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44ae

Lakshmi Muralidharan (Student) (119 Points)

06 December 2014

If Mr. A, a partner of a partnership firm owns 12 trucks out of which, ONLY 9 trucks are used by him for his "OWN BUSINESS" and the rest are used by the PARTNERSHIP FIRM. In that case, can Mr. A file his returns u/s 44AE?

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Z ( ) (2965 Points)
Replied 06 December 2014

What do you mean by owns 12 trucks? Whether this entire fleet is in name of Mr. A? Or some of these are infact of the partnership firm only.

For the purpose of this section, twin conditions have to be checked, ownership and the usage

Since for the purpose of the Income Tax Act, Mr.A is a separate assessee and the firm is a separate assessee so ownership should also be considered separately

There have been few cases wherein it was held that if the property was in name of the partner but was used for the purpose of partnership then although the legal title is that of partner

One such instance is of CIT V Varanasi Auto Sales (P.) Ltd 2010, wherein the trucks were in name of the directors but were used by the Co. Funds from which such trucks were purchased also belonged to the Co.

I am also considering cases of Mysore Minerals Ltd . SC 1999 , Podar Cement Ltd SC

Further in case of partnership firms, if the asset (herein truck) has been brought into business as capital contribution then also the asset is deemed to be of the partnership irrespective of the fact that asset is registered in name of the partner and not in the name of the firm

Who is the benefecial owner of these trucks?

[Note that am using the cases for determining the ownership which were used to confront as to whether depreciation shall be allowed or not, but still these cases helps us in determining the ownership for the purpose of chapter of PGBP]

Am also waiting for reply of other members

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Lakshmi Muralidharan (Student) (119 Points)
Replied 08 December 2014

Thank you Sir.

I referred the case laws quoted by you in the reply. They are in respect to Company assessees and related to claim of depreciation.

1.Whether purposes for section 44AE the can the individual who is a partner in a partnership firm claim the 44ae benefits for 10 trucks and the freight and expenses related to the other trucks which are still in individual's name are recorded in the firm's books of accounts and the other trucks are capitalised in firm's books.

Say there are 50 trucks.

RC books show that 25trucks in the name of partner A and 25 in the name of Partner B.

Now we intend to claim 44AE benefit of 10 trucks each for A&B's individual books and balance 30 Trucks are capitalised in firm's books and the revenue and expenses of contracts from those 30 trucks are recorded in Firm's books.

Is this valid in Income Tax Act ,1961?

2.I had earlier received an opinion from an advocate that if a partnership firm has 60 trucks in total it will be deemed as 10 trucks per partner(i.e, 60/6) if 6 partners.

Is this concept valid?

Z ( ) (2965 Points)
Replied 08 December 2014

No, Wait I withdraw my earlier statement. Although it at first instance appeared logical to me but the wordings of the section are "Notwithstanding anything to the contrary contained in sections 28 to 43C," and am taking my supporting from cases relating to 32(1)(ii) so unless their is judgement of court in this behalf I willl not use the concept of benefecial ownership #1

This means we should consider the legal ownership. In whose name these trucks are registered is the owner of the truck. And as soon as the ownership exceeds 10, the benefit can not be claimed

Since 44AE is a deeming fiction it leaves only a limited scope of intervention that too only in respect of those isssue which are in substance different from the intention.

Answer to your 1st querry will depend upon the ownership.

If assessee in his individual capacity is claiming 44AE then he can claim freight etc only in respect of those trucks which are not in use & ownership in his individual capacity for which he is claiming 44AE

(since as per the circular, for the purpose of 44AE ,it is deemed that all the allowable expenses and deductions have been deemed to be allowed)

for 2nd, I would like to have supporting of his view, In my opinion it should not be so. We must see the legal ownership only.

# 1 [Not denying to the concept of beneficial ownership but if I were AO I would have disapprove the assessees claim, this however can be accepted by the court on the basis of facts and circumstances

For eg, person has a firm wherein both the partners have the truck in their own name and not in name of the firm]

I request other members to throw light on it