Remission of trading liability and tax u/s 44ad
This query is : Resolved
23 November 2015
Facts of the case
Assessee has outstanding trading liability of 65 lakh. Said liability has been waived off by the creditor. As such this will be taxable u/s 41(1).
Now as the assessee is a eligible person for presumptive taxation u/s 44AD
Hence I want comments from experts whether income tax is to be computed on 65 X .08 = 5.2 lakh (by per sec 44AD)
or
In whole income of Rs. 65 lakh
Assessee has outstanding trading liability of 65 lakh. Said liability has been waived off by the creditor. As such this will be taxable u/s 41(1).
Now as the assessee is a eligible person for presumptive taxation u/s 44AD
Hence I want comments from experts whether income tax is to be computed on 65 X .08 = 5.2 lakh (by per sec 44AD)
or
In whole income of Rs. 65 lakh
23 November 2015
44AD may be opted excluding the amount of remission of liability, because it is an INCOME and not forms part of turnover/gross receipts.
24 November 2015
44AD(1) Notwithstanding anything to the contrary contained in sections 28 to 43C, in the case of an eligible assessee engaged in an eligible business............
Plain reading of this section in particular "NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN SECTIONS 28 TO 43C" I have understood that section 44AD will prevail over other section when allowing or disallowing any expenditure. Further Income will be 8% of turnover or receipt.
Now in section 41 (1) any remission of trading liability will be income of the assessee if such liability is allowed as an expenditure in any previous year.
Clearly this is contrary to section 44AD which mandates that income will be 8% of turnover.
So sir, please comment whether I am wrong or right in interpretation.
Plain reading of this section in particular "NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN SECTIONS 28 TO 43C" I have understood that section 44AD will prevail over other section when allowing or disallowing any expenditure. Further Income will be 8% of turnover or receipt.
Now in section 41 (1) any remission of trading liability will be income of the assessee if such liability is allowed as an expenditure in any previous year.
Clearly this is contrary to section 44AD which mandates that income will be 8% of turnover.
So sir, please comment whether I am wrong or right in interpretation.
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