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SECTION 44AD

CA. NIKHIL CHITTORA (article) (70 Points)

16 March 2018

Dear Experts,

I have following income
1. Income from commission and brokerage 10 lacs
2. Loss under future and options say 5 lacs

My query is

1. Can I opt for section 44AD only for futures and options?

The Act says " A person earning income by means of commission and brokerage is not eligible to opt for section 44AD"

How to interpret this whether it is talking about only commission business or the person himself is not eligible for opting section 44AD for his any other business ?

My second query is

If I don't claim commission income as my business income but treat it as income from other sources will it be sufficient for claiming f&o turnover under section 44AD.

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16 Replies

Dhirajlal Rambhia (SEO Sai Gr. Hosp.) (177852 Points)
Replied 16 March 2018

Though plain reading of the text may interpret like that, but intention of the law maker may not be same.

In this sentence, the emphasis is over eligibility of business and not assessee. Eligibilty of assessee is described elsewhere as resident individual/huf having turnover upto certain limits.

Secondly, an eligible assessee having different businesses is allowed to accept presumptive taxation for any of the business or all, but main condition is that the business should be eligible under the clause.

Thus, commission & brokerage business (along with business u/s. 44AE) is non-eligible for presumptive asessment u/s. 44AD, but that doesn't dis-qualify an eligible assessee or other eligible businesse/s simultaneously.

2 Like

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Aashish Sachdeva (839 Points)
Replied 16 March 2018

As per my personal opinion, you have file ITR 4 for both the business...

its my personal opinion, if anybody have different view then views are welcome. thanks. Disclaimer: Its not Professional Advice.

Nikhil Kaushik (Fellow CA) (85743 Points)
Replied 17 March 2018

Section 44AD(6) states

The provisions of this section, notwithstanding anything contained in the foregoing provisions, shall not apply to—

(i) a person carrying on profession as referred to in sub-section (1) of section 44AA;

(ii) a person earning income in the nature of commission or brokerage; or

(iii) a person carrying on any agency business

Based on the above, it is clear that the disqualification is application on the person and not just limited to the business. Accordingly, in the case, you cannot file under 44AD. File the return in ITR-3 adjusting F&O losses and expenses incurred to earn commission against the commission income.

1 Like

Saifullah Khalid (Autodidact/Curious ) (633 Points)
Replied 17 March 2018

Originally posted by : Nikhil Kaushik
	Section 44AD(6) states The provisions of this section, notwithstanding anything contained in the foregoing provisions, shall not apply to— (i) a person carrying on profession as referred to in sub-section (1) of section 44AA; (ii) a person earning income in the nature of commission or brokerage; or (iii) a person carrying on any agency business

This only states that above categories "nature of Incomes " are not eligible to fall under this section , so a eligible person carrying on any eligible bussines whose "nature of income" are not in nature of above 3 "nature of incomes" is eligible to opt 44AD for that specific income .... A.Y 17-18 ITR 4 covers all "Presumtive taxation " section , infact if an assesse opts 44ad for his bussiness income and also goes for 44ADA for his professional income then the ITR4 simply accepted/clubbed both section income and the return was accepted by the department ... so if the interpretation of above clauses (presented by you above) would have been in line with the department then they would have simply rejected the cases where the assesse opted both sections (44AD/44ADA) under the same return ITR4 ....

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Nikhil Kaushik (Fellow CA) (85743 Points)
Replied 17 March 2018

I cannot help if you do not read the section properly. The disqualification is on Person earning commission/brokerage income

Plus, please don't read the act on the basis mere issuance of 143(1) intimation.

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Saifullah Khalid (Autodidact/Curious ) (633 Points)
Replied 17 March 2018

....may be...but if what you said is true then the department should have taken some extra efforts in putting few lines of extra code in ITR form (I mean in programming source code) so that once the colum/field under PGBP of 44AD beomes anything above 0 (PGBP of 44AD > 0) then colum/field for 44ADA should automaically gets disabled (in software jargon we call it as "Greyed out").... if they would have done so then that would have sufficed to put full stop to this discussion ....

Nikhil Kaushik (Fellow CA) (85743 Points)
Replied 17 March 2018

as I said earlier. Income-tax return is not the law. Basic reading of the section is sufficient to say that persons covered under 44AD(6) cannot claim presumptive taxation under 44AD.

Dhirajlal Rambhia (SEO Sai Gr. Hosp.) (177852 Points)
Replied 19 March 2018

Yes, I was under the same impression that persons covered under 44AD(6) cannot claim presumptive taxation under 44AD. But recently in a conference the point was discussed by few professionals having most of their clients as wholeselers having commission income, which is summarized as follows:

1. The question doesn't arise when the assessee has only single income from 'commission or Brokerage' or 'agency'.

2. When an assessee has one such income alongwith another income (eligible for section 44AD, as in the query), the question arises whether the business or the assessee as a whole is ineligible?

3. Plain reading debars assessee as a whole, but its interpretation by department as per its tutorial is just opposite:

" Presumptive Taxation Scheme of Section 44AD

For whom the presumptive taxation scheme of section 44AD is designed?

The presumptive taxation scheme of section 44AD is designed to give relief to small taxpayers engaged in any business (except the business of plying, hiring or leasing of goods carriages referred to in section 44AE).

The presumptive taxation scheme of section 44AD can be adopted by following persons :

1) Resident Individual

2) Resident Hindu Undivided Family

3) Resident Partnership Firm (not Limited Liability Partnership Firm)

In other words, the scheme cannot be adopted by a non-resident and by any person other than an individual, a HUF or a partnership firm (not Limited Liability Partnership Firm).

This scheme cannot be adopted by a person who has made any claim towards deductions under section 10A/10AA/10B/10BA or under sections 80HH to 80RRB in the relevant year.

Businesses not covered under the presumptive taxation scheme of section 44AD

The scheme of section 44AD is designed to give relief to small taxpayers engaged in any business, except the following businesses:

 Business of plying, hiring or leasing of goods carriages referred to in section 44AE.

 A person who is carrying on any agency business.

 A person who is earning income in the nature of commission or brokerage

Apart from above discussed businesses, a person carrying on profession as referred to in section 44AA(1)is not eligible for presumptive taxation scheme.

Extract from TAX ON PRESUMPTIVE BASIS IN CASE OF CERTAIN ELIGIBLE BUSINESSES OR PROFESSIONS [As amended by Finance Act, 2017].

4. Secondly, most of these assesseess are regularly filing ITR3 (or its equivaqlent ITR4 in earlier years) well-developed by ITD (downloaded from its official efilling site) for declaring trading business income under presumptive scheme alongwith 'commission income' under regular assessment; which is accepted by department even while regular assessment........

1 Like

Nikhil Kaushik (Fellow CA) (85743 Points)
Replied 19 March 2018

Originally posted by : Dhirajlal Rambhia
	Yes, I was under the same impression that persons covered under 44AD(6) cannot claim presumptive taxation under 44AD. But recently in a conference the point was discussed by few professionals having most of their clients as wholeselers having commission income, which is summarized as follows: 1. The question doesn't arise when the assessee has only single income from 'commission or Brokerage' or 'agency'. 2. When an assessee has one such income alongwith another income (eligible for section 44AD, as in the query), the question arises whether the business or the assessee as a whole is ineligible? 3. Plain reading debars assessee as a whole, but its interpretation by department as per its tutorial is just opposite: " Presumptive Taxation Scheme of Section 44AD For whom the presumptive taxation scheme of section 44AD is designed? The presumptive taxation scheme of section 44AD is designed to give relief to small taxpayers engaged in any business (except the business of plying, hiring or leasing of goods carriages referred to in section 44AE). The presumptive taxation scheme of section 44AD can be adopted by following persons : 1) Resident Individual 2) Resident Hindu Undivided Family 3) Resident Partnership Firm (not Limited Liability Partnership Firm) In other words, the scheme cannot be adopted by a non-resident and by any person other than an individual, a HUF or a partnership firm (not Limited Liability Partnership Firm). This scheme cannot be adopted by a person who has made any claim towards deductions under section 10A/10AA/10B/10BA or under sections 80HH to 80RRB in the relevant year. Businesses not covered under the presumptive taxation scheme of section 44AD The scheme of section 44AD is designed to give relief to small taxpayers engaged in any business, except the following businesses:  Business of plying, hiring or leasing of goods carriages referred to in section 44AE.  A person who is carrying on any agency business.  A person who is earning income in the nature of commission or brokerage Apart from above discussed businesses, a person carrying on profession as referred to in section 44AA(1)is not eligible for presumptive taxation scheme. Extract from TAX ON PRESUMPTIVE BASIS IN CASE OF CERTAIN ELIGIBLE BUSINESSES OR PROFESSIONS [As amended by Finance Act, 2017]. 4. Secondly, most of these assesseess are regularly filing ITR3 (or its equivaqlent ITR4 in earlier years) well-developed by ITD (downloaded from its official efilling site) for declaring trading business income under presumptive scheme alongwith 'commission income' under regular assessment; which is accepted by department even while regular assessment........

don't know how 44ad(6) allows this interpretation! how a disqualification on a person is being interpretated as merely a restriction on part of his business!

It would be great if anyone could explain how 44AD(6) is a disqualification on income and not on the person.

Saifullah Khalid (Autodidact/Curious ) (633 Points)
Replied 19 March 2018

May be this issue was debatable pririor to F.Y 16-17 (as Professionals were not covered under any Presumptive scheme" ) but fact is now Professionals too have seprate Presumptive section for them and again I would like to emphasis on the fact that who ever opted 44AD along with 44ADA in A.Y 17-18 ITR4 was never served any " defective return notice " (on basis of opting these two sections simultaneously...though there were cases of defective return but those were due to non selection of appropriate NOB codes )so that alone is sufficient to conclude this....

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Nikhil Kaushik (Fellow CA) (85743 Points)
Replied 19 March 2018

Originally posted by : Saifullah Khalid
	May be this issue was debatable pririor to F.Y 16-17 (as Professionals were not covered under any Presumptive scheme" ) but fact is now Professionals too have seprate Presumptive section for them and again I would like to emphasis on the fact that who ever opted 44AD along with 44ADA in A.Y 17-18 ITR4 was never served any " defective return notice " (on basis of opting these two sections simultaneously...though there were cases of defective return but those were due to non selection of appropriate NOB codes )so that alone is sufficient to conclude this....

don't think so. Mere processing of the tax return under 143(1) is not the benchmark for believing what the law says.

Saifullah Khalid (Autodidact/Curious ) (633 Points)
Replied 19 March 2018

Originally posted by : Nikhil Kaushik
	Originally posted by : Saifullah Khalid don't think so. Mere processing of the tax return under 143(1) is not the benchmark for believing what the law says.

If so then i think it`s very sad state of affairs , In my opinion these types of issues should be taken care at ITR filing stage only by built in check/balances in ITR software ...by not doing so the ITD is opening gates to further disputes/litigations (resulting in unnecessary hardship to both the Assesse and ITD...)

Nikhil Kaushik (Fellow CA) (85743 Points)
Replied 19 March 2018

It is very simple. Read the section the way it has been drafted. If the intention of the legislature was to just disallow certain incomes and the tax payer, they would have drafted it accordingly. For eg: all they had to do was to say any income in the nature of brokerage, commission, professional fees received by persons covered under 44AA(1) is excluded from the scope of 44AD.

When the section explicitly excludes the tax payer, I do not find any reason to add my own imagination to it for personal convenience.

Dhirajlal Rambhia (SEO Sai Gr. Hosp.) (177852 Points)
Replied 11 April 2018

Originally posted by : Nikhil Kaushik
	It is very simple. Read the section the way it has been drafted. If the intention of the legislature was to just disallow certain incomes and the tax payer, they would have drafted it accordingly. For eg: all they had to do was to say any income in the nature of brokerage, commission, professional fees received by persons covered under 44AA(1) is excluded from the scope of 44AD. When the section explicitly excludes the tax payer, I do not find any reason to add my own imagination to it for personal convenience.

YES, ICAI has raised the issue with department ......... as per attachment Sr. 57 Page 92

Attached File : 1648935 20180411094256 icai suggestion sec 44ad 2.pdf downloaded: 135 times