Transportation Revenue Vis-A-Vis Sections 44AA, 44AB, 44AD AND 44AE of The Income Tax Act, 1961- A Critical Analysis
In this Article, the Author has made an attempt to analyse the provisions of Section 44AA, Section 44AB, Section 44AD and Section 44AE of the Income Tax Act, 1961 in the context of requirements and applicability of Tax Audit provisions to an Eligible Assessee engaged in the business of Transportation of Goods by Roads through Goods Carriages
1. SECTION 44AA OF THE INCOME TAX ACT:
Section 44AA of the Income Tax Act, 1961 requires certain categories of persons to mandatorily maintain books of account. The provisions of this section read with Rule 6F of the Income Tax Rules, 1962 relate to maintenance of books by assessee as well as prescribe the list of books to be maintained. The provisions of Sec 44AA are as:
“44AA. (1) Every person carrying on legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or any other profession as is notified by the Board in the Official Gazette shall keep and maintain such books of account and other documents as may enable the Assessing Officer to compute his total income in accordance with the provisions of this Act.
(2) Every person carrying on business or profession [not being a profession referred to in sub-section (1)] shall, —
(i) if his income from business or profession exceeds one lakh twenty thousand rupees or his total sales, turnover or gross receipts, as the case may be, in business or profession exceed or exceeds ten lakh rupees in any one of the three years immediately preceding the previous year; or
(ii) where the business or profession is newly set up in any previous year, if his income from business or profession is likely to exceed one lakh twenty thousand rupees or his total sales, turnover or gross receipts, as the case may be, in business or profession are or is likely to exceed ten lakh rupees, during such previous year; or
(iii) where the profits and gains from the business are deemed to be the profits and gains of the assessee under section 44AE or section 44BB or section 44BBB, as the case may be, and the assessee has claimed his income to be lower than the profits or gains so deemed to be the profits and gains of his business, as the case may be, during such previous year; or
(iv) where the provisions of sub-section (4) of section 44AD are applicable in his case and his income exceeds the maximum amount which is not chargeable to income-tax in any previous year, keep and maintain such books of account and other documents as may enable the Assessing Officer to compute his total income in accordance with the provisions of this Act:
[Provided that in the case of a person being an individual or a Hindu undivided family, the provisions of clause (i) and clause (ii) shall have effect, as if for the words “one lakh twenty thousand rupees”, the words “two lakh fifty thousand rupees” had been substituted:
Provided further that in the case of a person being an individual or a Hindu undivided family, the provisions of clause (i) and clause (ii) shall have effect, as if for the words “ten lakh rupees”, the words “twenty-five lakh rupees” had been substituted.]
(3) The Board may, having regard to the nature of the business or profession carried on by any class of persons, prescribe, by rules, the books of account and other documents (including inventories, wherever necessary) to be kept and maintained under sub-section (1) or sub-section (2), the particulars to be contained therein and the form and the manner in which and the place at which they shall be kept and maintained.
(4) Without prejudice to the provisions of sub-section (3), the Board may prescribe, by rules, the period for which the books of account and other documents to be kept and maintained under sub-section (1) or sub-section (2) shall be retained.”
ANALYSIS:
i. Sub Section (iii) above clearly states that in a case where Section 44AE is applicable to the Assessee and where the Assessee declares a Profit below the minimum prescribed under the Section 44AE during any previous year, the Assessee will have to compulsorily maintain Books of Accounts for that previous year.
ii. Sub Section (iv) above states most clearly that in a case where Section 44AD, Sub Section (4) is applicable to the Assessee and his income exceeds the maximum amount which is not chargeable to Income Tax, the Assessee will have to compulsorily maintain Books of Accounts for that previous year.
However, the matter is not that simple as it appears. The provisions of Section 44AA will lead to mis-interpretation if not properly correlated to Sections 44AB, 44AD and 44AE of the Income Tax Act, 1961.
Section 44AB lays down Tax Audit criteria for Assessee. The Section 44AB reads as hereunder:
“Every person, —
(a) carrying on business shall, if his total sales, turnover or gross receipts, as the case may be, in business exceed or exceeds one crore rupees in any previous year;
Provided that in the case of a person whose-
(a) aggregate of all amount received including the amount received for sales, turnover or gross receipts during the previous years, in cash, does not exceed five percent of the said amount; and
(b) aggregate of all payments made including amount incurred for expenditure, in cash, during the previous year does not exceed five percent of the said payment,
Provided further that for the purposes of this clause, the payment or receipts as the case may be, by cheque drawn on a bank or by a draft, which is not account payee, shall be deemed to be the payment or receipt as the case may be, in cash.
this clause shall have effect as if for the words “one crore rupees”, the words “ten crore rupees” had been substituted, or
(b) Carrying on profession shall if his gross receipts in profession exceed fifty lakh rupees in any previous year; or
(c) carrying on the business shall if the profits and gains from the business are deemed to be the profits and gains of such person under section 44AE or section 44BB or section 44BBB, as the case may be, and he has claimed his income to be lower than the profits or gains so deemed to be the profits and gains of his business, as the case may be, in any previous year; or
(d) carrying on the profession shall if the profits and gains from the profession are deemed to be the profits and gains of such person under section 44ADA and he has claimed such income to be lower than the profits and gains so deemed to be the profits and gains of his profession and his income exceeds the maximum amount which is not chargeable to income-tax in any previous year; or
(e) carrying on the business shall, if the provisions of sub-section (4) of section 44AD are applicable in his case and his income exceeds the maximum amount which is not chargeable to income-tax in any previous year,
get his accounts of such previous year audited by an accountant before the specified date and furnish by that date the report of such audit in the prescribed form duly signed and verified by such accountant and setting forth such particulars as may be prescribed:
Provided that this section shall not apply to the person, who declares profits and gains for the previous year in accordance with the provisions of sub-section (1) of section 44AD and his total sales, turnover, or gross receipts, as the case may be, in business does not exceed two crore rupees in such previous year:
………………………………………………………”
Sub Section (c) lays down that if the Assessee to whom Section 44AE is applicable but claims his profits to be lower than the profits or gains so deemed to be the profits or gains from the business so covered under Section 44AE, he shall get his accounts audited U/S 44AB before the specified due date and furnishes by that date the report of such audit. Where the accounts of the assessee are required to be audited under any other law for the time being in force, the assessee will have to furnish by the due date such report and a further report by an accountant in the form prescribed under Section 44AB.
Section 44AE covers the assesses who own not more than ten goods carriages and are engaged in the business of plying, hiring or leasing of goods though such goods carriages. The plain reading of Section 44AE is as hereunder:
“44AE. (1) Notwithstanding anything to the contrary contained in sections 28 to 43C, in the case of an assessee, who owns not more than ten goods carriages at any time during the previous year and who is engaged in the business of plying, hiring or leasing such goods carriages, 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 provisions of sub-section (2).
(2) For the purposes of sub-section (1), the profits and gains from each goods carriage, –
(i) being a heavy goods vehicle, shall be an amount equal to one thousand rupees 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;
(ii) other than heavy goods vehicle, shall be an amount equal to seven 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 goods carriage, whichever is higher.
(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:
Provided that where the 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.
(4) The written down value of any asset used 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 in respect of the depreciation for each of the relevant assessment years.
(5) The provisions of sections 44AA and 44AB shall not apply in so far as they relate to the business referred to in sub-section (1) and in computing the monetary limits under those sections, the gross receipts or, as the case may be, the income from the said business shall be excluded.
(6) Nothing contained in the foregoing provisions of this section shall apply, where the assessee claims and produces evidence to prove that the profits and gains from the aforesaid business during the previous year relevant to the assessment year commencing on the 1st day of April, 1997 or any earlier assessment 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 of the assessee and determine the sum payable 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 account and other documents as required under sub-section (2) of section 44AA and gets his accounts 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”, “gross vehicle weight” and “unladen weight” shall have the respective meanings assigned to them in section 2 of the Motor Vehicles Act, 1988 (59 of 1988);
(aa) the expression “heavy goods vehicle” means any goods carriage, the gross vehicle weight of which exceeds 12000 kilograms;
(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 part of the amount payable is still due, shall be deemed to be the owner of such goods carriage.”
Following points should be noted in the context of Section 44AE:
i. The Assessee should own not more than 10 Goods Carriages
ii. The Assessee should be engaged in the business of plying, hiring or leasing such goods carriage.
iii. The Income of such goods carriages from the business of plying, hiring or leasing such goods carriages shall be calculated on following basis:
a. If the Goods Carriage is a heavy goods vehicle, the Presumptive profit shall be an amount equal to one thousand rupees 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;
b. If the Goods carriage is other than a heavy goods vehicle, Presumptive Profit shall be an amount equal to seven 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 beenactually earned from such goods carriage, whichever is higher.
iv. If the Assessee fulfils the minimum Income Criteria in so far as the business of plying, hiring or leasing of such Goods Carriages, then the Assessee need not get a Tax Audit to be done for his that business irrespective of his Turnover from that business.
v. The provisions of maintaining accounts U/S Section 44AA and getting Tax Audit for such business U/S 44AB shall not apply in so far as they relate to the business referred to in sub-section (1) of Section 44AE and in computing the monetary limits under those sections, the gross receipts or, as the case may be, the income from the said business shall be excluded. This clearly indicates the for the purpose of Section 44AE, the only criteria for maintain accounts and getting Tax Audit will be to see whether the Income from such goods carriages is less than the presumptive income as laid down in the Section or equal to or more than the same. There is no single linkage with the Turnover of the Assessee from such goods carriages provided that these goods carriages are deployed in and only in the business of plying, hiring or leasing of such goods carriages.
Section 44AD of the Income Tax Act, 1961 reads as under:
44AD. (1) Notwithstanding anything to the contrary contained in sections 28 to 43C, in the case of an eligible assessee engaged in an eligible business, a sum equal to eight per cent of the total turnover or gross receipts of the assessee in the previous year on account of 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 be deemed to be the profits and gains of such business chargeable to tax under the head “Profits and gains of business or profession” :
[Provided that this sub-section shall have effect as if for the words “eight per cent”, the words “six per cent” had been substituted, in respect of the amount of total turnover or gross receipts which is received by an account payee cheque or an account payee bank draft or use of electronic clearing system through a bank account during the previous year or before the due date specified in sub-section (1) of section 139 in respect of that previous year.]
(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 further deduction under those sections shall be allowed.
(3) The written down value of any asset of an eligible business shall be deemed to have been calculated as if the eligible assessee had claimed and had been actually allowed the deduction in respect of the depreciation for each of the relevant assessment years.
[(4) Where an eligible assessee declares profit for any previous year in accordance with the provisions of this section and he declares profit for any of the five assessment years relevant to the previous year succeeding such previous year not in accordance with the provisions of sub-section (1), he shall not be eligible to claim the benefit of the provisions of this section for five assessment years subsequent to the assessment year relevant to the previous year in which the profit has not been declared in accordance with the provisions of sub-section (1).
(5) Notwithstanding anything contained in the foregoing provisions of this section, an eligible assessee to whom the provisions of sub-section (4) are applicable 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 furnish a report of such audit as required under section 44AB.]
(6) The provisions of this section, notwithstanding anything contained in the foregoing provisions, shall not apply to—
(i) a person carrying on profession as referred to in sub-section (1) of section 44AA;
(ii) a person earning income in the nature of commission or brokerage; or
(iii) a person carrying on any agency business.
Explanation.—For the purposes of this section, —
(a) “eligible assessee” means, —
(i) an individual, Hindu undivided family or 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 Partnership Act, 2008 (6 of 2009); and
(ii) who has not claimed deduction under 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 plying, hiring or leasing goods carriages referred to in section 44AE; and
(ii) whose total turnover or gross receipts in the previous year does not exceed an amount of two crore rupees.
Section 44AD lays down scheme of presumptive income calculation in case of businesses excluding the following:
a) A person carrying on profession as referred to in sub section (1) of Section 44AA.
b) A person earning income in the nature of commission or brokerage or,
c) A person carrying on any agency business.
Explanation (a) to Section 44AD makes out that only the following persons shall be eligible for Section 44AD
- Individuals who are Indian resident.
- Hindu Undivided Family who is a resident.
- Resident Partnership firm. (Limited Liability Partnership Firms are excluded in this regard)
The Limit for Turnover for the purpose of Section 44AD is up to Rs. 200 Lacs only. In cases where Turnover from Transportation Revenue crosses Rs. 200 Lacs, Section 44AD ceases to apply if the same is not covered by Section 44AE. Thus, where an Eligible Assessee carries on Business of Plying, Hiring or Leasing of Goods Carriages and the said Goods Carriages are owned by third parties or if owned by the eligible assessee, the number exceeds 10 in total at any time during the previous year, entire revenue from such Plying, Hiring or Leasing of such goods carriages shall be covered by Section 44AD if the turnover is within Rs. 200 Lacs (because of the limited applicability of Section 44AE in a case where the number of goods carriages owned by the Assessee is not more than 10)
To sum up, in cases of assesses who are engaged in the business of plying, hiring or leasing of goods carriages during the previous year, we can conclude the situation as under:
1. If the Assessee carries on the said business in his own goods carriages only and the number of such goods carriages is 10 or less than 10, than 44AE will be applicable irrespective of turnover and the eligible assessee can claim the benefit of presumptive calculation. If the said Assessee is a Partnership Firm (Other than LLP) in given case, it can further claim deduction for Partners Remuneration and Interest from such presumptive income U/S 44AE
2. If the Assessee carries on the said business in his own trucks as well as third party trucks and the number of his own goods carriages are within 10, then that part of transportation revenue which comes from his such own goods carriages will be covered by Section 44AE and rest of the turnover will be covered by Section 44AD depending upon his turnover from such third-party goods carriages.
3. If the Assessee carries on the said business in his own trucks as well as third party trucks and the number of his own goods carriages are more than 10, than entire transportation revenue whether comes from his such own goods carriages or from Third Party Goods carriages will be covered by entirely by Section 44AD depending upon his aggregate turnover from all the goods carriages.
4. In all the above situations when ever the Assessee is hit by the provisions of Section 44AD i.e., his Turnover is within Rs. 200 Lacs and declares profits at less than the minimum prescribed profit of 8% or 6% as the case may be, the Assessee will have to maintain Books of Accounts and get the Tax Audit done U/S 44AB and once he gets Tax Audit done U/S 44AD because of lower profit, he cannot avail the benefit of Presumptive Income for next five Assessment Year even if his turnover is within Rs 200 Lacs and regular Books of Accounts will have to be maintained and Tax Audit Report will have to be obtained before the specified dateand furnished on or before the specified date.
6. In cases not covered by Section 44AE or Section 44ADA and where the Assessee is engaged in business and his or its Turnover crosses Rs. 200 Lacs but is within Rs. 1000 lacs, no Tax Audit will be required where the Cash Receipts including receipts through bearer cheques or bearer demand drafts (whether against sales or other receipts) do not cross 5% of aggregate receiptsfrom sales and otherwise and also the Cash payments including payments through bearer cheques or bearer demand drafts (whether against expenses and other payments) do not cross 5% of aggregate payments towards expenses and other payments., irrespective of the percentage of Profit or Loss of the Assessee from such businesses as a percentage of total turnover. However, this privilege is only as regards Tax Audit. No direct immunity has been given from maintaining Books of Accounts in such situation and as such the same will have to be invariably maintained for the purpose of avoiding litigation with the department.
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DISCLAIMER: The author is based in Guwahati (Assam) and is a Practising Chartered Accountant. The information contained in this Article are merely to provide an independent analysis of the provisions in a nutshell to the reader. The reader should not consider it as any expert or legal opinion in any matter raised herein. The reader is always advised to seek independent professional advice from his respective consultant before taking any action on specific issues.
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