Hi Mr Goenka,
There is a concept of pucca arahtiya (authentic agent) and thekachha arahtiya (not-so-authentic agent!!) in the law. Actually,business transactions take place in so many different ways that itsometimes becomes difficult to judge who is who in a transaction.The fact that someone is a "commission agent" and gets commissionfor the sales effected by him does not automatically mean that weshall consider only the commission received by him as "turnover" tosee whether or not he has exceeded the quantum where he's requiredto get a tax audit done.From the facts narrated by Prashanth, it seems his client is a puccaarahtiya rather than a kachha one. The ICAI, in para 5.8 of theGuidance Note on Tax Audit, has discussed the need to distinguishbetween these two types of commission agents so as to ensure propercompliance with Section 44AB. There is of course a CBDT circular No452 dated 17.03.1986 on this. The circular lays down certain tests,which shall help an assessee determine whether he is a pucca or akacha agent. In case of kachha agents, only the commission amountconstitutes turnover; but in case of pucca agents the sales effectedat his end make up the turnover for Section 44AB. A pucca agent isan agent in name only. Although he too gets a commission cheque fromthe principal, he has more of a principal-to-principal relationshipwith his constituent (the person who transfers him the stock). TheCBDT circular lays down the following yardsticks for identifyingwhether an assessee is a pucca or a kachha agent:(1) A kachha arahtia acts only as an agent of his constituent andnever acts as a principal. A pacca arahtia, on the other hand, isentitled to substitute his own goods towards the contract made forthe constituent and buy the constituent's goods on his personalaccount and thus he acts as regards his constituent.(2) A kachha arahtia brings a privity contract between hisconstituent and the third party so that each becomes liable to theother. The pacca arahtia, on the other hand, makes himself liableupon the contract not only to the third party but also to hisconstituent.(3) Though the kachha arahtia does not communicate the name of hisconstituent to the third party, he does communicate the name of thethird party to the constituent. In other words, he is an agent foran unnamed principal. The pacca arahtia, on the other hand, does notinform his constituent as to the third party with whom he hasentered into a contract on his behalf.(4) The remuneration of a kachha arahtia consists solely ofcommission and he is not interested in the profits and losses madeby his constituent as is not the case with the pacca arahtia.(5) The kachha arahtia, unlike the pacca arahtia, does not have anydominion over the goods.(6) The kachha arahtia has no personal interest of his own when heenters into transaction and his interest is limited to thecommission agent's charges and certain out of pocket expenseswhereas a pacca arahtia has a personal interest of his own when heenters into a transaction.(7) In the event of any loss, the kachha arahtia is entitled to beindemnified by his principal as is not the case with pacca arahtia.Mr Prashanth, you can examine the transactions engaged in by yourclient in the light of the above criteria. In case there's a doubt,go in for a tax audit.
Thanks,
CA Sanjeev Bedi
--- In http://finance.groups.yahoo.com/group/ICAI_CIRC_MEERUT_CA/post?postID=SQuuy8I7yUO1mltpX0ifazHBODSMS2jizEyHg2FvgltmaSim6kJN8fAAYBfskF5GgLcalHwgPc0QoYx9MnKWN4B1zxeM-JSrIFhi, PRAMOD GOENKA wrote:>>> I beg to differ. For the dealer selling goods on behalf of someone else, only commission would be considered as turnover for thepurposes of Section 44AB of IT Act. TIN has got nothing to do withit. So far as stock brokers are concerned, their brokerage + alldelivery transactions on their own account + total or profit andloss on speculative transactions or options/futures segment willconstitute turnover. Stock brokers are liable for audit evenotherwise under the bye laws of respective stock exchanges.>> CA. Pramod Goenka>>> Dear Prasanth,>> According to me,If the assessee sells goods on his own TIN No.thenall the amt of sale will be considered as a turnover in the his nameu/s 44AB>> In the matter of stock broker,the transactions made on deliverybasis,total turn over will be considered adding net debit or creditof transactions which are done in trading / Future.>> Other views are inevitable>> Regards,> CA Pranesh Agrawal> Surat>>> Dear Collegaues,> Whether the following constitutes aturnover in the hands of the assessee>> 1. The assessee receives goods from outside his state as a stocktransfer not sale from his consignor.>> 2. The assessee sells those goods in the state at the prices fixedby the consignor within the state using his TIN(the assessee's TIN),pays the VAT to the LVO and remits the sale proceeds as and whenrealised to the consignor. The consignor in turn sends a seperatecheque to the assessee towards commission.>> Whether commission alone is the turnover of the assessee under sec44AB or even the sale of goods also comes under the purview of thedefinition turnover?>> My second question is regarding the determination of turnover of atrader in Stock market>> In case of speculative transaction whether the net effect (gain/loss) only constitutes as a turnover or is it the actual saleprice which is to be construed as turnover? any circular availablein this respect.
>> Reg>> Prashanth
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