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Discussion < Audit < Katcha Arhatiya & Pacca Arhatiya
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students zone,CA Students
ANIL KUMAR


[ Scorecard :60 ]

Plz tell me what is difference between katcha arhatiya & pacca arhatiya and what is the turnover in each case .








CA SUBHASH KR.


[ Scorecard :11869 ]

Applicability of section 44AB in the cases of

commission agents, arhatias, etc.--In the case of agents whose

position is similar to that of kachha arhatia,the turnover is only the

commission and does not include the sales on behalf of the principals-

-In the case of agents of the type of pacca arhatia, the total

sales/turnover of the business should be taken into consideration for

determining the applicability of the provisions of section 44AB--

Distinction between kachha arhatia and pacca arhatia explained.

 

1. Section 44AB of the Income-tax Act, 1961, as inserted by the

Finance Act,1984, casts an obligation on every person carrying on

business to get his accounts audited, if his total sales, turnover or

gross receipts, as the case may be. exceed Rs. 60 lakhs in any

previous year relevant to the assessment year commencing on 1-4-2010

or any subsequent assessment year.

2. The Board have received representations from various persons, trade

associations, etc. to clarify whether in cases where an agent effects

sales/turnover on behalf of his principal, such sales/turnover have to

be treated as the sales/turnover of the agent for the purpose of

section 44AB of the Income-tax Act, 1961.

3. The matter was examined in consultation with the Ministry of Law.

There are various trade practices prevalent in the country in regard

to agency business and no uniform pattern is followed by the

commission agents, consignment agents, brokers,kachha arhatias and

pacca arhatias dealing in different commodities in different parts of

the country. The primary necessity in each instance is to ascertain

with precision what are the express terms of the particular contract

under consideration. Each transaction, therefore, requires to be

examined with reference to its terms and conditions and no hard and

fast rule can be laid down as to whether the agent is acting only as

an agent or also as a principal.

4. The board are advised that so far as kachha arhatias are concerned,

the turnover does not include the sales effected on behalf of the

principals and only the gross commission has to be considered for the

purpose of section 44AB. But the position is different with regard to

pacca arhatias. A pacca arhatia is not, in the proper sense of the

word, an agent or even del credre agent. The relation between him and

his constituent is substantially that between the two principals. On

the basis of various court pronouncements, the following principles of

distinction can be laid down between a kachha arhatia and a pacca

arhatia:

(i) A kachha arhatia acts only as an agent of his constituent and

never acts as a principal. A pacca arhatia, on the other hand, is

entitled to substitute his own goods towards the contract made for the

constituent and buy the constituent's goods on his personal account

and, thus, he acts as a principal as regards his constituent;

(ii) A kachha arhatia brings a privity contract between his

constituent and the third party so that each becomes liable to the

other. The pacca arhatia, on the other hand, makes himself liable upon

the contract not only to the third party but also to his constituent;

(iii) Though the kachha arhatia does not communicate the name of his

constituent to the third party, he does communicate the name of the

third party to the constituent. The pacca arhatia, on the other hand,

does not inform his constituent as to the third party with whom he has

entered into a contract on his behalf;

(iv) The remuneration of a kachha arhatia consists solely of

commission and he is not interested in the profits and losses made by

his constituent as is not the case with the pacca arhatia;

(v) The kachha arhatia unlike the pacca arhatia, does not have any

dominion over the goods;

(vi) the kachha arhatia has no personal interest of his own when he

enters into a transaction and his interest is limited to the

commission agent's charges and certain out of pocket expenses whereas

a pacca arhatia, has a personal interest of his own when he enters

into a transaction:

(vii) In the event of any loss, the kachha arhatia is entitled to be

indemnified by his principal as is not the case with pacca arhatia.

5. The above distinctions between a kachha arhatia and pacca arhatia,

may also be relevant for determining the applicability of section 44AB

in cases of other type of agents. In the case of agents whose position

is similar to that of kachha arhatia,the turnover is only the

commission and does not include the sales on behalf of the principals.

In the case of agents of the type of pacca arhatia, on the other hand,

the total sales/turnover of the business should be taken into

consideration for determining the applicability of the provisions of

section 44AB of the Income-tax Act. 1961.


Pooja Jajoo


[ Scorecard :66 ]

good read:)

 


CA. KRISHAN KUMAR SAINI


[ Scorecard :7899 ]

kaccha artiya

 

pricipal  .... agent.....customers

 

goods/property ka title agent ka nahi hota

 

pakka artiya

 

princiopal......agent......customers

 

in this case title of goods / property in the name of agent


CA. KRISHAN KUMAR SAINI


[ Scorecard :7899 ]

and should be read 44 ab

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