Calculation of interest u/s 234B/234C on 44AD income – Interpretation issue
CA Keshav Arya
Dear Senior Members & Professional Colleagues,
Your expert views are sought in case of interpretation of Section 44AD read with Section 209(1).
As per section 44AD(4) of Income Tax Act, “The provisions of Chapter XVII-C shall not apply to an eligible assessee in so far as they relate to the eligible business”. The provisions of Advance tax are covered under Chapter XVII-C of Income tax act. As per Section 209(1) (a) of Chapter XVII-C of the Income tax act, “where the calculation is made by the assessee ........., he shall first estimate his current income and income-tax thereon shall be calculated at the rates in force in the financial year”.
However CPC Bangalore while processing returns u/s. 143(1) has adopted average tax rate principle (probably adopted from the section 110 of the Act). Therefore, if total income includes 44AD income along with other heads of income, then tax liability on 44AD income is calculated at average tax rate and the same is excluded from the total tax liability and interest is calculated on the remaining portion of tax liability.
Therefore, as the word ‘shall not apply’ is specified in the section 44AD(4) of the act, the provisions of advance tax will not apply to eligible business and hence the income related to eligible business also should not be included in estimation of ‘current income’ u/s 209(1)(a) of Chapter XVII C. Hence, Section 44AD income should be excluded while estimating the income for calculating interest u/s 234B/234C. In effect, the benefit of basic exemption limit will be available on income other than 44AD while computing tax for calculation of interest u/s 234B/234C.
Whereas CPC while computing interest u/s 234B/234C, applies average tax rate on the income (excluding 44AD income), instead, slab rates should be applied on the income (excluding 44AD income). The net effect is that, the tax liability for the purpose of calculation of Interest u/s 234B/234C is higher in the method adopted by the CPC.
My view is that the method adopted by CPC is not appropriate and is not a correct Interpretation of the section 44AD and section 209 of the Act. The provisions of Section 110 may be adopted if the 44AD income is to be included in the current income. However, as per Sec 44AD(4) of Income Tax Act, there is no advance tax liability on income declared u/s 44AD. Therefore 44AD income cannot be included in view of the provisions of section 44AD(4). Hence, in my view, Section 110 is not applicable to this case.
Now, CPC while processing returns having income from other heads along with Sec.44AD income raises demand by way of difference in interest calculation. These kinds of demands have been raised for my many clients.
Following illustration will clear the above difference of views in calculation:
Example:
A.Y. 2012-13, Date of Return filing – 19/03/2013, Due date of filing original return – 01/10/2012. Assessee: Resident Male 36 years.
Income from business or profession – Rs. 6,91,810.00 (Includes Rs. 2,15,080.00 as Sec.44AD Income)
Income from other sources – Rs. 52,212.00
Chapter VI-A deduction – Rs. 1,06,443.00
Agriculture Income – Rs. 1,94,500.00
Now, the calculations under two different approaches are as under:
1. As per interpretation:
Calculation of Tax:
Tax on normal income – 1,01,924.00
Agriculture Rebate – 19,450.00
Gross tax liability (including EC and SHEC) – 84,948.00
Calculation of Interest u/s. 234B:
No. of months for 234B calculation = 12 months (April 2012 to March 2013)
Gross income – 8,33,080.00 (including agriculture income for tax calculation)
Less: 44AD income – 2,15,080.00
-------------------------------------------------
Income for calculation
of interest – 6,18,000.00
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Tax on 6,18,000 (after taking agriculture rebate of 19,450.00) = 37,234.00
i.e. 37,200.00 (As per rule 119A)
Therefore, interest u/s. 234B = 37,200.00 X 1% X 12 months = 4,464.00
2. As per CPC Processing:
Calculation of Interest u/s. 234B:
Tax on Total Income 84,948.00
Total Income 6,38,580.00
Tax Rate 13.303% (84948/638580X100)
Sec. 44AD Income 2,15,080.00
Tax on 44AD Income 28,612.00 (215080X13.303%)
Balance Tax 56,336.00 (84948-28612)
Say 56,300.00 (as per rule 119A)
Interest u/s.234B 6,756.00 (56300X1%X12 Months)
Therefore, it is evident that interest amount is more by the method followed by CPC.
Now, I request you Sirs, which method is more appropriate in accordance with law. Kindly suggest it as it is a practical difficulty faced by many clients resulting into demand of taxes.
Thanking you,
Thanks & Regards,
CA. Keshav Arya
KESHAV ARYA & ASSOCIATES
Chartered Accountants
Phone +91 265 3083559 | Cell +91 9724661185
E-mail: cakesh...@gmail.com|
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