INFLATION MUST BE CONSIDERED FOR ALL PURPOSES IN TAX POLICIES AND NOT JUST TO COLLECT MORE TAX- proposed increase in presumptive income vide section 44AE does not recognize ground realities of fall in real income of vehicle owners and operators.

[CA DEV KUMAR KOTHARI]

Expectations belied on inflation front:

Now it can be said that expectations  of general public from Modi Sarkar have been belied about control over inflation.  After new government took charge, prices of essential goods started beginning with essential milk, and then fruits, vegetables, and other essential goods. Just like earlier, the present government is thinking as if prices are controlled by businessman, and some steps have been announced/  taken to control the insignificant part which businessman can play in price rise. It is forgotten by government authorities that a businessman may gain as well as lose by hording goods.

The government must take steps to increase productivity and efficiency of all resources. Must improve productivity and efficiency of government departments, PSU, and similar semi government organizations.  The role of all such controlled organization  in input  cost of any product and services and cost of living of public is very significant.

 Indirect tax itself constitutes a significant portion of cost of most of products and services.

These can be reduced only if government improves its productivity and  efficiency, reduces idleness of man, machines, and other resources, reduces wastage of resources in all sectors.

However, from Railway budget as well as general budget, there seems very little commitment about these crucial aspects.

Inflation and tax policies:

In tax policies about taxation- rates at different slabs, basic exemptions, incentives etc. role of inflation must be inbuilt to revise slabs or monitory limits in various provisions. However, unfortunately many of such limits have not kept pace with inflation at all. To highlight we can mention provisions of Sections 10 (32), 40A (3), 44AB, 54EC,  80C, 80CCD, 80CCE, 80D, 80DD, 80DDB, 80EE, 269SS, 269T and chapter XVII about advance tax , TDS etc. just for illustration. Many of limits can be called historical limits without any revision.

Another example is about cut-off date for adoption of fair market value of capital assets acquired prior to 01.04.1981. The cut-off date has not been revised, it should be revised in view of inflation and particularly because ‘capital gains’ are deemed income and there may not be income in real and economic sense when a capital asset is sold. If we go by replacement cost, then there will hardly be any capital gain, if an asset is sold and required.

Inflation considered for collecting more tax:

Vide THE FINANCE (No. 2) BILL, 2014 section 44AE is proposed to be amended to increase presumptive taxable income in view of inflation. The proposed clause and the memorandum explaining the same are reproduced below with highlights added by author:

Amendment of section 44AE

16. In section 44AE of the Income-tax Act, with effect from the 1st day of April, 2015,––

          (i) for sub-section (2), the following sub-section shall be substituted, namely:––

          “(2) For the purpose of sub-section (1), the profits and gains from each goods carriage 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 the vehicle, whichever is higher.”;

          (ii) in the Explanation, for clause (a), the following clause shall be substituted, namely:––

          ‘(a) the expression “goods carriage” shall have the meaning assigned to it in section 2 of the Motor Vehicles Act, 1988;’[59 of 1988].

From the memorandum Explaining the proposal:

Business of Plying, Hiring or Leasing Goods Carriages

     The existing provisions of section 44AE of the Act provides for presumptive taxation in the case of an assessee who is engaged in the business of plying, hiring or leasing goods carriages and not owning more than ten goods carriages at any time during the previous year. Income from the said business is calculated as under:

Type of Goods carriage	Amount of presumptive income
Heavy goods vehicle (HGV)	Rs.5,000 for every month (or part of a month) during which the goods carriage is owned by the taxpayer.
Vehicle other than HGV	Rs4,500 for every month (or part of a month) during which the goods carriage is owned by the taxpayer.

     The amount of presumptive income was revised by the Finance (No.2) Act, 2009. Further, the existing provisions make a distinction between HGV and vehicle other than HGV for specifying the amount of presumptive income.

     Considering the erosion in the real values of the amount of specified presumptive income due to inflation over the years and also in order to simplify this presumptive taxation scheme, it is proposed to provide for a uniform amount of presumptive income of ₹ 7,500 for every month (or part of a month) for all types of goods carriage without any distinction between HGV and vehicle other than HGV.

     This amendment will take effect from 1st April, 2015 and will, accordingly, apply in relation to the assessment year 2015-16 and subsequent years.

[Clause 16]

Just three years and inflation considered by the FM to increase tax:

As per Memorandum, the increase has been made in consideration of inflation. And uniform rate is applied for simplification. Both are not justified as explained hereafter.

The last revision was w.e.f. 01.04.2011 and proposed increase will be w.e.f. 01.04.2015. Therefore old limit will remain in force only for four years. The increase is as follows:

Type of vehicle	At present	As proposed	Increase	Increase in percentage.
Heavy goods vehicle (HGV)	Rs.5000/- pm	Rs.7500/- pm	Rs.2500/- pm	50%
Vehicle other than HGV	Rs.4500/- pm	Rs.7500/- pm	Rs.3000/- pm	66.66%

The increase by 55% and 66.66% is not at all justified for the reason that inflation has also affected earning capacity of vehicles. The price of vehicles, interest on borrowed cost, and wages for drivers and helpers have also gone up considerably during relevant period under consideration. In fact, the cost escalation is much more than revenue increase.

 The above proposal shows that honorable Finance Minister might have just been influenced by his bureaucratic team of drafts man who are just interested in making  tax provisions harsh on public. In fact the vehicle operators are already suffering due to high increase in operating costs when freight is not keeping pace with inflation. In such situation, a higher presumptive tax is not at all justified.

Past history of S. 44AE:

The presumptive income was ₹ 3500/- and ₹ 3150/- per month for tow categories of vehicles w.e.f. 01.04.2003. Those limits were revised after eight years w.e.f. 01.04.11 to ₹ 5000/- and ₹ 4500/-. The upward revision was 42.85%. And now proposed increase just after four years is 50% and 66.66%.

Therefore, considering the past history also the proposed hike in presumptive tax is excessive.  

The vehicle owner must be given option to show real income without Tax audit:

As per provisions the higher of actual income or presumptive income will be basis for computation of income. This is also not proper for  reasons that in earlier years of ownership higher amount of interest and depreciation is allowable and income is lower. When vehicle is old, the amount of depreciation and interest both are reduced, though earning may not fall in same ratio (at least during 4-5 years). Therefore assessee must be given an option to disclose actual income if it is lower and such income should only be basis for taxation. Such option is allowed but with rigors of maintaining accounts and getting them audited, which may not be feasible for small operator. The requirement should be relaxed. 

Treating other vehicles equal to heavy goods vehicle is not proper:

From the Motor Vehicle Act, 1988:

Some relevant definitions are reproduced below with highlights:

(13) “goods” includes livestock, and anything ( other than equipment ordinarily used with the vehicle ) carried by a vehicle except living persons, but does not include luggage or personal effects carried in a motor car or in a trailer attached to a motor car or the personal luggage of passengers travelling in the vehicle;

(14) “goods carriage” means any motor vehicle constructed or adapted for use solely for the carriage of goods, or any motor vehicle not so constructed or adapted when used for the carriage of goods;

(15) “gross vehicle weight” means in respect of any vehicle the total weight of the vehicle and load certified and registered by the registering authority as permissible for that vehicle;

(16) “heavy goods vehicle” means any goods carriage the gross vehicle weight of which, or a tractor or a road-roller the unladen weight of either of which, exceeds 12,000 kilograms;

(21) “light motor vehicle” means a transport vehicle or omnibus the gross vehicle weight of either of which or a motor car or tractor or road-roller the unladen weight of any of which, does not exceed 2[7500] kilograms ;

(23) “medium goods vehicle” means any goods carriage other than a light motor vehicle or a heavy goods vehicle ;

(28) “motor vehicle” or “vehicle” means any mechanically propelled vehicle adapted for use upon roads whether the power of propulsion is transmitted thereto from an external or internal source and includes a chassis to which a body has not been attached and a trailer ; but does not include a vehicle running upon fixed rails or a vehicle of a special type adapted for use only in a factory or in any other enclosed premises or a vehicle having less than four wheels fitted with engine capacity of not exceeding 4[twenty-five cubic centimeters] ;

(44) “tractor” means a motor vehicle which is not itself constructed to carry any load (other than equipment used for the purpose of propulsion); but excludes a road-roller;

(46) “trailer” means any vehicle, other than a semi-trailer and a sidecar, drawn or intended to be drawn by a motor vehicle ;

(47) “transport vehicle” means a public service vehicle, a goods carriage, an educational institution bus or a private service vehicle ;

Tractor-trailer. - A Division Bench of the Punjab and Haryana High Court in United India Insurance Company Ltd. v. Pritpal Singh 1995 (6) TMI 198 - Punjab and Haryana High Court held that even though trailer may be drawn by a motor vehicle if by if self is a motor vehicle and both the Tractor & Trailer taken together would constitute a transport vehicle.

Different type fo goods carriage vehicles:

From the above statutory provisions we observe that there are large number of categories and types of vehicles which are goods carriage vehicles. As per definition of heavy goods vehicle

any goods carriage the gross vehicle weight of which, or a tractor or a road-roller the unladen weight of either of which, exceeds 12,000 kilograms is a heavy goods vehicle.

In market we find goods carriage vehicles ranging from about 800 kgs to around 50 tons.

From website of Tata Motors  http://cv.tatamotors.com/ We notice that Tata Motors manufacture light, medium and heavy commercial vehicles in over 130 models providing a wide variety of commercial transport solutions. The range includes from 2 ton LCVs to 40 ton tractor trailers.

Therefore prescribing same rate of presumptive tax on all goods carriage is not at all justified. This can be linked to earning capacity of vehicles.