With or without GST, What is turnover while offering income on a presumptive basis u/s 44AD?
Mr. X has a sold a goods of Rs. 1.50 in the FY 2019-20. The GST rate was 18% on his goods and so effectively the billing was done for Rs. 1.77 Cr after including the GST of Rs. 27 Lakh. He want to opt for the presumptive scheme of taxation and wish to offer the income @ 8% or 6% as the case may u/s 44AD. Question now is, whether the presumptive rate of taxation of 8% or 6% would be on Rs. 1.77 Cr or Rs. 1.50 Cr?
Similar issues arises in case of person who is required to get his books of accounts audited u/s 44AB if his if turnover of business exceeds Rs 1 Cr or Rs. 2 Cr or Rs. 5 Cr or in case of Profession, the Gross Receipts exceed Rs 50 Lakhs. Inclusion of GST within the turnover would have the cascading effect on computation of income on presumptive basis.
It may be noted that section 44AD says about offering the income at prescribed percentage on the basis of its “Sales, turnover or gross receipts”. What needs to be discussed here is the “Turnover” in this case. It will be relevant for the purpose of section 44AD as well as 44AB.
Before we discuss about the meaning of turnover, following few items may also be noted:
1. Cash Discount which is in cash memo/sales invoice is in the nature of a financing charge and a revenue receipt and so same may not be deducted from turnover if the same is offered after the billing is done.
2. Sales of Scrap, other revenue items, loading/unloading charges, etc billed separately under any head or under the head “Miscellaneous Income” will form the part of the “turnover” for all above purposes as the word used is “Sales, Turnover or Gross receipts…”.
3. Trade Discounts can be deducted from sales. Trade Discounts are generally allowed in the sales invoice, therefore the discount allowed in the sales invoice will reduce the sale price and therefore can be deducted from the turnover.
4. In case of Hotel, Luxury tax collected by a hotelier also a trading receipt in his hand as held in the case of Pandyan Hotels Ltd vs CIT [2004] 266 ITR 172 (Mad.)
5. In case of Sales Return, value of the goods returned would be required to be deducted from the amount of turnover even if the returns are from the sales made in earlier years.
6. Amount received on Sale of Fixed assets will not form part of turnover for the purpose of section 44AB since the fixed assets are not held for resale.
7. Similarly, the amount received on sale of any capital assets shall not form part of turnover for the purpose of tax audit limit.
8. Now comes the important part- what is turnover for the purpose of section 44AD or Section 44AB? Whether GST amount needs to be included or excluded for the purpose of section 44AD, 44ADA or 44AB?
The turnover is now where defined in the Income Tax Act-1961. So, we have to import its meaning from other places. Whether turnover will include GST or it will not? Let us refer to a few relevant places to get the answer.
i. “Guidance Note on Terms used in Financial Statements” which is published by ICAI defines the term “Sales Turnover” as-
“The aggregate amount for which sales are effected or services rendered by an enterprise. The term ‘gross turnover/sales’ and ‘net turnover/sales’ are sometimes used to distinguish the sales aggregate before and after deduction of returns and trade discounts”
ii. In the Statement issued by ICAI on the CARO, the word ‘turnover’ has been defined as under-
“The term ‘turnover’ for the purposes of this clause may be interpreted to mean the aggregate amount for which sales are effected or services rendered by an enterprises”
iii. Amended Definition of Turnover under the Companies Act – 2013 is as under:-
“Turnover” means the gross amount of revenue recognized in the profit and loss account from the sale, supply, or distribution of goods or on account of services rendered, or both, by a company during a financial year.” – Effective from 09/02/2018 vide notification S.O. 630(E)
Though the definition given by the Companies Act – 2013 after amendment looks logical, others definition don’t give clear cut ideas on the present issue.
The Question now needs to be examined is whether GST shall be included while calculating the gross turnover or receipt?
It may be noted that Income-tax Act contains section 145A which provides for inclusion of taxes, cess, etc. in the value of sale, purchase and inventory. But, the purpose of this provision u/s 145A is limited to calculation of income taxable under the head ‘Profits and Gains from Business or Profession’.
Question remains as to whether this provision can be applied for calculation of Turnover, Sales or Gross receipts as mentioned in sections 44AA, 44AB, 44AD and 44ADA? It is going to be a matter of divergent view between the revenue and taxpayer.
In case of a person who has opted for Composition Scheme under GST Act, the tax is not separately charged in the bill from the customer and the amount is debited to the profit & loss as an indirect expense and so in such cases GST may not at all form part of the turnover.
However, in case of other assessees, as GST is charged from the customer and it is recognized separately in the books of account. GST Collection & payment is done by the assessee as an agent of the Government in such cases and logically, cannot be treated as part of the assessee’s turnover.
The issue is controversial for the simple reason that section 145A provides for its inclusions. Unless the CBDT clarifies the meaning of the word “turnover”, the issue would remain controversial and disputable.
In my view, the amount of GST in such cases need to be ignored for the following reason:
a) While collecting the GST, Assessee is acting as an agent of the Government and not on his own account.
b) Section 145A begins with the word “For the purpose of determining the income chargeable under the head “Profits and gains of business or profession” which makes this provision inapplicable for other purposes. In short, for the purpose of section 44AD, 44AB, 44ADA, this treatment is not relevant.
(c) The amount of GST is debited / credited to altogether different accounts which is now forming the part of the Credit side of Profit & Loss Account.
The issue would remain debatable and controversial till the CBDT clarifies it specifically in view of section 44AD, 44ADA & 4AB/
