PREUMPTIVE TAXATION SCHEME

[Mr. M. GOVINDARAJAN]

Introduction

The tax payers who are paying income tax is required to prepare accounts and maintain the same up to the stipulated period.  If required the accounts are get to be audited by the Chartered Accountants.  The tax is payable on the self assessment basis.  If no account is maintained then it will be a problem to the assessee to compute tax and pay the same.  There is also the possibility of the Revenue authorities to initiate proceedings against the assessee.  This procedure is applicable to all tax payers.  But for small tax payers the Government brought out a scheme called ‘presumptive taxation scheme’.  Any small or medium sized business can opt this scheme and get relief from maintaining and auditing their books of accounts. The presumptive income will be computed on the basis of the estimation of the previous year’s turnover or gross receipts.

Presumptive taxation scheme under Section 44AD

Section 44AD provides special provisions for computing profit and gains of business on presumptive basis.  The following are eligible under this scheme-

• an individual, Hindu undivided family or a partnership firm, who is a resident, but not a limited liability partnership firm; and
• 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.

The expression ‘eligible business’ is defined as-

• any business except the business of plying, hiring or leasing goods carriages referred to in section 44AE; and
• whose total turnover or gross receipts in the previous year does not exceed an amount of ₹ 2 crores.

Calculation of turnover

Section 44AD (1) provides that-

•  in the case of an eligible assessee engaged in an eligible business, a sum equal to 8% 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.
• It will be 6%  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 or through such other electronic mode as may be prescribed] during the previous year or before the due date specified in sub-section (1) of section 139 in respect of that previous year.

In NAND LAL POPLI VERSUS THE D.C.I.T., CHANDIGARH [2016 (6) TMI 883 - ITAT CHANDIGARH] it was held that where profit declared by assessee as per scheme of presumptive taxation under section 44AD was accepted, the Assessing Officer could not make separate addition under section 69C.

Electronic mode

Rule 6ABBA provides that the following are the electronic modes for the purposes of Section 44AD(1)-

• Credit card;
• Debit card;
• Net banking;
• Immediate Payment Service (IMPS);
• Unified Payment Interface (UPI);
• Real Time Gross Settlement (RTGS);
• National Electronic Fund Transfer (NEFT); and
• Bharat Interface for Money (BHIM) Aadhar Pay.

Non applicability of section 44AD

This section is not applicable to the following-

• a person carrying on profession as referred to in sub-section (1) of section 44AA;
• a person earning income in the nature of commission or brokerage; or
• a person carrying on any agency business.

Deductions

Section 44AD (2) provides that 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 i.e., no deduction is allowed to the assessee who opts for presumptive taxation scheme.

Depreciation

Section 44AD (3) provides that 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.

Contravention

Section 44A(4) provides that if 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).

Maintenance of Accounts

Section 44AD (5) provides that if 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 and get them audited and furnish a report of such audit. 

Presumptive taxation scheme under section 44ADA

Section 44ADA is applicable with effect from AY 2017 – 18.  The eligible persons to opt this scheme are-

• an individual; or
• a partnership firm other than a limited liability partnership

who is a resident in India, and  is engaged in a profession as provided in Section 44AA and whose total gross receipts do not exceed ₹ 50 lakhs in a previous year.

List of professionals

The professions as referred to in section 44AA are legal, medical, engineering or architectural profession, or profession of accountancy or technical consultancy or interior decoration or any other profession as is notified by the Board in the Official Gazette.

Authorized representative, film artists, company secretary and professional of information technology have been notified to this purpose.

Deemed profit

A sum equal to 50% of the total gross receipts of the assessee in the previous year on account of such profession or, as the case may be, a sum higher than the aforesaid sum claimed to have been earned by the assessee, shall be deemed to be the profits and gains of such profession chargeable to tax under the head “Profits and gains of business or profession.

Deductions

Section 44ADA (2) provides that 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 i.e., no deduction is allowed to the assessee who opts for presumptive taxation scheme.

Depreciation

Section 44ADA(3) provides that 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.

Maintenance of Accounts

Section 44ADA (5) provides that if an eligible assessee who claims that his profits and gains from the profession are lower than the profits and gains specified in sub-section (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 (1) of section 44AA and get them audited and furnish a report of such audit as required under section 44AB.

Presumptive taxation scheme under section 44AE

Section 44AE is applicable to the assessee engaged in the business of plying, hiring or leasing goods carriage.  Such assessee may opt under section 44AE.  The assessee is not eligible to opt under this section if the assessee owns more than 10 goods carriages at any time during the previous year.   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).

Amount of income to be computed

Section 44AE (2) provides that the profits and gain-

• in respect of a heavy goods vehicle shall be an amount equal to ₹ 1000/-  per ton of gross vehicle weight or unladen weight, 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;
• in respect of goods vehicle other than heavy goods vehicle shall be an amount equal to ₹ 7500/- for every month or par t 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.

Section 44AE(5) provides that 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.

Goods carriage

The expression ‘goods carriage’ is defined under section 2(14) the Motor Vehicles Act, 1988 as 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.

Gross vehicle weight

 The expression ‘gross vehicle weight’ is defined under section 2(15) of the Motor Vehicles Act, 1988 in respect of any vehicle means the total weight of the vehicle and load certified and registered by the registering authority as permissible for that vehicle.

Unladen weight

The expression ‘unladen weight’ is defined under section 2(48) of the Motor Vehicles Act, 1988 as the weight of a vehicle or trailer including all equipment ordinarily used with the vehicle or trailer when working, but excluding the weight of a driver or attendant; and where alternative parts or bodies are used the unladen weight of the vehicle means the weight of the vehicle with the heaviest such alternative part or body.

Deductions

Section 44AE(3) provides that 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.  However if 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.

Depreciation

Section 44AE(4) provides that 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.

Maintenance of Accounts

Section 44AE (7) provides that 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.

In THE COMMISSIONER OF INCOME TAX-I, KANPUR VERSUS SHRI NITIN SONI [2012 (5) TMI 121 - ALLAHABAD HIGH COURT] it was held that section 44AE does not permit an assessee to apply provisions of section 44AE in case of some lorries and to go for regular assessment on the basis of books of account in case of remaining lorries.

 Shipping business of non residents

Section 44B (1) provides that in the case of an assessee, being a non-resident, engaged in the business of operation of ships, a sum equal to 7.5% of the aggregate of the amounts specified in sub-section (2) 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’.

Section 44B (2) provides that the above said amount shall be the following-

• the amount paid or payable (whether in or out of India) to the assessee or to any person on his behalf on account of the carriage of passengers, livestock, mail or goods shipped at any port in India; and
• the amount received or deemed to be received in India by or on behalf of the assessee on account of the carriage of passengers, livestock, mail or goods shipped at any port outside India.

In THE DIRECTOR OF INCOME TAX (INTERNATIONAL TAXATION) -1 VERSUS M/S. SAFMARINE CONTAINER LINES NV [2014 (7) TMI 725 - BOMBAY HIGH COURT], it was held that Inland Haulage charges earned by assessee were only a part of income derived from operation of ships and therefore were covered under section 8 of Double Tax Avoidance Agreement entered into between India and Belgium and consequently not taxable as business profits in India.  If in a case there is no treaty, Inland Haulage Charges will be taxable as per section 44BB.

Business of exploration etc. of mineral oils 

Section 44BB (1) provides that an assessee being a non-resident, engaged in the business of providing services or facilities in connection with, or supplying plant and machinery on hire used, or to be used, in the prospecting for, or extraction or production of, mineral oils, a sum equal to 10% of the aggregate of the amounts specified in sub-section (2) 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’.

In DIRECTOR OF INCOME-TAX (INTERNATIONAL TAXATION) VERSUS WESTERN GECO INTERNATIONAL LTD. [2013 (8) TMI 11 - UTTARAKHAND HIGH COURT] it was held that Section 44BB applies only to such an assessee, who is a non resident and not to an assessee, who has a permanent establishment or fixed place of profession in India.

In COMMISSIONER OF INCOME-TAX AND ANOTHER VERSUS ONGC. [2003 (9) TMI 65 - UTTARANCHAL HIGH COURT] it was held that as per section 44BB  the income of a non resident engaged in providing services in connection with the business of exploration of mineral oils, 10% of the aggregate amounts shall be deemed to be its income.  In certain cases the tax is paid by the payer.  The question arises whether grossing up is required in such a case.  The High Court held that no multiple grossing up is required in such a case as section 44BB overrides the provisions of section 28(iv) of the Act. 

Non applicability

Section 44BB (1) shall not be applicable in a case where the provisions of-

• section 42 - ; Special provision for deductions in the case of business for prospecting, etc., for mineral oil or
• section 44D - Special provisions for computing income by way of royalties, etc., in the case of foreign companies; or 
• section 44DA - Special provision for computing income by way of royalties, etc., in case of non-residents ; or
• section 115A - Tax on dividends, royalty and technical service fees in the case of foreign companies; or
• section 293A - Power to make exemption, etc., in relation to participation in the business of prospecting for, extraction, etc., of mineral oils.

apply for the purposes of computing profits or gains or any other income referred to in those sections.

Income

Section 44BB (2) provides that the income under this section shall be the following-

• the amount paid or payable (whether in or out of India) to the assessee or to any person on his behalf on account of the provision of services and facilities in connection with, or supply of plant and machinery on hire used, or to be used, in the prospecting for, or extraction or production of, mineral oils in India; and
• the amount received or deemed to be received in India by or on behalf of the assessee on account of the provision of services and facilities in connection with, or supply of plant and machinery on hire used, or to be used, in the prospecting for, or extraction or production of, mineral oils outside India.

Maintenance of accounts

Section 44BB (3) provides that an assessee may claim lower profits and gains than the profits and gains specified in that sub-section, if he keeps and maintains such books of account and other documents as required under f section 44AA(2) and gets his accounts audited and furnishes a report of such audit as required under section 44AB, and thereupon the Assessing Officer shall proceed to make an assessment of the total income or loss of the assessee under sub-section (3) of section 143 and determine the sum payable by, or refundable to, the assessee.

Business of air craft 

Section 44BBA provides that in the case of an assessee, being a non-resident, engaged in the business of operation of aircraft, a sum equal to 5% of the aggregate of the amounts specified in sub-section (2) 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".  The said income shall be-

• the amount paid or payable (whether in or out of India) to the assessee or to any person on his behalf on account of the carriage of passengers, livestock, mail or goods from any place in India; and
•  the amount received or deemed to be received in India by or on behalf of the assessee on account of the carriage of passengers, livestock, mail or goods from any place outside India.

Business of civil construction, etc., in certain turnkey power projects

Section 44BBB provides that if an assessee, being a foreign company, engaged in the business of civil construction or the business of erection of plant or machinery or testing or commissioning thereof, in connection with a turnkey power project approved by the Central Government in this behalf, a sum equal to 10% of the amount paid or payable (whether in or out of India) to the said assessee or to any person on his behalf on account of such civil construction, erection, testing or commissioning 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’.

Maintenance of accounts

An assessee may claim lower profits and gains than the profits and gains specified in that sub-section, if he keeps and maintains such books of account and other documents and gets his accounts audited and furnishes a report of such audit, 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, or refundable to, the assessee.

In re TOSHIBA PLANT SYSTEMS AND SERVICES CORPORATION VERSUS COMMISSIONER CONCERNED DIRECTOR OF INCOME-TAX [2011 (2) TMI 119 - AUTHORITY FOR ADVANCE RULING], it was held that contract awarded to the applicant, a Japanese Company, for erection of steam turbines, turbo generators and auxiliary equipments to execute a power project in India by an Indian Company being separate and machineries for the same project to the holding company of the applicant, the contract awarded to the applicant fits into the description given in section 44BBB and therefore, it I eligible for presumptive taxation under section 44BBB.