I returned income for my trucks under s.44AE. The officer says my real income was higher and has taxed the difference. Can he?
No, not on the facts of this case. The High Court held that the words 'shall be deemed' in s.44AE indicate a legislative intent that tax is chargeable on the presumptive income computed under sub-section (2). The presumptive income, which may be less or more than the truth, is what is taxable; such an assessee is not required to maintain books at all; and so even where the actual income in a given case is more than the figure computed under sub-section (2), it cannot be taxed. The addition of Rs 29,21,738 made under the head income from other sources was deleted, and the Revenue's appeal was dismissed summarily. Two limits matter. The officer had identified no other source in the assessment order, and it was not disputed that s.44AE applied. A genuinely separate source of income remains taxable in the ordinary way.
Decided by the High Court (Allahabad High Court; Ashok Bhushan J and Prakash Krishna J) on 2012-04-26, reported as Income Tax Appeal No. 74 of 2009. It bears on section 44AE, section 56, section 44AA of the Income Tax Act 1961, in Presumptive Taxation & Audit and Assessment & Scrutiny matters.
This is the clearest High Court statement that s.44AE is a complete substitute for computation and not a floor from which the officer may work upwards. It answers the very common assessment technique of accepting that s.44AE applies and then adding an amount under s.56 on the footing that the assessee could not explain how he met his household or business expenses. The reasoning also carries across to the wider presumptive scheme, because the same 'shall be deemed' language and the same relief from maintaining books appear in s.44AD and s.44ADA. What it does not do is protect income from a source outside the goods carriage business, and it does not help an assessee who wants to declare less than the presumptive figure, which s.44AE permits only on books of account and audit.
Binding within that High Court's jurisdiction. Persuasive elsewhere.
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For assessment year 2001-02 the assessee disclosed income under s.44AE, stating that he possessed only eight trucks. The Assessing Officer rejected the plea under s.44AE on the ground that the assessee had income from other sources, and made additions because the assessee had not been able to reply as to how he had been meeting his daily expenses; the substantial question before the High Court concerned an addition of Rs 29,21,738. The Commissioner (Appeals), by order dated 8 February 2007, partly allowed the appeal, and the Tribunal dismissed the Revenue's appeal by order dated 3 September 2008. The Revenue appealed to the High Court. It was not in dispute that the assessee had eight trucks, and the standing counsel for the department did not dispute that the provisions of s.44AE applied.
The Revenue's appeal was dismissed summarily, no substantial question of law being found to arise. The Commissioner (Appeals) and the Tribunal were justified in deleting the additions and in holding that the amount could not be treated as income from other sources. Even where the actual income of such an assessee in a given case is more than the income computed under sub-section (2) of s.44AE, it cannot be taxed.
Section 44AE, inserted by the Finance Act 1994, provides a special method for computing the profits and gains of the business of plying, hiring or leasing goods carriages, and the income chargeable under the head profits and gains of business or profession is deemed to be the aggregate of the profits from all the goods carriages owned in the previous year, computed under sub-section (2). The Court treated the words 'shall be deemed' as the key words, indicative of a legislative intent that tax is chargeable on the presumptive income so computed. It set out departmental Circular No. 684 dated 10 June 1994, which described the section as providing a method of estimating income from the business of plying, hiring or leasing trucks; that circular is set out as a block extract and is not the Court's own language. Rejecting the standing counsel's submission that the assessee had to explain the excess income found, the Court said that the very purpose of a provision like s.44AE is to provide hassle free proceedings, that the presumptive income, which may be less or more, is taxable, that such an assessee is not required to maintain any account books, and that this being so, even if the actual income in a given case is more than the income calculated under sub-section (2), it cannot be taxed. Since it was not in dispute that s.44AE applied, and no other source had been mentioned in the assessment order, the deletion was upheld.
The words 'shall be deemed' are the keys words and they are indicative of the legislative intent that the tax shall be chargeable on presumptive income, computed as per sub-section (2) of the Section 44AE of the Act.
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Handle my notice → Ask a CA on WhatsAppNo, not on the facts of this case. The High Court held that the words 'shall be deemed' in s.44AE indicate a legislative intent that tax is chargeable on the presumptive income computed under sub-section (2). The presumptive income, which may be less or more than the truth, is what is taxable; such an assessee is not required to maintain books at all; and so even where the actual income in a given case is more than the figure computed under sub-section (2), it cannot be taxed. The addition of Rs 29,21,738 made under the head income from other sources was deleted, and the Revenue's appeal was dismissed summarily. Two limits matter. The officer had identified no other source in the assessment order, and it was not disputed that s.44AE applied. A genuinely separate source of income remains taxable in the ordinary way. This was decided by the High Court (Allahabad High Court; Ashok Bhushan J and Prakash Krishna J) and bears on section 44AE, section 56, section 44AA of the Income Tax Act 1961. It is reported as Income Tax Appeal No. 74 of 2009. This is the clearest High Court statement that s.44AE is a complete substitute for computation and not a floor from which the officer may work upwards. It answers the very common assessment technique of accepting that s.44AE applies and then adding an amount under s.56 on the footing that the assessee could not explain how he met his household or business expenses. The reasoning also carries across to the wider presumptive scheme, because the same 'shall be deemed' language and the same relief from maintaining books appear in s.44AD and s.44ADA. What it does not do is protect income from a source outside the goods carriage business, and it does not help an assessee who wants to declare less than the presumptive figure, which s.44AE permits only on books of account and audit. If it applies to you, the first step is this: Check that the presumptive figure has been computed correctly for every vehicle and every month or part of a month, and that the number of goods carriages did not exceed the statutory limit at any time in the year.
For assessment year 2001-02 the assessee disclosed income under s.44AE, stating that he possessed only eight trucks. The Assessing Officer rejected the plea under s.44AE on the ground that the assessee had income from other sources, and made additions because the assessee had not been able to reply as to how he had been meeting his daily expenses; the substantial question before the High Court concerned an addition of Rs 29,21,738. The Commissioner (Appeals), by order dated 8 February 2007, partly allowed the appeal, and the Tribunal dismissed the Revenue's appeal by order dated 3 September 2008. The Revenue appealed to the High Court. It was not in dispute that the assessee had eight trucks, and the standing counsel for the department did not dispute that the provisions of s.44AE applied. The matter was decided on 2012-04-26 by the High Court (Allahabad High Court; Ashok Bhushan J and Prakash Krishna J). On those facts the High Court held as follows. The Revenue's appeal was dismissed summarily, no substantial question of law being found to arise. The Commissioner (Appeals) and the Tribunal were justified in deleting the additions and in holding that the amount could not be treated as income from other sources. Even where the actual income of such an assessee in a given case is more than the income computed under sub-section (2) of s.44AE, it cannot be taxed.
Section 44AE, inserted by the Finance Act 1994, provides a special method for computing the profits and gains of the business of plying, hiring or leasing goods carriages, and the income chargeable under the head profits and gains of business or profession is deemed to be the aggregate of the profits from all the goods carriages owned in the previous year, computed under sub-section (2). The Court treated the words 'shall be deemed' as the key words, indicative of a legislative intent that tax is chargeable on the presumptive income so computed. It set out departmental Circular No. 684 dated 10 June 1994, which described the section as providing a method of estimating income from the business of plying, hiring or leasing trucks; that circular is set out as a block extract and is not the Court's own language. Rejecting the standing counsel's submission that the assessee had to explain the excess income found, the Court said that the very purpose of a provision like s.44AE is to provide hassle free proceedings, that the presumptive income, which may be less or more, is taxable, that such an assessee is not required to maintain any account books, and that this being so, even if the actual income in a given case is more than the income calculated under sub-section (2), it cannot be taxed. Since it was not in dispute that s.44AE applied, and no other source had been mentioned in the assessment order, the deletion was upheld. In the words reproduced by the source cited on this page: "The words 'shall be deemed' are the keys words and they are indicative of the legislative intent that the tax shall be chargeable on presumptive income, computed as per sub-section (2) of the Section 44AE of the Act." The decision followed or applied CIT v. Anil Kumar Arya (2009) 310 ITR 205 — referred to in the judgment.
It was decided by the High Court on 2012-04-26 and is reported as Income Tax Appeal No. 74 of 2009. Binding within that High Court's jurisdiction. Persuasive elsewhere. A High Court decision binds the assessing officer, the Commissioner (Appeals) and the Income Tax Appellate Tribunal within that state, and is persuasive elsewhere. If your assessment is in a different jurisdiction, check whether your own High Court has taken the same view before relying on it. On section 44AE, section 56, section 44AA, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. The Revenue's appeal was dismissed summarily, no substantial question of law being found to arise. The Commissioner (Appeals) and the Tribunal were justified in deleting the additions and in holding that the amount could not be treated as income from other sources. Even where the actual income of such an assessee in a given case is more than the income computed under sub-section (2) of s.44AE, it cannot be taxed. It arises in Presumptive Taxation & Audit and Assessment & Scrutiny matters, on section 44AE, section 56, section 44AA of the Income Tax Act 1961, and was decided by Allahabad High Court; Ashok Bhushan J and Prakash Krishna J. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Read the assessment order for the words the officer used. If he has accepted that s.44AE applies and has then added an amount without naming a source, that is the position this case addresses. Make the officer identify the source. The addition here failed partly because no other source was mentioned in the assessment order. Do not extend this beyond the goods carriage business. Income from a genuinely different source, such as interest, rent or a second business, is assessable in the ordinary way and s.44AE gives no shelter. Use the current rates, not those in the reported year. The per-vehicle amounts and the treatment of heavy goods vehicles have been changed since, and the library's entry on the CBDT clarification of 14 August 2019 sets out the position on gross vehicle weight. If you actually wish to return less than the presumptive amount, remember s.44AE allows it only if you keep books of account and get them audited.
Still good law. No decision doubting or overruling it was located. The section itself has changed since assessment year 2001-02: the per-vehicle amounts have been revised more than once, and with effect from assessment year 2019-20 a heavy goods vehicle is charged at a rate per ton of gross vehicle weight, which the CBDT clarification of 14 August 2019 explains. The limit on the number of goods carriages and the right under s.44AE to declare lower profits only on books of account and audit must be checked for the year in issue. The holding that actual income above the presumptive figure cannot be taxed was confirmed here by exact-phrase retrieval of the Court's own words, because it is counter-intuitive and is frequently reported the other way round. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
The addition is described in the substantial question as Rs 29,21,738 made under s.56(1); the body of the judgment records only that the Assessing Officer made certain additions on the ground that the assessee had not been able to explain how he was meeting his daily expenses. No law-report citation is printed on the source consulted. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The Revenue's appeal was dismissed summarily, no substantial question of law being found to arise. The Commissioner (Appeals) and the Tribunal were justified in deleting the additions and in holding that the amount could not be treated as income from other sources. Even where the actual income of such an assessee in a given case is more than the income computed under sub-section (2) of s.44AE, it cannot be taxed.
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