Tax Planning: Commission income /or Regular business income

Laxmi Mittal (Practice) (188 Points)

09 December 2010  

Our few clients (hereinafter called as ‘A’ have allowed to use their VAT/TIN no. to raise bill on their VAT no. by the main dealer (hereinafter called ‘B’) who is involved in trading of a commodity. The Bill is raised after charging VAT at the applicable rates. The buyer release payment to A’s name which are deposited in their Bank account. The funds are withdrawn & distributed for the purchases of material for which the Sale bills are raised. The VAT liability is duly discharges by A.

 

In short we can say that B is using A‘s VAT no. to keep his own turnover not exceeding certain turnover limit.

 

In turn B pays some commission on the quantity of business to A based on per ton/ kgs. Billing thru A.

 

 

Query:

 

  1. Treatment in the hand of A

 

In the hands of A, only Commission income will be taxable.

 

  1. Treatment in the hand of B

 

Here we have doubt about the applicability of Section 68 of I.T. Act, as I.T.O. if smart enough, may add the business carried on A’s name with B’s total turnover/ business & calculate profit based on merged turnover of A.

 

Above all , B can not deduct T.D.S. u/s 194H in books , otherwise he may be questioned about the nature of commission…

 

 

Request to clarify.

 

CA Laxmi Mittal