Section 44 AD-Assessee or Business based ?

[Mansha]

Respected Experts
I've little doubt on 44AD provision.
Is the provision of 44AD assessee based or business based?
i.e. if one person(individual) carries on two or more businesses and all these businesses have gross turnover less than Rs. 6000000 then for application of 44AD will the turnover of each such business be compared with limit of Rs. 6000000 or will the sum of all these turnover be compared with Rs. 6000000?
Hope for prompt reply

Thank you

[ashutosh majumdar]

Section 44AD reads as follows:

Special provision for computing profits and gains of business on presumptive basis.

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”.

.....
.....

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) 27a ; 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  28 [sixty lakh rupees]."

So, s. 44AD is "eligible business" based.

[satyanveshi]

But Rajastan High court held in a different way in the decision reported in 295 ITR 314. Since this is the only high Court decision so far on this it should be followed as per the decision reported in 113 ITR 589 and 118 ITD 293.

[camanojgupta]

the opinion of the satyanveshi appears to be correct. The intention is to give relief to assessee. And remember it is the assessee who is assessed under the Act and not the business.

[camanojgupta]

the opinion of the satyanveshi appears to be correct. The intention is to give relief to assessee. And remember it is the assessee who is assessed under the Act and not the business.

[ashutosh majumdar]

Well, Bajrang Oil Mills v. ITO [2007] 163 Taxman 154/295 ITR 314 (Raj.) was in the context of s. 44AB which reads as follows:

44AB.  5 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  6 [sixty lakh rupees] in any previous year  7 [***]; or
          (b)  carrying on profession shall, if his gross receipts in profession exceed  8 [fifteen lakh rupees] in any  9 [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  10 [section 44AE ]  11 [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  12 [previous year; or]]  13 [***]
      14 [(d)  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 44AD and he has claimed such income to be lower than the profits and gains so deemed to be the profits and gains of his business 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  15 [***] audited by an accountant before the specified date and  16 [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

The High Court held as follows:

23. Having given our careful consideration to the rival submissions and looking to the object with which the provisions have been enacted, it appears that the maximum limit of Section 40 lakhs has been fixed in the case of every person who is carrying on business and whose total receipts exceed from his business activity which came under the head 'Income from the profit and gains from the business' has to be viewed as one integrated whole and not independently. The assessment of a person is on the total income and not on the income derived from the different sources separately. The three expressions used by the legislation, the total "sales", "turnover" or "gross receipts" though not defined under the Act, in the ordinary sense refers to the volume of the business to which it relates and which is/are carried on by the assessee and in making assessment of profits and gains from the business whether such volume is a part of the business concerns trading in commodities or otherwise the business activities where the assessee has to indulge in incurring cost before receiving the amount in relation to that business or he is carrying on other business activities in which the cost factor is excluded by the assessee and what he is receiving as charges for the work done by him, like job work, where the raw material is provided by the other manufacturer, the assessee is merely to relate his receipts to labour charges or procuring cost incurred by him along with part of his profit. It is in that sense that business which is carried on by the assessee has to be taken into totality. It may be noticed that the "sales", "turnover" or "gross receipts" are not words of art used in relation to any individual transaction independently but has been used as "sales", "turnover" or "gross receipts". The expression 'total' qualifies all the other three expressions viz. 'sales', 'turnover' and 'gross receipts'. Total sales indicate the aggregate price of the sales of commodities carried out by the assessee as a trading business. Obviously, it would not include such transfer of immovable or movable property by way of investment. Similarly, where the assessee is not merely selling the movable commodities, but relating to other trading activities e.g. where assessee is a land developer and he is engaged in business of acquiring land developing it and selling houses or purchasing or is indulged in leasing business or is indulged in stock market so on and so forth, the expression "turnover" is made out to denote receipts from such activities. There may be third or residuary category which may not be termed properly a trading activity yet it is carrying on as business activity like job works for others, without himself being the manufacturer and selling such manufactured goods, or running a motor service garage, for the receipts of such business can aptly termed as receipts of firm. However, integral relation of receipts by a person from business, does indicate that it refers to revenue receipts only and do not include capital receipts and certainly not the receipts which are not relatable to business and may fall under the expression income to be subjected to tax as income from sources other than 'profits or gains from business, profession or vocation.

As one can see, the context of the observations was totally different. There is a marked departure in the language of s. 44AD and s. 44AB. S. 44AD refers to the turnover of the "eligible business" while s. 44AB applies refers to the turnover/ with respect to the turnover/gross receipts of the (whole) business. 

[vsaiyar]

The Rajasthan High Court decision was given in the context of levy of penalty for not getting the accounts audited.  For deleting the penalty it was held that the assessee was under a bona fide belief that the accounts need not be audited as turnover of different business was less that the prescribed limit.  It also further pointed out that non audit of accounts did not create any difficulty in computing the total income.  It nowhere says that the turnover should be looked at each of the business separately.

[sai prasad]

this appears to be a hypothetical situation.  In any case assessee is caught by sec.44AB since aggregate turnover is well beyond the threshold . Sec.44AD is excluded.

[vsaiyar]

There is one judgement of the Aurangabad Bench on the issue raised as to whether the provision applies to individual or to business.  I give below the judgement.
HIGH COURT OF BOMBAY, AURANGABAD BENCH

Ghai Construction*

v.

State of Maharashtra

S.J. VAZIFDAR AND P.R. BORKAR, JJ.
W.P. NO. 4368 OF 2006
APRIL 30, 2007
Section 44AB of the Income-tax Act, 1961 - Tax Audit - Whether in case of an individual carrying on business as a sole proprietor, it is necessary to comply with provisions of section 44AB only in respect of his business income and not in respect of his other income - Held, yes

[mohiticai]

Section 44AD is business based but 44AB is assessee based so if total turnover exceeds 60 lakhs the provisions of 44AB would attract and not 44AD