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Whether it covers under tax audit or not

Kishan Reddy (Practicing Chartered Accountant) (103 Points)

10 February 2012

Hello sir,

i have a doubt regarding my case, whether it covers under tax audit or not?

Actually my client is doing the business as agent, but there is no agreement. He is supplying seeds to farmers for growing crop. These seeds are actually supplied to him by a seed company. Afterwords he again purchasing that crop (seeds which are grown by farmers) and suppling to the same seed company. The amount what is involved (i.e. amount payable to farmers for growing crop) is entirely through his personal account. This comes to a total is above 60 lacs. my client what is getting is only commission in between.

Now my question is whether i need to consider total turnover (being amount transfered through his personal account) for tax audit or only commission ( actual income).

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7 Replies

kanagaraj (CHARTERED ACCOUNTANT) (793 Points)
Replied 10 February 2012

If you prove that he is a commission agent then only commission income will be taken. That is if the co issues form 16 A for commission then you may argue that he is an agent

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R.S.KARTHIK (Article Assistant----Final Student) (59 Points)
Replied 10 February 2012

I agree with sir.................. As the income of your client is only the commission from those transactions, only that amount is considered as 'Gross receipts' as per section 44AB of Income Tax Act and the remaining is reimbursment of expenses,

If that commission income exceeds Rs. 15 Lakhs per annum, he has to get his books of Accounts audited by a Chartered Accountant.

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Kishan Reddy (Practicing Chartered Accountant) (103 Points)
Replied 10 February 2012

but the company is not deducting TDS and not issuing form 16A

kanagaraj (CHARTERED ACCOUNTANT) (793 Points)
Replied 11 February 2012

In that case get a letter with restrospectic date stating that he is a commission agent

yuvak (Practising CA) (144 Points)
Replied 03 March 2012

In my understanding, the correct question is whether your client is acting as an 'Agent for the Seed Co' or 'Principal with the Seed Co'. All this will be based on the facts (or say the agreement/ understanding between the Seed Co and your client. Also, the 'Risk - Reward' aspect should be considered ie if there is a default between the farmers and/ or the Seed Co, what legal position does your client take ie does he get covered for the risk or suffers the loss. Answer to all these questions will help you determine the tax position.

Another aspect is also that since the Seed Co does not deduct TDS (and assuming that it is liable to do so), it is considering your client as a 'Principal' (though this does not necessitate that you accept that position).

Further, all other payment to the farmer are from your client account. Therefore, it may further complicate the tax position as an 'Agent'.

Cheers

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prateek Jain (Job) (21 Points)
Replied 04 March 2012

In my opinion it is agriculture income exempt from tax plz read the definition of agriculture:

⁶“agricultural income”⁷ means⁸—

⁹[(a) any rent¹⁰ or revenue¹⁰ derived¹⁰ from land¹⁰ which is situated in India and is used for agricultural purposes;]

(b) any income derived from such land¹⁰ by—

(i) agriculture¹⁰; or

(ii) the performance by a cultivator or receiver of rent-in-kind of any process ordinarily employed by a cultivator or receiver of rent-in-kind to render the produce raised or received by him fit to be taken to market¹⁰; or

(iii) the sale by a cultivator or receiver of rent-in-kind of the produce raised or received by him, in respect of which no process has been performed other than a process of the nature described in paragraph (ii) of this sub-clause ;

Company is not deducting tax so I suppose same view is taken by the company also.