Aplicability of section 44 AD -need clarification

Tax queries 565 views 2 replies

Dr.Jyothish Vijay

214 Points Joined July 2010

Background: See the wordings of the two acts:

44 AD

(6) The provisions of this section, notwithstanding anything contained in the foregoing provisions, shall not apply to—

(i) a person carrying on profession as referred to in sub-section (1) of section 44AA;

(ii) a person earning income in the nature of commission or brokerage; or

(iii) a person carrying on any agency business

44AA. (1) Every person carrying on legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or any other profession as is notified by the Board in the Official Gazette shall keep and maintain such books of account and other documents as may enable the Assessing Officer to compute his total income in accordance with the provisions of this Act.

These are relevant portions of the bare act. If a non-professonal has set up a nursing home. It is a profession that is defined under 44 AA (1)(nursing fileds maybe considered as coming under the field of "medicine"). One could argue that the non-professional is not "carrying" out the medical profession here ie he himself is not carrying out and he merely has setup an enterprise which in turn will carry out the profession....YES...one could argue like this.

I have seen multiple tribunal judgements and court judgements like this wherein it has been ruled that even those establishments run by doctors themselves should be considered as a business. But this particular point is the regarding the applicability of 44 AD. Subsection (6) says that a person engaged in profession defined in 44 AA(1) cannot use 44 AD.

Q.1Therefore even if i being a doctor run a grocery store, am i or am i not eligible for using 44 AD?

Q.2, If a non professional is running a business set up which is in the medical field ( a nursing home), can they adopt 44 AD? The judgements have termed nursing homes as a commercial set up and as a business. Saying so doesn't automatically impart 44 AD benefits. ITD could say-yes "its a business, but still not eligible for 44 AD because the person is carrying out a profession mentioned in 44 A (1)!" Of course...there is a scope for fighting this out (if it comes to that). But i want the opinion of experts here regarding applicability of 44 AD in this scenario-any court judgements or better yet an FAQ saying so by the ITD themselves

Q.3 Can i being a doctor, run a diagnostic centre (myself not being the expert; i will hire professionals for that) and claim it as "business income"(atleast)?

Replies (2)

Kapadia Pravin

17264 Points Joined December 2018

1. You are eligible under 44AD in so far as your Grocery income is concerned. 44AD (6) says that in so far as your income under 44AA (1) is concerned, you won't be get 44AD .

2. Nursing home in income may be treated as 44ADA income.

3.this will depend upon the form in which you receive money from diagnostic doctor. is it Commission, percentage of collection, monthly fixed charges etc but it Will be either business income or income from other sources.

Dr.Jyothish Vijay

214 Points Joined July 2010

Please understand that, i need to understand the legal nuances around the tax aspects elaborated in question no:1. Only after that can i get involved in the work

1. You said..."so far as your income under 44 AA (1) is concerned, you won't be get 44 AD"

The fact that i even asked this question was because CA's were giving differing views in this regard. You said that a proffessional cannot avail 44 AD for his income under 44 AA(1). This seems reasonable-but still its an interpretation only. Me too held your interpretation until few days back when someone gave the opposite interpretation. I don't want to start the busineess, adopt 44 AD and then get into a soup later on. Thats why i am asking. Do you have any official document, like for eg a document from ITD or a court judgement whcih says a professional can also adopt 44 AD and that the exception statted in 44 AD (6) concerns only to those income coming from 44 AA (1)?

https://www.caclubindia.com/articles/simultaneous-use-of-sec-44ad-and-sec-44ada-38657.asp

You can see above to understand what I was talking about. It's from this website itself

2Q:2. You said the section would be 44 ADA. Are you sure? The nursing clinic is run by someone who is NOT a proffessional. Can they adopt 44 ADA? (if not 44 ADA, can they adopt 44 AD?)

3Q:3. I own the clinic. The cash counter collects the money and that money is mine. I pay the proffessional who does the scanning (who is a radiologist) with proffessional fees for the work he does. I happen to be a doctor. But i am not qualified to do the scans