Whether the GST component will be calculated while calculating the Gross turnover for the applicability of the 44AD.
Of late many assesses are seeking an opinion that whether the GST component will be included while calculating the threshold limit of the 2 crore as provided in the section 44AD and whether the 8 percent threshold limit will be applied to the GST component also. This seems to be a debatable issue and no direct reference can be made to the judgment of the hon’ble courts and tribunals. In this article I would like to highlight my opinion on the same.
Referring to the first issue that whether the GST component should be included while calculating the threshold limit of the 2 crores I would like to draw your attention to the judgment of the hon’ble SC in case of the Chowranghee Sales Bureau Pvt Ltd back in the 1961 where the apex court has held the indirect tax component should be included while calculating the gross turnover or the sale receipts. Referring to the above judgment the SC has further provided the two judgments in case of the Jonnalla Narashimharao and co (1993) (SC 2000ITR 58) AND CIT v T. Naggi Reddy (1993) (1200 ITR 253) where the apex court has followed its own decision in case of the the Chowranghee Sales Bureau Pvt Ltd.
Section 145A also provides the inclusive method while calculating the gross turnover and the sale receipts. However the said section limits itself to the computation of the income from the profits and gains from the business and profession as its caption read as follows
“COMUTATION OF THE INCOME IN CASE OF THE PROFITS AND GAINS FROM THE BUSINESS AND PROFESSION”. Thus keeping the view the literal interpretation the said section is restrictive in nature and cannot be applied while calculating the threshold limits in case of the applicability of the section 44AD limit of the 2 crores. Thus it is crystal clear while calculating the threshold limit of 2 crores the GST component will be excluded.
E.g. If an assesse has the turnover of the 1.90 lakhs along with the GST component of the 20 Lakhs, now whether the GST component will not be included and assesse will be entitled to the benefit of the section 44AD.
Referring to the second question that whether the tax rate of the 8 percent will be applied to the GST component is no longer discussed in any judgment and needs to be analyzed carefully. Section 145A speaks that while calculating the turnover the said amount shall be adjusted to include the effect of the any taxed charged. Thus keeping in view the said section the turnover shall also include the GST component while calculating the 8 percent limit.
However when one reads the section 44AD it starts with the non obstantate clause and reads as follows “Notwithstanding to the sections 28 to 44DB”. Accordingly in my humble opinion section 145A is not applicable to the section 44AD since the section 145A is itself applicable to the computation of the income in case of the profits from the business and profession. So the merit has to be given to the method of the accounting regularly employed by the assesse. Therefore of the books of the accounts are maintained on the exclusive basis then the GST will not be included or vice versa.
Hope it helps.
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