
  • 22. 22 Non applicability of ce ertain provisions Taxing income on Presumptive Basis 11-06-11
  • 23. Non Applicability o Non Applicability o certain sections of certain sections of23  An assessee opting for the scheme is exempted from :  Non applicability of provisions o Non applicability of provisions o Chapter XVII‐C of Chapter XVII C of  Leads to certain unintended conse equences  Maintenance of books of accou Maintenance of books of accou related to such business as required unt related to such business as required  unt under section 44AA of the Income‐tax Act.  S. 44AA (iii) / (iv) gives negative exemp ption  S. 44AD no specific exemption from maintenance of books  of accounts etc. contra to pre‐ replaced S.44AD(4)  Assessee claims he has earned inco Assessee claims he has earned incoome lower than specified percentage and such  ome lower than specified percentage and such income is more than maximum am mount not chargeable to tax, S.44AD(5) and  44AA(2)(iv), mandates him to mainntain  books of accounts and other documents  as specified u/s 44AA, get them au as specified u/s 44AA get them auudited from the accountant and furnish report  udited from the accountant and furnish report as required u/s 44AB. Taxing income on Presumptive Basis 11-06-11
  • 24. Non Applicability o Non Applicability o certain sections of certain sections of24  S.44AE  S. 44AE specific exemption from mainte enance of books  of accounts etc. as prescribed  u/s 44AA and audit u/s 44AB  However in case assessee claims that he has earned income lower than specified amount, S. 44AE(7) and 44AA(2)(iii), mandates him to maintain books of accounts and other documents ( ) ( )( ), as specified u/s 44AA, get them audited f from the accountant and furnish report as required u/s 44AB. Taxing income on Presumptive Basis 11-06-11
  • 25. Provisions of S. 28 Provisions of S 28 to 43C 8 to 43C 825  Non Applicability of provisions u/s 28 to 4 43C  No deduction of expenses u/s 30 to 38  Allowability of losses ? Whether clarif ficatory?  Difference in language in para 2 of 14th Schedule of DTC, 2010 bill S. 44AD(1) is  4 notwithstanding clause. Accordingly n t ith t di l A di l normal business income computation  lb i i t ti provisions are not applicable to such small business  As a result various provisions pertaining t following items are not applicable p p g to g pp  Certain types of income chargeable under the head business income  Allow deduction on fulfillment of cert conditions tain  Deemed allowance of depreciation, additional depreciation, weighted deduction  Payment of expenditure otherwise by account payee cheque beyond specified limit y  Gopal Si h K R j G l Singh K. Rajpurohit v. ACIT 9 TTJ (Ahd ) 865 hi 94 (Ahd.)  Specifically provided that partnership fir is entitle to claim deduction for interest on rm partners capital / partners remuneration. p p p Taxing income on Presumptive Basis 11-06-11
  • 26. Implications26  Expenditure on scientific research S. 3 35(2AA)  Assessee is not entitled to claimed we eighted deduction  Refund of MVAT  f d f  Is not included u/s 41(1) but included as a part of gross receipts   Allowance of depreciation / additiona Allowance of depreciation / additiona depreciation al depreciation  al  Depreciation as well as additional dep preciation would be deemed to allowed   Aggregate cost of Machinery pur rchased on 2‐5‐2008, Rs 100,000 and sold on 1‐1‐ 2011 for Rs 65,000 2011 for Rs 65 000  Profits u/s 50 determined as und der  Depreciation allowed @ 20% FY 08-09 Rs 40,000 (including additional depreciation), Y FY 09 10 Rs 12 000 09-10 12,000  Capital gains Rs 3,000 [65,000-(100000-(40,000+12,000))  Non allowance of unabsorbed deprec ciation  DCIT v. Sunil M. Kankariya[2008] 298 ITR (AT) 205 (ITAT‐Pune)  Is depreciation is allowed on asset sold during the year? Taxing income on Presumptive Basis 11-06-11
  • 27. 27 Assessment Taxing income on Presumptive Basis 11-06-11
  • 28. Assessment28  Unlike provisions of erstwhile Chapter XII‐C, assessee is required to file return  of income and AO has powers to issue e notice u/s 142 /143 for assessment  Unlike erstwhile S.44AD(5) no manda atory scrutiny assessment in case income  below specified rate  AO is bound to assess income from sp AO is bound to assess income from sp pecified business  pecified business  AO can make additions unexplained investment, cash credit etc.  During assessment proceeding in case g p g e assessee ‘s turnover is   Raised beyond Rs 60 lacs  Determination of such income is not t geverned by S. 44AD  Maintenance of accounts and its aud dit  Penalty for furnishing incorrect parti iculars, non audit of accounts  Reduced below Rs 60 lacs Reduced below Rs 60 lacs  Determination of income would be g governed by S. 44AD Taxing income on Presumptive Basis 11-06-11
  • 29. Implications of inc Implications of inc crease in turnover crease in turnover29  In the instant case even after addi itional income total turnover was below specified limit. ITAT has held that  We do not consider it to be a case that fully fits into the scheme of section 44AD, for which, undoubtedly, faith recording of the turnover (and other hful relevant financial parameters) is essential.  Whenever the law provides any con ncession(s) from its rigors, the observance and satisfaction of the qualifying crit teria are presumed as, also contended by the assessee correctly met i e with assessee, met, i.e., hout any doubt as the law contemplates a doubt, true disclosure, and in any case are suubject to scrutiny/verification.  As afore‐stated, in the present case, the same cannot be said for sure, and as such, in our considered opinion, t the assessee having failed to record its turnover correctly in its books, it cannnot be said to be a case to which section 44AD of the Act is strictly applicable. y pp  Shivani Builders v. ITO [2007] 108 ITD 520 (AHD.) Taxing income on Presumptive Basis 11-06-11
  • 30. Filing of belated au Filing of belated au report udit report udit30  A combined reading of sections 44AF(5), 44AB and 271B leads to the conclusion that if the assessee fails to furnish the audit report as required s under section 44AB [which has been incorporated in sub‐section (5) of section sub section 44AF] it may be liable to levy of penalty as mentioned in section 27IB.  Nowhere in section 44AF [right from sub‐section (1) to sub‐section (5)] it is m mentioned that the assessee would be denied the benefit of claiming lower profits and gains than the profit and gains as specified in sub‐section (1) of section 44AF, if it furnishes the audit report beyond the due date as mentioned in section 44AB.  Thus, it is clear that it is not the intenntion of the Legislature to altogether deny the benefit of lower profits if the asse essee maintains books of account and gets them audited and furnishes a repor as required under section 44AB though rt belatedly. Otherwise, it would have specified/ mentioned in the section itself to that effect.  Further, Further the filing of audit report is o procedural in nature and the assessee only cannot be denied the benefit of exem mption claimed by it.  Leyland Automobiles v. ITO [2008] 20 SOT 242 (COCHIN) Taxing income on Presumptive Basis 11-06-11
  • 31. Few Cases Few Cases31  Once under the special provisio exemption from maintenance of on, books of account has been provided and presumptive tax at the p p p rate of 8 per cent of the gr ross receipt itself is the basis for determining the taxable incom the assessee is not under any me, obligation to explain individual entry of cash deposit in the bank, l unless such entry has no nexus with the gross receipts.  CIT v Surinder Pal Anand  [2010] 192 Taxman (PUNJ. & HAR.)  Where amount of gross receipts s being in excess of Rs. 40 lakhs,  section 44AD is not applicable, principle underlying said section  also can‐not be adopted  Shri Ram Jhanwar Lal v ITO  [2009] ] 177 TAXMAN 135 (RAJ.) Taxing income on Presumptive Basis 11-06-11
  • 32. Few Cases Few Cases32  The additional sales found as a result of search, was not recorded in the books of accounts regularly kep in the course of business by the pt assessee. Merely because the app pellant accepted the additional sales for the purpose of assessment of the relevant year on the basis of entries in the i d documents, th same would not constitute accounts of th th seized d t the ld t tit t t f the appellant maintained in the regula course of business and on that basis ar alone liability cannot be fastened o the assessee by holding him to have on committed the default.  Brij Lal Goyal v. ACIT [2004] 88 ITD 413 (Del.) Taxing income on Presumptive Basis 11-06-11
  • 33. 33 Presumptive Tax  ‐ goods carriage Taxing income on Presumptive Basis 11-06-11
  • 34. Presumptive income Presumptive income for truck owners e for truck owners e34  Under the existing provisions of s section 44AE, a presumptive scheme is available to assessees engaged in business of plying, hiring or leasing goods carriages. The scheme applies to an assessee, who owns not more than 10 n goods carriages at any time during the previous year.  Under this scheme, a fixed amount of income per vehicle is taken at the rate of Rs. 3,500 Rs 3 500 per month per vehicle for owners of heavy goods vehicle and Rs r vehicle, Rs. 3,150 per month per vehicle for the o owners of light goods vehicles. An assessee opting for this scheme is exempted from maintaining books of account to d substantiate the income.  The Act has been amended to take care of inflationary trend, hence the limit has been enhanced to presume incom per vehicle for the owners of :— me  heavy goods vehicle to Rs 5 000 per m Rs. 5,000 month; and  other than heavy goods vehicles to Rs 4,500 per month. s.  Further an anti‐avoidance clause is provided to state that a prescribed fixed sum or a sum h h than the afores d sum claimed to h higher h h f said l d have b been earned b d by the assessee shall be deemed to be p profits and gains of such business. Taxing income on Presumptive Basis 11-06-11
  • 35. Assessee plying own & hired vehicle plying own ned & hired vehicle ned35  The assessee with multiple business are not barred entirely from availing the s benefits of S. 44AE.  The assesee with multiple business which includes the business of plying etc with their own goods carriage, are not only entitled to the benefits of S. 44AE but also for the exclusion of the relev vant turnover from total turnover of all the business of the assessee for the pur rposes of computation of monetary limits for S. 44AB in view of S. 44AE(5)  S. 44AE shall apply with respect to buusiness carried through own vehicles only  Anil Ramgopal M li (HUF) ACIT (201 47 DTR (P A il R l Mali (HUF) v ACIT (201 10) 47 DTR (Pune)(Trib) 513 10) )(T ib) 513  Under amended provisions income f from hired vehicles would be governed by S. 44AD?  JCB can not be termed as ‘goods carriag Thus, the provisions of section 44AE were ge’. not applicable and the income from JCB could not be computed by applying section Bs 44AE.  Gaylord Constructions v ITO [2008] 175 TAXMAN 9 (COCH.) (MAG.) 99 Taxing income on Presumptive Basis 11-06-11
  • 36. Let s talk! Let’s talk!36 Taxing income on Presumptive Basis 11-06-11
  • 37. Thank you Thank you37 E: par ras@psaindia.net T: +91 1.22.25410049 Taxing income on Presumptive Basis 11-06-11
  • 38. 38 Appendix  Taxing income on Presumptive Basis n 11-06-11
  • 39. Sec 44AD : Pre‐am Sec 44AD : Pre‐am mendment39 44AD. Special provision for computing prof and gains of business of civil construction, fits etc.— (1) Notwithstanding anything to the contrary contained in sections 28 to 43C in the case of y 43C, an assessee engaged in the business of civil construction or supply of labour for civil construction, a sum equal to eight per cent of the gross receipts paid or payable to the assessee in the previous year on account of such business or, as the case may be, a sum higher h hi h than the aforesaid sum as d l d by the assessee i hi return of i h f id declared h in his f income, shall b h ll be deemed to be the profits and gains of suc business chargeable to tax under the head ch “Profits and gains of business or profession”: Provided that thi P id d th t nothing contained i thi s b t i d in this sub‐section shall apply i case th aforesaid ti h ll l in the f id gross receipts paid or payable exceed an amount of forty lakh rupees. (2) Any deduction allowable under the provisions of sections 30 to 38 shall, for the purposes of sub section (1) be deemed to have been already given full effect to and no sub‐section (1), further deduction under those sections shall be allowed : l Provided that where the assessee is a firm the salary and interest paid to its partners m, shall be deducted from the income com mputed under sub‐section (1) subject to the conditions and limits specified in clause (b) o section 40. of Taxing income on Presumptive Basis 11-06-11
  • 40. Sec 44AD : Pre‐am Sec 44AD : Pre‐am mendment40 (3) The written down value of any asset used for the purpose of the business referred to in d sub‐section (1) shall be deemed to have be calculated as if the assessee had claimed een and h d b d had been actually allowed th d d ti n i respect of th d t ll ll d the deductio in t f the depreciation f each of th i ti for h f the relevant assessment years. ( ) (4) The provisions of sections 44AA and 44A shall not apply in so far as they relate to the p AB pp y y business referred to in sub‐section (1) and i computing the monetary limits under those in sections, the gross receipts or, as the case m be, the income from the said business shall may be excluded. (5) Nothing contained in the foregoing pro ovisions of this section shall apply, where the assessee claims and produces evidence to prove that the profits and gains from the o aforesaid business during the previous year relevant to the assessment year commencing on the 1st day of April, 1997 or any earlier a assessment year, are lower than the profits and gains specified in sub‐section (1), and ther reupon the Assessing Officer shall proceed to make an assessment of the total income or loss of the assessee and determine the sum r payable by the assessee on the basis of asse essment made under sub‐section (3) of section 143. Taxing income on Presumptive Basis 11-06-11
  • 41. Sec 44AD : Pre‐am Sec 44AD : Pre‐am mendment41 (6) Notwithstanding anything contained in the foregoing provisions of this section, an n assessee may claim lower profits and ga ains than the profits and gains specified in subsection (1) if h k b ti (1), he keeps and maintains su h b k of account and other d d i t i uch books f t d th documents ast required under sub‐section (2) of section 44AA and gets his accounts audited and n furnishes a report of such audit as required u under section 44AB. Explanation.—For the purposes of this section, the expression “civil construction” includes— (a) the ( ) th construction or repair of any b ildi t ti i f buildi ing, b id i bridge, d dam or other structure or of any th t t f canal or road; ( ) (b) the execution of any works contract y Taxing income on Presumptive Basis 11-06-11
  • 42. Sec 44AD : Post‐am Sec 44AD : Post‐am mendment42 44AD. (1) Notwithstanding anything to the c contrary contained in sections 28 to 43C, in the case of an eligible assessee engaged in an eeligible business, a sum equal to eight per cent of th t t l t f the total turnover or gross receipts of the assessee i th previous year on account of i t f in the i t f such business or, as the case may be, a sum higher than the aforesaid sum claimed to have been earned by the eligible assessee, shall b deemed to be the profits and gains of such be business chargeable to tax under the head “Profits and gains of business or profession”. f f f ” (2) Any deduction allowable under the provisions of sections 30 to 38 shall, for the purposes of sub‐section (1), be deemed to have been already given full effect to and no sub section further deduction under those sections shall be allowed : l Provided that where the eligible assessee is a firm, the salary and interest paid to its  partners shall be deducted from the income computed under sub‐section (1) subject to  ( ) the conditions and limits specified in clause (b) of section 40. (3) The written down value of any asset of an (3) The written down value of any asset of an eligible business shall be deemed to have n eligible business shall be deemed to have  n been calculated as if the eligible assessee ha ad claimed and had been actually allowed the  deduction in respect of the depreciation for each of the relevant assessment years. Taxing income on Presumptive Basis 11-06-11
  • 43. Sec 44AD : Post‐am Sec 44AD : Post‐am mendment43 (4) The provisions of Chapter XVII‐C shall no apply to an eligible assessee in so far as they ot relate to the eligible business. (5) Notwithstanding anything contained in the foregoing provisions of this section, an n eligible assessee who claims that his profits and gains from the eligible business are lower than the profits and gains specified in sub‐se p g p ection (1) and whose total income exceeds the ( ) maximum amount which is not chargeable to income‐tax, shall be required to keep and maintain such books of account and other documents as required under sub‐section (2) of section 44AA and get them audited and fur rnish a report of such audit as required under section 44AB. Taxing income on Presumptive Basis 11-06-11
  • 44. Sec 44AD : Post‐am Sec 44AD : Post‐am mendment44 Explanation.—For the purposes of this sectio on,— (a) “eligible assessee” means,— (i) an individual, Hindu undivided family oor a partnership firm, who is a resident, but  not a limited liability partnership firm as defined under clause (n) of sub‐section (1) of  section 2 of the Limited Liability Partners section 2 of the Limited Liability Partnersship Act, 2008 (6 of 2009)27a; and ship Act 2008 (6 of 2009)27a; and (ii) who has not claimed deduction under r any of the sections 10A, 10AA, 10B, 10BA or  deduction under any provisions of Chapter VIA under the heading “C. ‐ Deductions in  respect of certain incomes” in the relevant assessment year; (b) “eligible business” means,— (i) any business except the business of ply () ying, hiring or leasing goods carriages referred  to in section 44AE; and (ii) whose total turnover or gross receipts (ii) whose total turnover or gross receipts in the previous year does not exceed an s in the previous year does not exceed an  s amount of sixty lakh rupees. Taxing income on Presumptive Basis 11-06-11
  • 45. Sec 44AE Sec 44AE45 44AE. (1) Notwithstanding anything to the c contrary contained in sections 28 to 43C, in the case of an assessee, who owns not more th ten goods carriages 30 at any time during han the th previous year and who i engaged i t b i i d h is d in th business of plying, hi i or l i such the f l i hiring leasing h goods carriages, the income of such busine chargeable to tax under the head “Profits ess and gains of business or profession” shall b deemed to be the aggregate of the profits be and gains, f from all the goods carriages own by him in the previous year, computed in ned accordance with the provisions of sub‐sectio (2). on (2) For the purposes of sub‐section (1), the p sub section profits and gains from each goods carriage,— carriage, (i) being a heavy goods vehicle, shall be an amount equal to five thousand rupees for every month or part of a month during which the heavy goods vehicle is owned by the assessee in the previous year or an amount claimed to have been actually earned from such vehicle, o whichever is higher; (ii) other than a heavy goods vehicle, shall be an amount equal to four thousand five hundred rupees for every month or part of a month during which the goods carriage is owned by the assessee in the previous year or an amount claimed to have been actually earned from such vehicle whichever is highe vehicle, er Taxing income on Presumptive Basis 11-06-11
  • 46. Sec 44AE Sec 44AE46 (3) Any deduction allowable under the provisions of sections 30 to 38 shall, for the purposes of sub‐section (1), be deemed to have been already given full effect to and no further deduction under those sections shall be allowed l Provided that where the assessee is a firm, t salary and interest paid to its partners shall the be deducted from the income computed un nder sub‐section (1) subject to the conditions and limits specified in clause (b) of section 40. (4) The written down value of any asset used d for the purpose of the business referred to in  sub‐section (1) shall be deemed to have been calculated as if the assessee had claimed  and had been actually allowed the deduction n in respect of the depreciation for each of the  relevant assessment years. l t t (5) The provisions of sections 44AA and 44AB B shall not apply in so far as they relate to the  business referred to in sub‐section (1) and inn computing the monetary limits under those  sections, the gross receipts or, as the case m sections the gross receipts or as the case may be the income from the said business shall may be, the income from the said business shall  m be excluded. (6) Nothing contained in the foregoing pro ovisions of this section shall apply, where the assessee claims and produces evidence to prove that the profits and gains from the o aforesaid business during the previous year relevant to the assessment year commencing Taxing income on Presumptive Basis 11-06-11
  • 47. Sec 44AE Sec 44AE47 on the 1st day of April, 1997 or any earlier asse essment year, are lower than the profits and  gains specified in sub‐sections (1) and (2), and thereupon the Assessing Officer shall proceed to  make an assessment of the total income or loss make an assessment of the total income or loss of the assessee and determine the sum payable s of the assessee and determine the sum payable  s by the assessee on the basis of assessment made under sub‐section (3) of section 143. (7) Notwithstanding anything contained in the foregoing provisions of this section, an assessee  may claim lower profits and gains than the profits and gains specified in sub‐sections (1) and  (2), if he keeps and maintains such books of acc count and other documents as required under  sub‐section (2) of section 44AA and gets his acc counts audited and furnishes a report of such  audit as required under section 44AB. ,— Explanation.—For the purposes of this section, (a) the expressions “goods carriage”35 and “he (a) the expressions “goods carriage”35 and “he eavy goods vehicle”35 shall have the meanings  eavy goods vehicle”35 shall have the meanings respectively assigned to them in section 2 o of the Motor Vehicles Act, 1988 (59 of 1988); (b) an assessee, who is in possession of a goods carriage, whether taken on hire purchase or on  instalments and for which the whole or par rt of the amount payable is still due, shall be  deemed to be the owner of such goods carriage Taxing income on Presumptive Basis 11-06-11

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