Business Income-4

Business Income-4  

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Profits Chargeable to Tax S 41(1) Where deduction was made of any loss or exp. or trading liability incurred by the ‘A’, and subsequently during any P.Y., (a) the ‘A’ has obtained in cash or otherwise any amount in respect of such loss or exp or some benefit in respect of trading liability by way of remission or cessation thereof, the amount obtained or benefits accruing to him shall be deemed to be his bus/prof income chargeable in the P.Y., whether bus/prof in respect of which allowance was made is in existence or not, or

 (b)

where successor in bus has obtained in cash or otherwise any amount or benefit, the amount or benefit obtained by the successor shall be deemed to be his bus/prof income of that P.Y..  Expln 1- Some benefit in respect of remission or cessation of trading liability shall include remission or cessation by unilateral act of the ‘A’ or the successor.  Expln 2- Successor in bus means amalgamated co., resulting co., any person or firm succeeded to in business.

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(2) Where any build, mach, plant or furniture was used for bus in respect of which depreciation was claimed u/s. 32(1)(i) is sold, demolished, discarded or destroyed and money payable in respect of such asset together with its scrap value > the W.D.V., the excess to the extent of difference between its actual cost and W.D.V. shall be taxable as income under this head of the P.Y. in which money payable becomes due. Expln- If money payable becomes due in the P.Y. in which bus is not in existence, this sub section shall apply as if the bus is in existence.

 (3)

Where an asset representing cap exp on scientific research is sold without having been used for other purposes, the proceeds of sale to the extent it does not exceed deduction allowed u/s. 35 shall be taxable as income under this head.  Expln- Where money payable in respect of such asset becomes due in the P.Y. in which bus is not in existence, this sub section shall apply as if the bus is in existence in such P.Y..

 (4)

Where deduction is allowed in respect of a bad debt or part of debt u/s. 36(1)(vii), then if amount subsequently recovered on any debt or part of debt is greater than the difference between the debt or part of debt and the amount so allowed, the excess shall be taxable under this head whether bus or prof in respect of which deduction was allowed is in existence or not.

 (4A)

Where deduction u/s. 36(1)(viii) has been allowed in respect of special reserve created by the ‘A’, any amount subsequently withdrawn from such reserve shall be taxable under this head in the P.Y. in which the amount is so withdrawn from the reserve.  Expln- Where amount is withdrawn in a P.Y. in which the bus is not in existence, the bus shall be deemed to be in existence in that P.Y..

 (5)

Where the bus/prof referred to in this section is not in existence and income chargeable u/s 41(1),(3),(4) or(4A) in respect of that bus/prof arises, then any loss other than speculation loss which arose in the P.Y. in which the bus/prof ceased to exist and which could not be set off against other income of that P.Y., shall be set off against the income under the aforesaid sub sections.

Income of Business of Prospecting of Mineral Oil S.42Income of Business of Prospecting of Mineral Oil S. 42S

42 is applicable, if the following conditions are satisfied 1. ‘A’ may be Res. or Non Res.  2. ‘A’ has business of prospecting for, extraction or production of mineral oils.  3. The Central Govt. has entered into agreement with the ‘A’ for the association or participation of the Cent. Govt..  4. The agreement has been laid on the Table of each house of Parliament.

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If the above conditions are satisfied, the following deductions as specified in the agreement are allowed. 1. exp by way of infructuous or abortive exploration exps in the area surrendered before beginning of commercial production. 2. after beginning of comm. prod., exps on drilling or exploration or services or on assets used. 3. allowances for depletion of mineral oil in the P.Y. in which comml. prod. is begun & in succeeding years as per agreement. Other provisions of the Act will stand modified to give effect to the agreement. S. 42 will not override S 115JB.

 Consequences

when business

transferred (a) Sale proceeds< exp remaining unallowed- Exp remaining unallowed less the sale proceeds shall be deductible in the year of sale.  (b) Sale proceeds > exp remaining unallowed- Surplus will be taxable as business income.

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Special Provisions- Changes in Rate of Exchange of Currency S 43A(1) Notwithstanding anything contained in any other provisions of this Act, where ‘A’ has acquired any asset from a foreign country for his bus/prof and there is increase/reduction of his liability as a result of fluctuation in currency rate during any P.Y. (as compared to his liability at the time of acquisition) at the time of payment(a) towards the cost or part of the cost of the asset, or (b) towards repayment of money borrowed in foreign currency for acquiring the asset along with interest,

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amount by which the liability is so increased/reduced shall be added to/deducted from  (i) actual cost of the asset u/s. 43(1), or  (ii) capital exp u/s. 35(1), or  (iii) cap exp u/s. 36(1)(ix), or  (iv) cost of acquisition of cap. asset u/s. 48  and the amount after such addition/deduction shall be taken as actual cost or cap. exp. or cost of acquisition as the case may be.

 Expln

1- Rate of exchange, foreign currency and Indian currency defined.  Expln 2- Where any part of the cost of the asset is met by any other person, such amount shall not be taken into account for the purpose of this section.  Expln 3- Where an authorised dealer has agreed to provide foreign currency at a specified rate as per a contract with him, actual cost or cap. exp. or cost of acquisition shall be computed with reference to the rate specified in the contract.

Disallowance of Unpaid Liability S.43B

Expenses

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1.Any tax, duty, cess or fee.

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2. Employer’s cont. to PF, S.F., such other fund 3. Bonus or commission to employees for services rendered

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Time of Payment to Claim Deduction

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During the P.Y. or on or before due date for filing return.

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Expenses

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4. Interest on loan from Pub. Fin. Instn(ICICI,IFCI,IDBI,LIC ,UTI) or State Fin. Corpn. or State Indl. Inv. Corpn. 5. Interest on loan from scheduled bank including coop bank 6. Leave Salary

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Time of Payment to Claim Deduction

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During the P.Y. or on or before due date for filing return.

 ‘A’

is required to attach proof of payment of the above exps. with the return, if they were outstanding at the end of the P.Y..  Sales tax Deferred Scheme Refer Circular No. 496 dated 25th September, 1987 and the decision of the S.C. in CIT v Gujarat Polycrete Pvt Ltd 246 ITR 463.

Special Provision for Computation of Cost of Certain Assets S. 43C (1)

Where an asset other than an asset referred to in S.45(2) which becomes property of amalgamated co. is sold by it after 29th Feb., 1988 as stock in trade, the cost of its acquisition to it shall be the cost of acquisition to the amalgamating co. plus cost of improvement and exp. on transfer in connection with such transfer incurred by amalgamating co..

 (2)

Where an asset other than an asset referred to in S.45(2) which becomes the property of the ‘A’ on total or partial partition of a H.U.F. or under a gift or will or an irrevocable trust is sold after 29th Feb., 1988, its cost of acquisition to the ‘A’ shall be the cost of acquisition to the transferor plus cost of improvement and exp. in connection with transfer by way of partition, gift, etc. incurred by the transferor.

Special Provisions for Pub Fin Instns, Pub Cos, etc. S. 43D Notwithstanding

anything contained in any other provisions of this Act, (a) in case of a pub. Fin. Instn. or a scheduled bank or a State Fin. Corpn. or a State Inv. Corpn., interest income on such categories of bad or doubtful debts as per the guidelines issued by the R.B.I.,  (b) in case of a pub. co. interest income on such categories of bad or doubtful debts as per the guidelines issued by the N.H.B.,

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be taxable in the P.Y. in which it is credited by the above assesses to their profit & loss A/c or in which it is actually received by them whichever is earlier.  Expln- N.H.B., pub. co., pub. fin. instn., scheduled bank, state fin. corpn., state indl. inv. corpn. defined.

Insurance Business S. 44 Surplus

of receipts over the exps. is not taxable in the case of mutual concerns. However, the following are the exceptions (a) Where in the case of a mutual insurance society, income is derived from the business of insurance,  (b) In the case of a trade, professional or similar association, income from specific services rendered.

Special Provisions for dedn. in case of Trade, Prof, Similar Asso. S.44A 

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Notwithstanding anything contained in any other provision of this Act, where the amount received by such asso. from its members falls short of the exps incurred for common interest of members, the amount so fallen short shall be allowed as deduction from its income taxable under this head after deducting carried forward losses and balance, if any, from income under any other head. The deduction of such shortfall shall not exceed 50% of the total income as computed before making any allowance under this section. The section applies only to those asso.s which do not distribute their income among the members.

Maintenance of Accounts S. 44AA 1.

Specified Profession- Any person carrying on legal, medical, engineering, architectural profession or prof of accountancy or technical consultancy or interior decoration or any other prof notified by the Board in the Official Gazette shall maintain such books of account and other documents as mentioned below-

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Situation

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Books Required

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if their gross receipts do not exceed Rs. 1,50,000 in any of the three years immediately preceding the P.Y. or in the case of a newly set up prof., if gross receipts are not likely to exceed Rs. 1,50,000

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Such Books of Account as would enable the A.O. to compute income of the ‘A’ as per the provisions of the Act.

 Situation  If

gross receipts exceed the above limit in any of the three years immediately preceding the P.Y. or are likely to exceed this limit in case of a newly set up prof.

 Books

Required  Such Books of Account as are prescribed by Rule 6F.

 2.  (a)

Any person engaged in any other business or profession, if his income from such business or prof exceeded Rs. 1,20,000 or turnover, sales or gross receipts exceeded Rs. 10,00,000 in any of the three years immediately preceding the P.Y. or in case of a newly started bus or prof, if the income and turnover, sales or gross receipts are likely to exceed the above limit, shall maintain such books of account as may enable the A.O. to compute his taxable income under this head.

 (b)

in any other case, the ‘A’ is not required to maintain any books of account.  The Books of A/c are required to be maintained at the place of business of the ‘A’.  Books of A/c are required to be kept for 6 years from the end of the relevant A.Y.. Where assessment is reopened u/s. 147, Books of A/c shall be kept till the assessment is completed.

Audit of Accounts S. 44AB Persons

covered (a) ‘A’ engaged in business- If total sales, turnover or gross receipts of business for the P.Y. exceed or exceeds Rs. 40 lakh.  (b) ‘A’ engaged in prof.- If gross receipts in prof for the P.Y. exceeds Rs. 10 lakhs.  (c ) ‘A’ covered u/s 44AD/44AE/44AF/44BB/44BBB- If income from this bus declared by thr ‘A’ is lower than that computed under this section.

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A person engaged in bus or prof who is required to get A/cs audited under any other law shall submit audit report in F. No. 3CA and statement of particulars in F. No. 3CD. A person engaged in bus or prof & not required to get A/cs audited under any other law shall submit audit report in F. No. 3CB and statement of particulars in F. No.3CD. Audit Report is required to be submitted with the return of income, if filed by due date. If return is delayed, audit is required to be completed and Audit Report shall be submitted by due date. In such a case, a copy of the report and acknowledgement should be filed with the return.

Assessee engaged in Civil Construction S.44AD The

provision is applicable to the ‘A’ who is engaged in the bus of civil constn. or supply of labour for civil constn. work and whose gross receipts from this bus. does not exceed Rs. 40 lakhs.  Gross receipts include amount received for the contract and will not include the value of material supplied by the client.

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ConsequencesIncome of the ‘A’ is estimated at 8% of the gross receipts paid/payable to the ‘A’. ‘A’ can voluntarily declare higher income. All deductions u/s. 30 to 38 including depreciation are deemed to have been allowed. In the case of a firm, deduction of interest on capital and remuneration to partners shall be allowed. W.D.V. of assets shall be computed as if depreciation has been allowed.

 Computation

of Income Income from other bus. & under other heads to be added to income computed as above.  B/f. bus. & other losses to be set off.  Deductions under Chapter VIA to be allowed.  Tax liability to be computed.

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the ‘A’ declares income at 8% as above, he is not required to maintain books of A/c or get the A/cs audited. However, A/cs of other bus. or prof. shall be maintained and A/cs shall be audited, if turnover/gross receipts of such bus./prof. exceeds the limit laid down in S. 44AB.  If the ‘A’ wants to declare lower income, he is required to maintain books of A/c and get them audited.

Assessee engaged in Plying, Hiring, Leasing of Trucks S. 44AE The

provision applies to  (a) ‘A’ engaged in the bus of plying, hiring or leasing goods carriages.  (b) ‘A’ owns not more than 10 goods carriages at any time during the P.Y.. Goods carriages acquired on hire purchase or installments where a part of the consideration is payable shall be deemed to be owned by the ‘A’.

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ConsequencesIncome of the ‘A’ is estimated at Rs. 3,500 p.m. or part of month during which the carriage is owned by the ‘A’ for heavy goods vehicle and Rs. 3,150 p.m. in case of other vehicles. ‘A’ can voluntarily declare higher income. All deductions u/s. 30 to 38 including depreciation are deemed to have been allowed. In the case of a firm, deduction of interest on capital and remuneration to partners shall be allowed. W.D.V. of assets shall be computed as if depreciation has been allowed. Vehicle having unladen weight of more than 12,000 kgs shall be regarded as Heavy Goods Vehicle.

 Computation

of Income Income from other bus. & under other heads to be added to income computed as above.  B/f. bus. & other losses to be set off.  Deductions under Chapter VIA to be allowed.  Tax liability to be computed.

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the ‘A’ declares income as computed above, he is not required to maintain books of A/c or get the A/cs audited. However, A/cs of other bus. or prof. shall be maintained and A/cs shall be audited, if turnover/gross receipts of such bus./prof. exceeds the limit laid down in S. 44AB.  If the ‘A’ wants to declare lower income, he is required to maintain books of A/c and get them audited.

Profits & Gains of Retail Traders S.44AF The

provision applies, if  (a) ‘A’ is engaged in the bus. of retail trade in any goods or merchandise.  (b) Total turnover from this bus. does not exceed Rs. 40 lakhs.

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ConsequencesIncome of the ‘A’ is estimated at 5% of the total turnover. ‘A’ can voluntarily declare higher income. All deductions u/s. 30 to 38 including depreciation are deemed to have been allowed. In the case of a firm, deduction of interest on capital and remuneration to partners shall be allowed. W.D.V. of assets shall be computed as if depreciation has been allowed. Vehicle having unladen weight of more than 12,000 kgs shall be regarded as Heavy Goods Vehicle.

 Computation

of Income Income from other bus. & under other heads to be added to income computed as above.  B/f. bus. & other losses to be set off.  Deductions under Chapter VIA to be allowed.  Tax liability to be computed.

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the ‘A’ declares income as computed above, he is not required to maintain books of A/c or get the A/cs audited. However, A/cs of other bus. or prof. shall be maintained and A/cs shall be audited, if turnover/gross receipts of such bus./prof. exceeds the limit laid down in S. 44AB.  If the ‘A’ wants to declare lower income, he is required to maintain books of A/c and get them audited.

Special provision for computing deductions in the case of business reorganization of co-operative banks – S. 44DB. (1) The deduction under s. 32, s. 35D, s. 35DD or s. 35DDA shall, in a case where business reorganization of a co-operative bank has taken place during the financial year, be allowed in accordance with the provisions of this section.

(2) The amount of deduction allowable to the predecessor co-operative bank under s. 32, s. 35D, s. 35DD or s. 35DDA shall be determined in accordance with the formula – B AX C where A = the amount of deduction allowable to the predecessor co-operative bank if the business reorganisation had not taken place;

B = the number of days comprised in the period beginning with the 1st day of the financial year and ending on the day immediately preceding the date of business reorganisation; and C = the total number of days in the financial year in which the business reorganisation has taken place.

(3) The amount of deduction allowable to the successor co-operative bank under s. 32, s. 35D, s. 35DD or s. 35DDA shall be determined in accordance with the formula –

B AX C where A = the amount of deduction allowable to the predecessor co-operative bank if the business reorganisation had not taken place;

B = the number of days comprised in the period beginning with the date of business reorganisation and ending on the last day of the financial year; and C = the total number of days in the financial year in which the business reorganisation has taken place.

(4) The provisions of s. 35D, s. 35DD or s. 35DDA shall, in a case where an undertaking of the predecessor cooperative bank entitled to the deduction under the said section is transferred before the expiry of the period specified therein to a successor co-operative bank on account of business reorganisation,

apply to the successor co-operative bank in the financial years subsequent to the year of business reorganisation as they would have applied to the predecessor co-operative bank, as if the business reorganisation had not taken place.

Income from Undisclosed Sources  Unexplained

Cash Credit S.68 Where any sum is found credited in the books of the ‘A’ for any P.Y., and the ‘A’ offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the A.O., satisfactory, the sum so credited may be charged to tax as the income of the ‘A’ of that P.Y..

 Unexplained

Investment S.69 Where in the F.Y. immediately preceding the A.Y.,the ‘A’ has made investments which are not recorded in the Books of A/c and the ‘A’ offers no explanation about the nature and source of investments or the explanation offered by him is not, in the opinion of the A.O., satisfactory, the value of investments may be deemed to be the income of the ‘A’ of such F.Y..

 Unexplained

Money, etc. S.69A Where in any F.Y. the ‘A’ is found to be the owner of any money, bullion, jewellery or other valuable article and it is not recorded in the Books of A/c and the ‘A’ offers no expln or expln offered by him is not satisfactory in the opinion of the A.O., money & the value of such asset may be deemed to be the income of the ‘A’ for such F.Y..

 Investments,

etc not fully disclosed S. 69B Where in any F.Y., the ‘A’ made investments or is found to be the owner of any bullion, etc and the A.O. finds that the amount spent by the ‘A’ on acquiring investments or such asset is more than the amount recorded in books of a/c and the ‘A’ offers no expln or expln offered by him is not satisfactory in the opinion of the A.O., the excess amount may be deemed to be the income of the ‘A’ for such F.Y..

 Unexplained

Expenditure S.69C Where in any F.Y., an ‘A’ has incurred any exp and he offers no expln or expln offered by him is not satisfactory in the opinion of the A.O., such exp or part thereof, may be deemed to be the income of the ‘A’ for such F.Y.. Notwithstanding anything contained in any other provision of this Act, such exp which is deemed to be the income of the ‘A’ shall not be allowed as deduction under any head of income.

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Amount Borrowed or Repaid on Hundi S. 69DWhere any amount is borrowed on hundi or any amount due thereon is repaid otherwise than by an A/c Payee Cheque drawn on a bank, the amount so borrowed or repaid shall be deemed to be the income of such person for the P.Y. in which it is borrowed or repaid. If any sum borrowed on a hundi is deemed to be the income of any person, such sum shall not be liable to be assessed again on the basis of repayment. Amount repaid shall include the amount of interest paid on such amount.