Presumptive Taxation Scheme under Sec 44AE

Section 44AE is as follows

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;]

(a) an assessee, who is in possession of a goods carriage, whether taken on hire purchase or on installments 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.

Key features of the schemes are as under

A. Assessee engaged in the business of plying, hiring or leasing such goods carriages can opt for presumptive income in certain cases [section 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 section 44AE (2)

The provisions of section 44AE (1) shall not apply in the following circumstances:

(i) If such person owns more than ten goods carriages at any time during the previous year.

{Section 44AE(1}

(ii) If such person owns not more than ten "goods carriages" at any time during the previous year but is not engaged in the business of plying, hiring or leasing of such goods carriage.

(iii) If such person is not covered by any of the above conditions and but who declares lower profits and gains than the profits and gains specified in sub- section (1) and (2) of section 44AE as income from such goods carriages

B. Benefit of section 44AE is available to:

All Categories of Taxpayers i.e. Individual, HUF, firm, company, etc., who are engaged in the business of plying, hiring or leasing of goods carriages and who do not own more than 10 goods vehicles at any time during the year. A person opting for section 44AE would not be required to get the books of accounts audited even if turnover exceeds the limit of Rs.1 Cr or 2 Cr.

C. No turnover limit

The tax audit Limit is only applied on number of vehicle, so gross receipts may even exceed audit limits, still if opt for 44AE then no need for audit.

For Example: A transport contractor having 6 trucks is having gross receipts of Rs.105 Lacs for the F.Y. 2020-21. Is he liable for the tax audit?

ANS: Section 44AB does not contain any condition for tax audit of assessees engaged in transport operations (of goods) where the gross receipt exceeds Rs.100 lacss. Only where the assessee offers income below the presumptive limit prescribed in section 44AD or section 44AE, the accounts have to be audited under section 44AB.

The thrust of section 44AE for computing income in the case of assessees engaged in the business of plying, hiring or leasing goods carriages is the number of vehicles and not the aggregate of receipts. In the absence of a provision similar to that of proviso to section 44AD (1) even where the assessee has aggregate annual receipt exceeding Rs.100 lacs the accounts need not be audited under section 44AB so long as the assessee offers income as per the presumptive quantum prescribed in section 44AE. Only where the assessee offers income below the presumptive limit given in section 44AE irrespective of the quantum of receipt, the accounts have to be audited under section 44AB.

D. Section 44AE operates on the basis of "ownership" and not on the basis of "usage"

Even if the truck is not put to use, still income has to be offered u/s 44AE. It will include an owner by way of hire purchase or where the goods carriage has been taken on installments, even if whole or part of the amount is to be paid. The meaning of ownership period during which the goods vehicle is owned by the assessee, in the previous year. Part of the month would be considered as a full month.Thus even if any vehicle is idle/ not being used or sent on repairs–income shall be deemed earned. It is further to be noted that if due to lockdown in the country the goods carriers remain idle, even then they will be charged to tax. Also, if the goods vehicles have been impounded by the transport authorities/ police department, even then income will be charged to tax.

In the case of M. Rajendran [TS-298-ITAT-2014(CHNY)] ITAT rules that presumptive rate provided u/s 44AE applies only in case where assessee owns not more than 10 goods carriages at ‘any point of time during the previous year’; Law does not stipulate operation but considers ownership, therefore, where more than 10 goods carriages are owned but only ten carriages are operated during previous year, still Sec 44AE benefit cannot be granted.

E. Presumptive amount of income to be computed

The presumptive income computed above is the final income and no further expenses will be allowed or disallowed. Separate deduction towards other business expenses like salary, depreciation etc. will not admissible. Written down value of any asset used in such business shall be calculated as if depreciation u/s 32 is claimed and has been actually allowed. However, taxpayers can claim deduction under chapter VI-A like deduction u/s 80C, 80D etc. No disallowance can be made u/s 40, 40A, 43B etc. for the taxpayers who have opted section 44AE.

F. Allowability of remuneration

Where the assessee is a partnership firm, the remuneration & interest on capital to the partners can further be claimed as deduction subject to conditions & limit specified u/s 40(b). In case of presumptive scheme of taxation u/s 44AD and sec 44ADA, deduction towards interest & remuneration to partners is not available. However, it is not so in section 44AE.

G. Payment of advance tax

There is no concession as regards payment of advance tax & taxpayers covered by section 44AE will be liable to pay advance tax. [Benefit of payment of advance tax in one installment by 15^thMarch is available only to taxpayers covered by section 44AD & 44ADA.

H. Non allowance of depreciation and unabsorbed depreciation

Since depreciation and carry forward of unabsorbed depreciation is covered by Sec 32, depreciation shall not be allowed from the deemed Income, however a notional depreciation is provided in the Block to arrive at the opening WDV of the next year.

I. Benefit of set off and carry forward: Sec 70-80 will be applicable to the deemed income

The brought forward losses of this business or any other business and current year losses from other businesses & other heads shall be allowed to be set off from the deemed income subject to rules framed under the Income Tax Act, 1961 for "set off and carry forward" of losses.

J. Deduction u/s 80C to 80U

Will be given from GTI of the assessee even from the deemed income included in the GTI.

K. Minimum Income to be offered for taxation u/s 44AE

For heavy goods vehicle,income shall be an amount equal to Rs.1,000/- 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;

For other than heavy goods vehicle, income shall be an amount equal to Rs.7,500/- 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.

Important words for the purpose of section 44AE are

1. Heavy Goods Vehicle
2. Gross Vehicle Weight
3. Unladen Weight

Words used in charging part of the section is "as the case may be" which means that is every probability whereby in one case "gross vehicle weight" will be applicable & in another case the "unladen weight" will be applicable.

For section 44AE, the definition of "Heavy Goods Vehicle" is given in the explanation which is as under: the expression "heavy goods vehicle" means any goods carriage, the gross vehicle weight of which exceeds 12000 kilograms;]

As per explanation to section 44AE, The definition of "goods carriage", "gross vehicle weight" and "unladen weight" is to be taken as same as given in section 2 of the Motor Vehicles Act, 1988 (59 of 1988) which reads as under:

Definitions Under Motor Vehicles Act

The definitions of various terms used in section 44AE as per Motor Vehicles Act are as under:

1. Goods Carriage - Section 2(14) of Motor Vehicle Act-1988:
   "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 adopted when used for the carriage of goods.
2. Gross Vehicle Weight - Section 2(15) of Motor Vehicle Act-1988:
   "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.
3. Unladen Weight - Section 2(48) of Motor Vehicle Act-1988:
   "Unladen weight" means 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 unlade weight of the vehicle means the weight of the vehicle with the heaviest such alternative part or body.
4. Heavy Goods Vehicle - Section 2(16) of Motor Vehicle Act-1988:
   "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.

Let us analyze the definition of "Heavy Goods Vehicle" & "Unladen Weight" in both the relevant Act.

Heavy Goods Vehicle - Section 44AE

The definition of "heavy goods vehicle" as given in explanation to section 44AE is as under: the expression "heavy goods vehicle" means any goods carriage, the gross vehicle weight of which exceeds 12000 kilograms;’

Difference in between the definition of "Heavy Goods Vehicle" in section 44AE of the Income Tax Act -1961 vs. Definition in the Motor Vehicle Act-1988

As per the definition of "Heavy Goods Vehicle" as given in Motor Vehicles Act has not been adopted in to in section 44AE of the Income Tax Act-1961.

Words "or a tractor or a road-roller the unladen weight of either of which" which is there in Motor Vehicle Act is missing in Section 44AE.

Concept of Unladen Weight

No meaning or definition is specifically given for "unladen weight" in section 44AE. However, in Motor Vehicles Act the concept of "unladen weight" has been attached to a vehicle or a trailer whereas the concept of "gross vehicle weight" has been attached with goods carriages (the total weight of the vehicle and load certified).

It is but obvious that in case of any normal goods carriage, the gross vehicle weight is going to be more than "unladen weight" of the vehicle. The word "as the case may be" used in section 44AE means that either gross vehicle weight or unladen weight need to be taken for computing income. Where gross vehicle need to be used and where unladen weight need to be used is not provided in section 44AE. The word used in section 44AE to some extent conveys the idea that either the gross vehicle weight would be applicable or unladen weight would be applicable. The wording used in section 44AE conveys that both the weight cannot be simultaneously applicable.

If definition of "heavy goods vehicle" in Section 44AE would have been same as in Motor Vehicle Act 1988, no disputes or confusion would have been there. The concept of unladen weight in the motor vehicle Act is attached with Tractor, road roller.

While drafting Section 44AE, words "tractor and road roller" as available in the definition of heavy goods vehicle in the Motor Vehicle Act 1988 is not taken but the word "unladen weight" is duly taken. In my view, there appears to be an error as unladen weight is not attached to the "goods carriage" but attached to "tractor and road roller".

It is to be noted here that section 44AE is applicable for "Goods carriage" and in my view "Tractor or Road Roller" are not goods carriage.

However, CBDT vide F.No.225/233/2019/ITA-II Dated 14.08.2019 in response to the clarification sought by All India Motor Transport Congress has expressed the following view in short:

i. In respect of a "heavy goods vehicle" i.e. all goods carriage vehicle whose gross vehicle weight exceeding 12,000 Kg, the profits and gains from each goods carriage shall be at the rate of Rs. 1,000/- per ton of gross vehicle weight for every month or part of the month.

ii. In respect of a tractor or a road-roller (where the gross vehicle weight is not applicable), if unladen weight exceeds 12,000 Kg, the profits and gains from each goods carriage for the purposes of section 44AE of the Act shall be at the rate of Rs.1000/- per ton of unladen weight for every month or part of the month".

From the above discussion,we draw following conclusions:

1. The benefit of section 44AE is available to tractor and road roller even if it is not goods carriage in view of CBDT clarification vide F.No.225/233/2019/ ITA-II Dated 14.08.2019.
2. For Goods carriage, Section 44AE would apply on the basis of "Gross Vehicle Weight"
3. For road roller & tractor, Section 44AE would apply on the basis of "Unladen Weight

Can assessee apply Sec 44AE selectively on some trucks?

Sec 44AE does not permit the assessee to apply the provisions of this section on some of the truck while he claims the income from the others as per the books prepared. Thus this section applies to all the trucks owned by the assessee. He may opt for or out of the provisions of this Section for all the trucks.

Dy. CIT v. C.P.Kunhimohammed(2005) 94 ITD 278 (Cochin-Trib)

• The assessee having 3 lorries, 2 of them are old and the one being new, wanted to claim the benefit of section 44AE for 2 lorries and normal income scheme for the new lorry.
• The Tribunal held as below:"There is no provision which enables an assessee to apply the provisions of section 44AE in the case of some lorries and to go for regular assessment on the basis of books of account in respect of the remaining lorries. As plying hiring or leasing the goods carriages is treated as a separate business, all the lorries owned by the assessee form part of the said business and the tax treatment of all those lorries needs to be an uniform manner."

Is JCB a goods Carriage?

Gaylord Constructions v. Income-tax Officer

• The contention of the assessee is that JCB is analogous to goods carrier and the provisions of section 44AE are applicable. The Assessing Officer rejected the contention of the assessee as in the opinion of the Assessing Officer JCB is an earth mover machinery, cannot be equated with goods carrier like lorries and trucks.

The ITAT held -In the case of JCB, the principal function is not carriage of goods. In our opinion, by no stretch of imagination, JCB can be termed as "goods carriage". We, therefore, hold that the income from JCBs cannot be computed by applying section 44AE of the Act.

No benefit of income below the basic exemption limit

Contrary to the provisions of sec 44AD and sec 44ADA of the Act,the assessee has to get its books audited if he declares his income below the benchmarks given and his taxable income does not exceed the basic exemption limit.

Example: A Truck owner having 2 trucks, each having 15 ton gross weight, offering Rs.600 per ton per month. Total Income = 600*15*2*12= Rs.2,16,000. Is he liable for Tax Audit?

Under section 44AE, if profits offered are less than the prescribed limits, TAX AUDIT is APPLICABLE even if the income is below the non-taxable limits.

Example: Mr. X owns 8 goods carriage vehicles, 3 of which have unladen weight of 15MT, 18MT and 20MT and the rest are below 12MT capacity. The vehicle with 20MT was purchased on 22/07/19 and was used only from 21/01/2020

Section 194C- Payments to Transporters

Finance Act, 2015 make an amendment in the provisions of section 194C of the Act to expressly provide that the relaxation under sub-section (6) of section 194C of the Act from Non-Deduction of TDS on Payment made to a Transporter shall only be applicable to the payment in the nature of transport charges (whether paid by a person engaged in the business of transport or otherwise) made to a contractor who is engaged in the business of transport i.e. plying, hiring or leasing goods carriage and who is eligible to compute income as per the provisions of Section 44AE of the Act (i.e a person who is not owning more than 10 goods carriage at any time during the previous year) and who has also furnished a declaration to this effect along with his PAN.

From the above discussion, it is crystal clear that only a person who is engaged in the business of goods carriage is entitled for the benefit of no TDS under section 194C(6). To establish himself as a goods transporter he must own at least 1 truck else he will not qualify for the benefit so given under section 194C(6). When a person undertakes any transportation contract who does not own any truck or goods carriage and arranges trucks from other truck owners he cannot be said to be a person engaged in the business of transport i.e. plying, hiring or leasing goods carriage and he is also not eligible to compute income as per the provisions of section 44AE. In this case even if such a person gives a declaration of owning less than 10 trucks (zero number of trucks), he will not be given the benefit of non-deduction of TDS under section 194C(6).

Meaning of Goods Carriage

Goods carriage means-

1. Any motor vehicle constructed or adapted for use solely for the carriage of goods; Or
2. Any motor vehicle not so constructed or adapted, when used for the carriage of goods.

The term "motor vehicle" does not include vehicles:

• Having less than 4 wheels and
• With engine capacity not exceeding 25cc
• vehicles running on rails or
• Vehicles adapted for use in factory or in enclosed premises.

No TDS from transporter:If the amount of payment is being made to a contractor during the course of business of plying, hiring or leasing goods carriages, then no tax is required to be deducted from such payments if -

(a) such contractor owns ten or less goods carriages at any time during the previous year and

(b) furnishes a declaration to that effect along with his Permanent Account Number (PAN), to the payer.

1. There is no prescribed form or format of declaration. It can be given simply on the letter-head of the transporter with his seal and signature.
2. If the transporter does not furnish the PAN then no such declaration can be filed and tax shall be deducted at 20 per cent as per section 206AA.
3. This benefit of non-deduction of tax is only applicable for a transporter engaged in the business of plying, hiring or leasing goods carriages.
4. The relaxation under sub-section (6) of section 194C of the Act from non-deduction of tax shall only be applicable to the payment in the nature of transport charges (whether paid by a person engaged in the business of transport or otherwise) made to an contractor who is engaged in the business of transport i.e. plying, hiring or leasing goods carriage and who is eligible to compute income as per the provisions of section 44AE (i.e a person who is not owning more than 10 goods carriage at any time during the previous year) and who has also furnished a declaration to this effect along with his PAN. This is as per the amendment by Finance Act, 2015 w.e.f. 01.06.2015. (Prior to this amendment, the benefit of non-deduction of TDS is applicable to all the transporters irrespective of their size.)
5. The capacity of goods carriages have been made irrelevant.
6. The payer must furnish the details of payment to transporter in the quarterly statement of TDS to be filed with the income-tax department. [Sec. 194C(7). In this context following case laws are notable:

In ACIT vs. Mr. Mohammed Suhail, Kurnool in ITA No. 1536/Hyd/2014, order dated 13.02.2015, it was specifically held that the provisions of section 194C(6) are independent of section 194C(7), and just because there is violation of provisions of section 194C(7), disallowance under section 40(a)(ia) does not arise if the assessee complies with the provisions of section 194C(6). Further, in Soma Rani Ghosh vs DCIT ( ITA No. 1420 /KOL/ 2015), ITAT Kolkata it was held that if the assessee complies with the provisions of Section 194C(6), no disallowance u/s 40(a)(ia) is permissible, even there is violation of the provisions of Section 194C(7). This is applicable even if aggregate payment in a FY exceeds Rs.1,00,000

Payment for transportation of passengers:Agreement for hiring services of contractors for rendering transportation services for goods and passengers by buses, cars, sumos, utility vans, etc., where the assessee do not take the possession of those vehicles from the contractor and the responsibility of operating and maintaining the vehicles is of the contractor comes within the meaning of work and tax is deductible under section 194C and not under section 194-I. [CIT vs. Reliance Engineering Associates (P.) Ltd. (Tax Appeal No. 2286 of 2010) Gujarat High Court]

Note- The exemption u/s 194C(6) is available only to the contractors engaged in the business of business of plying, hiring or leasing goods carriages. This exemption is not applicable for passenger transport contractors

A co-operative society was formed by the truck owners and it entered into contract with company for transportation. The company deducted TDS u/s. 194C(2). Whether the company was liable to deduct TDS on amount paid to truck-owners in terms of Sec. 194C(2) ?

Sec. 194C(2) dictates that the deduction is required only in case of a sub-contract. The relationship between company and its members was not that of a contractor and a sub­contractor. The society was nothing more than a conglomeration of truck operators themselves. There was no sub-contract

Detailed Analysis of Section 194C(6)

The real intention of the Law maker has been explained vide circular no. 19/2015 dated 27.11.2015 issued by the Central Board of Direct Taxes.

Para 43.5 of the circular reads as follows

"The condition of not owning more than ten goods carriages by the transporter is required to be fulfilled on the date on which the amount is credited or paid, whichever is earlier. In case a transporter does not own ten goods carriages on the date on which the amount is credited or paid but becomes owner of ten goods carriages later in the previous year, the payer shall not be required to deduct tax from the payment made to the transporter during the period of the previous year when he was not owning more than ten goods carriages. However, the tax shall be required to be deducted from the payment made during that part of the previous year during which the transporter owned more than ten goods carriages."

Para 43.4 of the Circular reads as follows

"Further, this exemption from TDS is applicable only in respect of transport charges received for plying, hiring or leasing of goods carriage (s) owned by the transporter. Therefore, if a person receives payment in respect of plying, hiring or leasing of goods carriage (s) which are not owned by him, he shall not be entitled to claim exemption from TDS in respect of these payments."

Declaration Under Section 194C (6)

To,

Name of the Payer

Address of the Payer

Declaration Under Section 194C (6) For Non–Deduction of TDS

I, Name of vehicles owner, Proprietor/ Partner/ Director of M/s Name of the company or firm and address of the company, (hereinafter "The Contractor") do hereby make the following declaration as required by sub section (6) of section 194C of the Income Tax, 1961 for receiving payments from the payer without deduction of tax deduction at source (TDS).

1. That name of party authorized to make this declaration in the capacity as proprietor/ partner/ Director.
2. That the contractor is engaged by the payer for hiring or leasing of goods carriage for its business.
3. That I have not own more than ten goods carriage vehicles as on date.
4. That if the number of goods carriages owned by the contractor exceeds ten at any time during the previous year, the contractor shall forthwith, in writing intimate the prater of this fact.
5. That the Income Tax Permanent account number (PAN) of the contractor is PAN of Payee .A self-attested photocopy of the same is furnished to the payer along with this declaration.

Place: Sign

Dated: (Name of Declarant)
Verification

I ________________do hereby verify that the contents of paragraphs one to five above are true to my own knowledge and belief and no part of it is false and noting material has been concealed in it.

Place: Sign
Dated: (Name of Declarant)