Section 44AE of The Income Tax Act, 1961

Section 44AE of The Income Tax Act, 1961

Special provision for computing profits and gains of business of plying, hiring or leasing goods carriages

This section applies specifically on assessees carrying on business of plying, hiring or leasing good carriages.

This section states that if an assessee is carrying on the above mentioned business then the income of such business chargeable to tax under the head “Profits and gains of business or profession” shall be deemed to be the aggregate of the profits and gains, from all the goods carriages owned by him in the previous year, computed in accordance with the following provisions/parts:

Part I:

If assesse owns a “heavy good vehicle”*: The profit shall be an amount equal to Rs. 1000 per ton of gross vehicle weight or unladen weight, as the case may be, 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,

whichever is higher.

Part II:

If assesse owns a “light  good vehicle”: The profit shall be an amount equal to Rs. 7500 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,

whichever is higher.

But, the assessee should not more than 10 goods carriages in any case at any time during the previous year for availing the benefit of this section.

* The expression “heavy goods vehicle” means any goods carriage, the gross vehicle weight of which exceeds 12 tons.

Now, What if the income so declared is less than as specified in this section?

• In that case, assessee will not be able to take the benefit of this section and additionally he has to maintain proper books of accounts and get its accounts audited under 44AB.

What if he owns more than 10 goods carriages?

• In that case, he will not be covered under this section and will be considered as normal business and will be treated as per normal provisions of income tax

Illustrations:

1) K is engaged in the business of leasing of goods carriages. He owns 11 goods carriages (capacity 14 tons each). He owned it for 7 months in the previous year. Is he eligible for taking the benefit of Section 44AE?

• As per Section 44AE, eligible assesse has to declare Rs. 1000 per ton (in case of heavy goods carriage) per month as his income for availing the benefit of Section 44AE i.e.

Rs. 10,78,000 in this case. [1000 x 7 (months) x 11 (vehicles) x 14 (tons)]

But, Section 44AE specifically says that this section is applicable only if the assessee owns less than or equals to 10 goods carriages in the previous year.

As, K was owning 11 goods carriages in the previous year. Therefore, K is not eligible from taking the benefit under this section.

2) S is engaged in the business of leasing of goods carriages. He owns 8 goods carriages (capacity 14 tons each). He owned it for 6 months in the previous year. Is he eligible for taking the benefit of Section 44AE?

• As per the provisions of Section 44AE, assessee has to declare Rs. 1000 per ton (in case of heavy goods carriage) per month as his income for availing the benefit of Section 44AE i.e.

Rs. 6,72,000 in this case. [1000 x  6 (months) x 8 (vehicles) x 14 (tons)]

As S has fulfilled the basic condition of not owning more than 10 goods carriages in the previous year. Therefore, if S declares minimum of Rs. 6,72,000 as his income from the business, then he can avail the benefit of this section.

Let’s complicate it little:

3) Suppose, S has earned actual profit of Rs. 7,30,000 in the previous year. Now, can he declare Rs. 6,72,000 as his profit and avail the benefit of this section?

• The answer is NO. Section 44AE specifically states that for availing the benefit under this section, assesse has to declare HIGHER of Actual Profit or Deemed Profit (calculated as per the provision of this section) for availing the benefit of this section.
• Therefore, S has to declare Rs. 7,30,000 (being higher of Rs 6,72,000 & Rs 7,30,000) as his profit for availing the benefit.

4) Now, Suppose, S has declared profit of Rs. 6,00,000. Now what will be the scenario?

• Section 44AE says, In case, eligible assessee declares lesser profit as compared to the deemed profit as per Section 44AE, then the assessee will not be able to take the benefit of this section and additionally he has to maintain proper books of accounts and get its accounts audited under 44AB.
• Therefore, in this case, S has to maintain proper books of accounts and get its accounts audited under 44AB.

5) Now, Suppose, S has owned the vehicles for 5.5 months? Will there be any change in the calculation?

• No, there will not be any change in the calculation as for the purpose of this section, a part of the month has to be considered as full month. Therefore, 5.5 months has to be taken as 6 months for the computation of deemed profit.

6) Now, Suppose S has owned 8 Light goods carriages instead of heavy goods carriages. Will there be any change in the calculation?

• Yes, the calculation will change. Section 44AE says, in case eligible assessee owns less than 10 light goods carriages, then the deemed profit shall be 7500 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 goods carriage, whichever is higher.

Therefore, the deemed profit shall be Rs. 3,60,000 [7500 x 6 (months) x 8 (vehicles)]

7) Now, Suppose S has owned 8 Light goods carriages and 2 heavy goods carriages weighted 14 tons each (all for 6 months). What will be scenario?

In this case, the calculation will be as follows:

For heavy goods carriages: [1000 x 2 (vehicles) x 14 (tons) x 6 (months)] = 1,68,000

For light goods carriages: [7500 x 8 (vehicles) x 6 (months)] = 3,60,000

Therefore, S has to declare a total of Rs. 5,28,000 [1,68,000 + 3,60,000] as his deemed profit under Section 44AE.

Point to remember:

The number of tons per vehicle need not be considered while the calculation of   income from light goods carriages as this section has specifically mentioned that Rs. 7500 per month per vehicle has to be taken in the case of light goods carriages.

Some other provisions of this section:

• No deduction for depreciation, in any case, will be allowed from the estimated net income under section 44AE. However, depreciation can be calculated and deducted from the value of the asset to determine the WDV of the block of an asset as per the provisions of Income Tax Act under section 32.
• The income calculated under section 44AE is estimated and considered to be the net income of the assessee, and no deduction shall be granted.
• However, where the assessee is a partnership firm, the remuneration or interest paid to partners can be claimed as a deduction under section 40(b). In other words, separate deduction from the above calculated presumptive income can be claimed as a deduction.

(The author is a CA Final student and A Published Author of the Book “AN INSIGHT INTO TAX AUDIT”, publication of Young Global Publications, New Delhi. For any doubts or errors in the article, contact the author at atulkhurana9@gmail.com or whatsapp at 98888-55340)