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In this advance learning we will learn about various practical aspects of the provisions of section 44AA.
1. Applicability of the provisions relating to maintenance of books of account:
Illustration
Mr. Kumar is a “Film artist”. However, he does not maintain any books of account as per the provisions of section 44AA in respect of his profession since as per his views the provisions of section 44AA relating to maintenance of books of account do not apply to persons engaged in any profession. Is he correct?
Solution
The provisions relating to maintenance of books of account can be classified as follows:
Provisions relating to a person engaged in specified profession.
Provisions relating to a person engaged in non-specified profession.
Provisions relating to a person engaged in business.
As per section 44AA and rule 6F, the profession of “Film artist” is a specified profession and, hence, the provisions of section 44AA are applicable to him and, hence, he is either liable to maintain books of account prescribed by rule 6F or such books of account and other documents as may enable the Assessing Officer to compute his taxable income under the Income-tax Act depending upon the details of his gross receipts from such profession for the last three years immediately preceding the previous year. Thus, Mr. Kumar is not correct.
Illustration
Miss Khushali is a teacher. She does not know whether the provisions of section 44AA relating to maintenance of books of account are applicable to her or not. Hence, she approaches you for advice. As a consultant, advise Miss Khushali in this regard.
Solution
The provisions relating to maintenance of books of account can be classified as follows:
Provisions relating to a person engaged in specified profession.
Provisions relating to a person engaged in non-specified profession.
Provisions relating to a person engaged in business.
As per section 44AA and rule 6F, the profession of “Teacher” is a non-specified profession and, hence, the provisions of section 44AA are applicable to her and she is either liable to maintain such books of account and other documents as may enable the Assessing Officer to compute her taxable income under the Income-tax Act or would not be liable to maintain any books of account, depending upon the details of her gross receipts from such profession for the last three years immediately preceding the previous year.
Illustration
Mr. Raja is running a proprietary concern under the name of Raja & Co. He does not know whether the provisions of section 44AA relating to maintenance of books of account are applicable to him or not. Hence, he approaches you for advice. As a consultant, advise Mr. Raja in this regard.
Solution
The provisions relating to maintenance of books of account can be classified as follows:
Provisions relating to a person engaged in specified profession.
Provisions relating to a person engaged in non-specified profession.
Provisions relating to a person engaged in business.
The provisions relating to maintenance of books of account as given under section 44AA are applicable to a person who is carrying on any business and, hence, the provisions of section 44AA are applicable to Mr. Raja and he is either liable to maintain such books of account and other documents as may enable the Assessing Officer to compute his taxable income under the Income-tax Act or would not be liable to maintain any books of account, depending upon the details of his income and total turnover/gross receipts from such business for the last three years immediately preceding the previous year.
2. Provisions in case of an assessee carrying on a specified profession, whose gross receipt exceeds Rs. 1,50,000 :
Illustration
Mr. Kapoor is a company secretary. The details of his annual gross receipts from such profession for the past three years are as follows:
Financial year 2012-13: Rs. 8,84,000
Financial year 2011-12: Rs. 6,52,000
Financial year 2010-11: Rs. 5,25,000
He does not know which books of account he is liable to maintain and, hence, approaches you for advice. As a consultant, advise Mr. Kapoor in this regard.
Solution
Every person carrying on specified profession, whose gross receipt from such profession exceeds Rs. 1,50,000 in all the three years immediately preceding the previous year (in case of new profession if the gross receipts of the first year are likely to exceed Rs. 1,50,000), shall maintain such books of account and other documents as are prescribed by rule 6F.
The profession of company secretary is covered under the definition of specified professions. Hence, a person engaged in the profession of company secretary has to maintain the books of account specified under rule 6F if the gross receipt from such profession exceeds Rs. 1,50,000 in all the three years immediately preceding the previous year.
In the given case, the gross receipts of Mr. Kapoor of the preceding three years exceed Rs. 1,50,000 and, hence, he has to maintain books specified under rule 6F. In other words, Mr. Kapoor has to maintain following books of account:
(i) A cash book, (ii) A journal, in case of mercantile system, (iii) A ledger, (iv) Carbon copies of bills (whether machine numbered or, otherwise serially numbered) exceeding Rs. 25, issued by the person and carbon copies or counterfoils of machine numbered or otherwise serially numbered receipts issued by the person, (v) Original bills/receipts issued to him in respect of expenditure (payment vouchers if bills/receipts are not issued and amount of expenditure does not exceed Rs. 50).
Illustration
Mr. Kapoor is a Surgeon. The details of his annual gross receipts from such profession for the past three years are as follows:
Financial year 2012-13 : Rs. 10,52,000
Financial year 2011-12 : Rs. 7,84,000
Financial year 2010-11 : Rs. 5,25,000
He does not know which books of account he is liable to maintain and, hence, approaches you for advice. As a consultant advise Mr. Kapoor in this regard.
**
Every person carrying on specified profession, whose gross receipt from such profession exceeds Rs. 1,50,000 in all the three years immediately preceding the previous year (in case of new profession if the gross receipts of the first year are likely to exceed Rs. 1,50,000), shall maintain such books of account and other documents as are prescribed by rule 6F.
The medical profession (i.e., practitioner of any system of medicine – physicians, surgeons, dentists, pathologists, radiologists, vaids, hakims, etc.) is covered under the definition of specified professions. Hence, a person engaged in the medical profession has to maintain the books of account specified under rule 6F if the gross receipt from such profession exceeds Rs. 1,50,000 in all the three years immediately preceding the previous year.
In the given case the gross receipts of Mr. Kapoor for the preceding three years exceeded Rs. 1,50,000 and, hence, he has to maintain books of account specified under rule 6F. In other words, Mr. Kapoor has to maintain following books of account:
(i) A cash book, (ii) A journal in case of mercantile system, (iii) A ledger, (iv) Carbon copies of bills (whether machine numbered or, otherwise serially numbered) exceeding Rs. 25, issued by the person and carbon copies or counterfoils of machine numbered or otherwise serially numbered receipts issued by the person, (v) Original bills/receipts issued to him in respect of expenditure (payment vouchers if bills/receipts are not issued and amount of expenditure does not exceed Rs. 50).
In addition to above, Mr. Kapoor has to maintain following items since he is engaged in the medical profession:
(i) A daily case register in prescribed form (i.e., Form 3C) and (ii) An inventory under broad heads as on the first and last day of the previous year of the stock of drugs, medicines and other consumable accessories used for the purpose of his profession.
3. Place of maintenance of books of account:
Illustration
Mr. Raja is an interior decorator. The details of his annual gross receipts from such profession for the past three years are as follows:
Financial year 2012-13: Rs. 6,84,000
Financial year 2011-12: Rs. 4,48,000
Financial year 2010-11: Rs. 3,52,000
His accountant has informed Mr. Raja that he is liable to maintain the books of account prescribed by rule 6F. However, he does not know the place where such books of account should be kept and maintained by him and, hence, approaches you for advice. As a consultant, advise him in this regard.
Solution
The provisions relating to place of maintenance of books of account are as follows:
The books of account and documents prescribed by rule 6F (other than those relating to previous year which has come to an end) should be kept and maintained by the person at the place where he is carrying on the profession.
Where the profession is carried on in more than one place, the books of account shall be kept at the principal place of his profession.
However, if the person keeps and maintains separate books of account in respect of each place where the profession is carried on, such books of account and other documents may be kept and maintained at the respective places at which the profession is carried on.
The aforesaid books of account and documents should be kept and maintained for a period of 6 years from the end of the relevant assessment year.
Where, however, the assessment in relation to any assessment year has been reopened under section 147, all the books of account and other documents which were kept and maintained at the time of reopening of the assessment should continue to be so kept and maintained till the assessment so reopened has been completed.
Hence, considering the above provisions, Mr. Raja is liable to maintain books of account prescribed by rule 6F at the place where he carries on his profession of interior decoration.
Illustration
Mr. Raja is an architect. He carries on his profession at two different places situated in the same city. Out of these two places, he declares one place as his principal place of business. However, he does not maintain any separate books of account for these two places. The details of his annual gross receipts from these two places for the past three years are as follows:
Financial year 2012-13: Rs. 5,84,000
Financial year 2011-12: Rs. 3,48,000
Financial year 2010-11: Rs. 2,50,000
His accountant has informed Mr. Raja that he is liable to maintain the books of account as are prescribed by rule 6F. However, he does not know the place where such books of account should be kept and maintained by him and, hence, approaches you for advice. As a consultant, advise him in this regard.
Solution
The provisions relating to place of maintenance of books of account are as follows:
The books of account and documents prescribed by rule 6F (other than those relating to previous year which has come to an end) should be kept and maintained by the person at the place where he is carrying on the profession.
Where the profession is carried on in more than one place, the books of account shall be kept at the principal place of his profession.
However, if the person keeps and maintains separate books of account in respect of each place where the profession is carried on, such books of account and other documents may be kept and maintained at the respective places at which the profession is carried on.
The aforesaid books of account and documents should be kept and maintained for a period of 6 years from the end of the relevant assessment year.
Where, however, the assessment in relation to any assessment year has been reopened under section 147, all the books of account and other documents which were kept and maintained at the time of reopening of the assessment should continue to be so kept and maintained till the assessment so reopened has been completed.
Hence, considering the above discussed provisions, Mr. Raja is liable to maintain books of account prescribed by rule 6F at the principal place of his profession of architecture.
Illustration
Mr. Raja is an architect. He carries on his profession at two different places. Out of these two places, he declares one place as his principal place of business. Further, he maintains separate books of account for these two places. The details of his annual gross receipts from these two places for the past three years are as follows:
Financial year |
Annual gross receipts from principal place of business |
Annual gross receipts from other place of business |
2012-13 |
Rs. 3,25,000 |
Rs. 2,50,000 |
2011-12 |
Rs. 2,84,000 |
Rs. 2,05,000 |
2010-11 |
Rs. 1,98,000 |
Rs. 1,75,000 |
His accountant informed Mr. Raja that he is liable to maintain the books of account prescribed by rule 6F. However, he does not know the place where such books of account should be kept and maintained by him and, hence, he approaches you for advice. As a consultant, advise him in this regard.
Solution
The provisions relating to place of maintenance of books of account are as follows:
The books of account and documents prescribed by rule 6F (other than those relating to previous year which has come to an end) should be kept and maintained by the person at the place where he is carrying on the profession.
Where the profession is carried on in more than one place, the books of account shall be kept at the principal place of his profession.
However, if the person keeps and maintains separate books of account in respect of each place where the profession is carried on, such books of account and other documents may be kept and maintained at the respective places at which the profession is carried on.
The aforesaid books of account and documents should be kept and maintained for a period of 6 years from the end of the relevant assessment year.
Where, however, the assessment in relation to any assessment year has been reopened under section 147, all the books of account and other documents which were kept and maintained at the time of reopening of the assessment should continue to be so kept and maintained till the assessment so reopened has been completed.
Hence, considering the above discussed provisions Mr. Raja should maintain books of account prescribed by rule 6F in respect of such two different places of his profession of architecture. However, he can keep and maintain such books of account at the principal place of his profession.
4. Provisions in case of an assessee carrying on a specified profession, whose gross receipt does not exceed Rs. 1,50,000 :
Illustration
Mr. Raja is an engineer. The details of his annual gross receipts for the past three years are as follows:
Financial year 2012-13: Rs. 5,84,000
Financial year 2011-12: Rs. 3,48,000
Financial year 2010-11: Rs. 1,48,000
However, he does not know which books of account he is liable to maintain as per the provisions of section 44AA and, hence, approaches you for advice. As a consultant, advise Mr. Raja in this regard.
Solution
In case of person carrying on specified profession whose gross receipt from such profession does not exceed Rs. 1,50,000 in any one of the three years immediately preceding previous year (in case of new profession the likely receipt of first year does not exceed Rs. 1,50,000), shall keep and maintain such books of account and other documents as may enable the Assessing Officer to compute his total income.
The profession of engineering is covered under the definition of specified professions. Hence, a person engaged in the profession of engineering has to maintain such books of account and other documents as may enable the Assessing Officer to compute his total taxable income if the gross receipt from such profession does not exceed Rs. 1,50,000 in any one of the three years immediately preceding previous year (in case of new profession the likely receipt of first year does not exceed Rs. 1,50,000).
In the given case, the gross receipt of Mr. Raja for the financial year 2010-11 was below Rs. 1,50,000 and, hence, he has to maintain such books of account and other documents as may enable the Assessing Officer to compute his total taxable income under the Income-tax Act.
5. Provisions in case of an assessee carrying on a non-specified profession or any business, income/gross receipt of which exceeds Rs. 1,20,000/Rs. 10,00,000 :
Illustration
Mr. Raja is a teacher. The details of his annual gross receipts for the past three years are as follows:
Financial year 2012-13: Rs. 12,84,000
Financial year 2011-12: Rs. 8,48,000
Financial year 2010-11: Rs. 6,52,000
However, his actual income for the past three years is below Rs. 1,20,000. He does not know which books of account he is liable to maintain as per the provisions of section 44AA and hence, approaches you for advice. As a consultant, advise Mr. Raja in this regard.
Solution
If a person is carrying on a non-specified profession or any business, income from which business or profession exceeds Rs. 1,20,000 or his total sales/gross receipts from such business or profession exceed Rs. 10,00,000, in any one of the three years immediately preceding the previous year (in case of new business or profession, income/gross receipt of that previous year is likely to exceed above limit), then such person shall keep and maintain such books of account and other documents as may enable the Assessing Officer to compute his total income.
The profession of teacher is covered under the definition of non-specified professions. Hence, a person engaged in the profession of teaching has to maintain such books of account and other documents as may enable the Assessing Officer to compute his total taxable income, if income from such profession exceeds Rs. 1,20,000 or his gross receipts from such profession exceed Rs. 10,00,000, in any one of the three years immediately preceding the previous year (in case of new profession, income/gross receipt of that previous year is likely to exceed above limit).
In the given case the gross receipts of Mr. Raja for the financial year 2012-13 exceed Rs. 10,00,000 and, hence, he has to maintain such books of account and other documents as may enable the Assessing Officer to compute his total taxable income under the Income-tax Act, even though his actual income for the past three years is below Rs. 1,20,000.
Illustration
Mr. Raja is a teacher. The details of his annual gross receipts for the past three years are as follows:
Financial year 2012-13: Rs. 9,84,000
Financial year 2011-12: Rs. 7,48,000
Financial year 2010-11: Rs. 6,52,000
However, his actual income for all the three years exceeded Rs. 1,20,000. He does not know about which books of account he is liable to maintain as per the provisions of section 44AA and, hence, approaches you for advice. As a consultant, advise Mr. Raja in this regard.
Solution
If a person is carrying on a non-specified profession or any business, income from which business or profession exceeds Rs. 1,20,000 or his total sales/gross receipts from such business or profession exceed Rs. 10,00,000, in any one of the three years immediately preceding the previous year (in case of new business or profession, income/gross receipt of that previous year is likely to exceed above limit), then such person shall keep and maintain such books of account and other documents as may enable the Assessing Officer to compute his total income.
The profession of teacher is covered under the definition of non-specified profession. Hence, a person engaged in the profession of teaching has to maintain such books of account and other documents as may enable the Assessing Officer to compute his total taxable income if income from such profession exceeds Rs. 1,20,000 or his gross receipts from such profession exceed Rs. 10,00,000, in any one of the three years immediately preceding the previous year (in case of new profession, income/gross receipt of that previous year is likely to exceed above limit).
In the given case the gross receipts of Mr. Raja in all the past three years are below Rs. 10,00,000. However, his actual income from the profession of teaching exceeds Rs. 1,20,000 in all the past three years and, hence, he has to maintain such books of account and other documents as may enable the Assessing Officer to compute his total taxable income under the Income-tax Act.
Illustration
Mr. Soham is running a factory. The details of his annual turnover for the past three years are as follows:
Financial year 2012-13: Rs. 9,84,000
Financial year 2011-12: Rs. 11,52,000
Financial year 2010-11: Rs. 8,44,000
Further, the details of his actual income for the past three years are as follows:
Financial year 2012-13: Rs. 1,30,000
Financial year 2011-12: Rs. 2,48,000
Financial year 2010-11: Rs. 1,12,000
He does not know which books of account he is liable to maintain as per the provisions of section 44AA and, hence, he approaches you for advice. As a consultant, advise Mr. Soham in this regard.
Solution
If a person is carrying on a non-specified profession or any business, income from which business or profession exceeds Rs. 1,20,000 or his total sales/gross receipts from such business or profession exceed Rs. 10,00,000, in any one of the three years immediately preceding the previous year (in case of new business or profession, income/gross receipt of that previous year is likely to exceed above limit), then such person shall keep and maintain such books of account and other documents as may enable the Assessing Officer to compute his total income.
In the given case, Mr. Raja is running a factory and the total turnover of factory for the financial year 2011-12 exceeded Rs. 10,00,000 as well as his actual income from such business for the financial year 2011-12 and 2012-13 exceeded Rs. 1,20,000 and, hence, he has to maintain such books of account and other documents as may enable the Assessing Officer to compute his total taxable income under the Income-tax Act.
Illustration
Mr. Soham is engaged in the business of plying, hiring or leasing of goods carriages and owns 6 heavy goods vehicles and 3 light goods vehicles. He adopts the provisions of section 44AE, however, his actual income from heavy goods vehicles as well as light goods vehicles is below Rs. 5,000 and Rs. 4,500 respectively. Hence, he wants to declare his actual income which is lower than Rs. 5,000 and Rs. 4,500.
However, he does not know whether he is liable to maintain any books of account as per the provisions of section 44AA or not and, hence, approaches you for advice. As a consultant, advise Mr. Soham in this regard.
Solution
An assessee to whom section 44AE or 44BB or 44BBB applies, and who declares his business income to be lower than the income computed as per the provisions of aforesaid sections is required to maintain such books of account and other documents as may enable the Assessing Officer to compute his total income.
In the given case, Mr. Raja is engaged in the business of plying, hiring or leasing goods carriages and has adopted the provisions of section 44AE. However, his actual income from such business is lower than Rs. 5,000 and Rs. 4,500 respectively. Thus, he fulfils the above mentioned condition and, hence, he is required to maintain such books of account and other documents as may enable the Assessing Officer to compute his total taxable income under the Income-tax Act.
6. Provisions in case of an assessee carrying on a non-specified profession or any business, income/gross receipt of which is below Rs. 1,20,000/Rs. 10,00,000 :
Illustration
Miss Khushi is a teacher. The details of her gross receipts for past three years are as follows:
Financial year 2012-13 : Rs. 9,84,000
Financial year 2011-12 : Rs. 7,52,000
Financial year 2010-11 : Rs. 5,20,000
Further, her actual income does not exceed Rs. 1,20,000 in all these three years. However, she does not know whether she is liable to maintain any books of account as per the provisions of section 44AA or not and, hence, approaches you for advice. As a consultant, advise her in this regard.
**
If a person is carrying on a non-specified profession or any business whose income does not exceed Rs. 1,20,000 and his total sales/gross receipts from such business or profession do not exceed Rs. 10,00,000 in all the three years immediately preceding the previous year (in case of new business or profession, income/gross receipt is not likely to exceed aforesaid limit), then such person is not required to maintain any books of account.
In the given case Miss Khushi is engaged in one of the non-specified professions and the gross receipts as well as the income of Miss Khushi does not exceed Rs. 10,00,000/Rs. 1,20,000 in all the preceding three financial years and, hence, she is not required to maintain any books of account.
Illustration
Mr. Soham is running a medical store. The details of his annual turnover for past three years are as follows:
Financial year 2012-13 : Rs. 9,99,000
Financial year 2011-12 : Rs. 8,84,000
Financial year 2010-11 : Rs. 7,52,000
Further, his actual income does not exceed Rs. 1,20,000 in all these three years. However, he does not know whether he is liable to maintain any books of account as per the provisions of section 44AA or not and, hence, approaches you for advice. As a consultant, advise him in this regard.
**
If a person is carrying on a non-specified profession or any business whose income does not exceed Rs. 1,20,000 and his total sales/gross receipts from such business or profession do not exceed Rs. 10,00,000, in all the three years immediately preceding the previous year (in case of new business or profession, income/gross receipt is not likely to exceed aforesaid limit), then such person is not required to maintain any books of account.
In the given case, Mr. Soham is carrying on medical store and the annual turnover as well as the income of Mr. Soham does not exceed Rs. 10,00,000/Rs. 1,20,000 in all the preceding three financial years and, hence, he is not required to maintain any books of account.
7. Provisions in case of an assessee covered under section 44AD:
Illustration
Mr. Raja is running a proprietary concern under the name of Raja & Co. The turnover of the firm during the previous year 2012-13 was Rs. 84,52,000 and he declares income as per the provisions of section 44AD. In this case is he liable to maintain any books of account?
**
If an assessee adopts the provisions of section 44AD and declares income @ 8% of the turnover or gross receipts for the year, then he is not liable to maintain any books of account.
In the given case Mr. Raja has adopted the provisions of section 44AD and declares income of Rs. 6,76,160 (i.e., @ 8% of turnover of Rs. 84,52,000). Hence, he is not liable to maintain any books of account as per section 44AA.
Illustration
Mr. Raja is running a proprietary concern under the name of Raja & Co. The turnover of the firm during the previous year 2012-13 was Rs. 98,52,000. Mr. Raja wants to adopt the provisions of section 44AD. However, his actual income is only Rs. 6,50,000 which is lower than Rs. 7,88,160 (i.e., Rs. 98,52,000 * 8%) and, hence, decides to declare his actual income, which is lower than Rs. 7,88,160 . However, he does not know whether he is liable to maintain any books of account or not and, hence, approaches you for advice. As a consultant, advise Mr. Raja in this regard.
**
If an assessee is covered under section 44AD, the maintenance of books of account is required if following conditions are satisfied:
(a) He claims that the profits and gains from the business are lower than the profits and gains computed in accordance with the provisions of section 44AD(1) [i.e. @ 8%]; and
(b) His income exceeds the maximum amount which is not chargeable to tax.
In the given case Mr. Raja satisfies both the conditions, i.e., his actual income from proprietary firm is less than 8% and such income exceeds the maximum amount which is not chargeable to tax. Hence, he is required to maintain such books of account and other documents as may enable the Assessing Officer to compute his taxable income under the Income-tax Act. |
