Sec 44ad
This query is : Resolved
Querist : Anonymous
Querist :
Anonymous
(Querist)
18 July 2012
The amended sec 44AD as per Finance Act 2012 contains an exclusion with regard to "person carrying on any agency business".
Can anyone clarify what exactly is this agency business mean.
Does that include an assessee dealing exclusively in products of a particular manufacturer or more manufacturers. For example Mr X dealing exclusively with the products manufactured by say Johnson & Johnson or/& Hindustan unilever.
Can anyone clarify what exactly is this agency business mean.
Does that include an assessee dealing exclusively in products of a particular manufacturer or more manufacturers. For example Mr X dealing exclusively with the products manufactured by say Johnson & Johnson or/& Hindustan unilever.
18 July 2012
Here dealing in single product or multiple product is not the deciding factor. Necessarily ,there should exist a principal and agent relationship so as to decide whether the business is done under 'agency' or otherwise.
Querist : Anonymous
Querist :
Anonymous
(Querist)
18 July 2012
Sir, Thank You for your reply. But my query is whether such person (Mr X in the above example) would be covered under the clause "person carrying on any agency business"
23 July 2025
To address your query regarding **Section 44AD** and the exclusion for a **"person carrying on any agency business"**, let me break down the concept for better clarity:
### 1. **Meaning of "Agency Business" under Section 44AD (as per Finance Act 2012)**:
The key distinction here is **the principal-agent relationship**. Section 44AD excludes businesses where the taxpayer is essentially acting as an **agent** for another business or principal. In such cases, the taxpayer is not considered to be running a **normal trading business** where the income is subject to the presumptive taxation under Section 44AD.
### 2. **Does It Include Dealing Exclusively with a Particular Manufacturer?**
In your example:
* If Mr. X is dealing exclusively with products of **Johnson & Johnson** or **Hindustan Unilever** (or similar brands), it would **not automatically qualify as agency business** unless there is a **principal-agent relationship**.
* A **principal-agent relationship** exists if Mr. X has been authorized by the manufacturers to sell their products on their behalf, without taking ownership of the goods. In such a case, **Mr. X would be an agent** rather than a **trader**.
**Examples of Agency Business:**
* If Mr. X is receiving a commission for selling the products of the manufacturers, and is not taking the title (ownership) of goods, it **would qualify as agency business**.
* If Mr. X buys goods from manufacturers and resells them, taking ownership of the goods before selling, then **it would not qualify as agency business**. In this case, Mr. X would be considered a **dealer or trader**, and **Section 44AD would be applicable**.
### 3. **Key Factors to Determine "Agency Business":**
* **Ownership of goods**: In agency business, the **agent** typically does not take ownership of goods. Instead, they facilitate the sale on behalf of the principal (manufacturer) and earn a commission.
* **Principal-Agent Relationship**: The **principal** (manufacturer) and **agent** (Mr. X) must have a clear relationship where the agent is authorized to sell goods or services on behalf of the principal.
* **Commission-based model**: If Mr. X is paid based on the **sale of products** without actually owning them, then the business **would qualify as an agency business**.
### 4. **Conclusion for Mr. X**:
* **If Mr. X buys the products from the manufacturer and resells them**, **Section 44AD would likely apply** because he is not functioning as an agent but as a **dealer or trader**.
* **If Mr. X only acts as a middleman (agent)**, earning commission or handling the sales on behalf of the manufacturer, **Section 44AD would not apply**, and he would be excluded from presumptive taxation under Section 44AD.
### **Final Answer**:
* **Mr. X** in your example would **only be covered under the exclusion** for **agency business** if he is not taking ownership of the products but instead **acting purely as an agent**, earning a commission for facilitating sales. If he is taking ownership of the products, then he would not be excluded and would fall under **Section 44AD** for presumptive taxation.
### 1. **Meaning of "Agency Business" under Section 44AD (as per Finance Act 2012)**:
The key distinction here is **the principal-agent relationship**. Section 44AD excludes businesses where the taxpayer is essentially acting as an **agent** for another business or principal. In such cases, the taxpayer is not considered to be running a **normal trading business** where the income is subject to the presumptive taxation under Section 44AD.
### 2. **Does It Include Dealing Exclusively with a Particular Manufacturer?**
In your example:
* If Mr. X is dealing exclusively with products of **Johnson & Johnson** or **Hindustan Unilever** (or similar brands), it would **not automatically qualify as agency business** unless there is a **principal-agent relationship**.
* A **principal-agent relationship** exists if Mr. X has been authorized by the manufacturers to sell their products on their behalf, without taking ownership of the goods. In such a case, **Mr. X would be an agent** rather than a **trader**.
**Examples of Agency Business:**
* If Mr. X is receiving a commission for selling the products of the manufacturers, and is not taking the title (ownership) of goods, it **would qualify as agency business**.
* If Mr. X buys goods from manufacturers and resells them, taking ownership of the goods before selling, then **it would not qualify as agency business**. In this case, Mr. X would be considered a **dealer or trader**, and **Section 44AD would be applicable**.
### 3. **Key Factors to Determine "Agency Business":**
* **Ownership of goods**: In agency business, the **agent** typically does not take ownership of goods. Instead, they facilitate the sale on behalf of the principal (manufacturer) and earn a commission.
* **Principal-Agent Relationship**: The **principal** (manufacturer) and **agent** (Mr. X) must have a clear relationship where the agent is authorized to sell goods or services on behalf of the principal.
* **Commission-based model**: If Mr. X is paid based on the **sale of products** without actually owning them, then the business **would qualify as an agency business**.
### 4. **Conclusion for Mr. X**:
* **If Mr. X buys the products from the manufacturer and resells them**, **Section 44AD would likely apply** because he is not functioning as an agent but as a **dealer or trader**.
* **If Mr. X only acts as a middleman (agent)**, earning commission or handling the sales on behalf of the manufacturer, **Section 44AD would not apply**, and he would be excluded from presumptive taxation under Section 44AD.
### **Final Answer**:
* **Mr. X** in your example would **only be covered under the exclusion** for **agency business** if he is not taking ownership of the products but instead **acting purely as an agent**, earning a commission for facilitating sales. If he is taking ownership of the products, then he would not be excluded and would fall under **Section 44AD** for presumptive taxation.
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