Question ID : 39343

Applicability of Section 44AD or Section 44AE

1) One of our client is in the business of Goods Transport. 2) He owns 4 vehicles for Transport of Goods. His 40% of business comes from his own vehicle and rest 60% from hiring the vehicle from other Transporter. In short he uses his own vehicles as well as vehicles from other transporter for his customer. 3) His total turnover is between 1 cr to 2 cr. 4) He receives transport charges from customer and pays to other transporter as expenes. He is not an agent between his customer and other transporter. Request you to guide whether, he is eligible for presumptive taxation under Section 44 AD or Section 44AE.

Hi Mr. Dayanand, 1) As per the facts outlined in the query, the total business turnover has to be bifurcated between turnover from own vehicles (40%) and turnover from hired vehicles (60%). 2) Business turnover from own vehicle (40%) would be qualified for the presumptive taxation scheme under section 44AE as the taxpayer owns not more than 10 goods vehicles during the year. 3) However, in connection with the business turnover from hired vehicles (60%), two views are possible; (a) One view is that the business turnover from hired vehicles would not be allowed to claim the benefit of presumptive taxation under section 44AD of the Act. Reason being, section 44AD excludes the business of plying, hiring and leasing of goods vehicle to fall under section 44AD. Therefore, as the taxpayer is engaged in the business of hiring of goods vehicle, it would not be allowed to claim 44AD to the extent of turnover from hired vehicles (60% turnover). (b) Another view is that the taxpayer would be allowed to claim the presumptive taxation under section 44AD to the extent of turnover from hired vehicles (60% turnover). This is due to the fact that section 44AD excludes hiring business from its purview which is "referred to in section 44AE". Section 44AE refers to the business of hiring through "owned vehicles". As the taxpayer is carrying hiring business through hired vehicles also, such business would not fall under section 44AE and accordingly could come under the purview of section 44AD. Therefore, taxpayer can claim 44AD benefit to the extent of 60% turnover from the hired vehicles. It is my personal opinion that second view is more appropriate reading of interplay between section 44AD and section 44AE.