Section 44ad

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This query is : Resolved

tony (Querist)

26 February 2012 Dear sir,
I am a tyre dealer, and want to opt sec. 44AD in AY 2011-12.
At the time of inception, I had to deposit security amount of Rs. 5 lacs, to obtain tyre dealership, at my principal company. And the tyre company paying interest(after deducting TDS) quarterly on that security amount on the following basis -
1. for business performance below the average - @ 6% per annum.
2. for average business performance - @ 12% per annum.
3. for business performance above average - @ 18% per annum.
Hereby, I want to know that, if I opt the Sec. 44AD then, whether the said interest would be deemed as inclusive of 8% profit
or
I have to show it in the head of income from other sources besides the profit of 8%.
Please advise me.

CA PARAS BAFNA

CA PARAS BAFNA (Expert)

26 February 2012 The Interest Received can be set off against interest payable, if any, towards the amount deposited.
.
The interest on deposit being received is dependent on the turnover/performance.
.
The deposit is incidental and necessary to retain the dealership.
.
The turnover has been achieved due to the fact only that deposit has been paid.
.
The interest so receivable is during the normal course of the business and can be considered as forming part of the business income for the purpose of Section 44AD.
.

tony

tony (Querist)

26 February 2012 In the above case, if my sales are Rs. 45 lacs and total interest received during the FY is Rs. 18000/-.
What would be my net profit u/s section 44AD among the followings -
1. Rs. 360000/- only (calculated @ 8% on total sales.
or
2. Rs. 360000/- + 18000/- = 378000/-
or
3. Rs. 360000/- as net profit
Rs. 18000/- to show in the head of income from other sources.