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Definition of the Head ' Business or Profession'-[Sec.-28]

 

Under sections 28 to 44 of the Income-tax Act 1961, Profits & Gains of business or profession form part of total income of an assessee. This head is the most important source of tax collection for the Government. The computation of income under this head is a very complex and difficult method but before going into calculation of income under this head, it is necessary to understand the meaning of terms used in this head.

Business [Section 2(13)]

Business simply means any economic activity carried on for earning profits. Section 2(13) has defined the term as “any trade, commerce, manufacture or any adventure or concern in the nature of trade, commerce and manufacture”. In the words of Justice SR. Dass, “The word ‘business’ connotes some real, substantive and systematic or organised course, activity or conduct with a set purpose”.

In this connection it is not necessary that there should be a series of transactions in a business and also it should be carried on permanently. Neither repetition nor continuity of similar transactions is necessary. As already defined under section 2(13), the income derived from any adventure in the nature of trade is also treated as business income. So a brief explanation of this term is necessary

Adventure in the Nature of Trade

Profits arising from an isolated transaction are taxable as business profits, if it is treated as an adventure in the nature of trade, commerce or manufacture. To decide whether a particular case is an adventure in the nature of trade or not depends upon the fact and circumstances of each case. The Supreme Court has summed us following principles to decide such case .

(i) Was the purchaser a trader and was the purchase of the commodity and its resale allied to his usual trade or business or incidental to it ?

(ii) What is the nature of the commodity purchased and resold and in what quantity was it purchased and resold? If the commodity purchased is generally the subject-matter of trade and it is purchased in very large quantity, it would tend to eliminate the possibility of investment for personal use, possession or enjoyment?

(iii) Did the purchaser by any act subsequent to the purchase improve the quality of the commodity purchased and thereby made it more readily saleable?

(iv) What were the incidents associated with the purchase and resale? Were these similar to the operations usually associated with trade or business?

(v) Are the transactions of purchase and sale repeated?

(vi) In regard to the purchaser of the commodity and its subsequent possession by the purchaser, does the element of pride of possession come into the picture? If the answer to this question is ‘yes’ then it will not be a transaction which will make it an adventure in the nature of trade.

(vii) Was the purchase made with the intention to resale it at a profit? The intention of the purchase is very important at the time of purchase. If there is change of intention after some time, that will not make transaction as an adventure in nature of trade.

So, these are the important factors which are borne in mind to decide whether a particular transaction is an adventure in the nature of trade or not.
Onus to Prove. The Supreme Court (38 I.T.R. 242) held that where a transaction is not in the line of the business of the assessee but is an isolated or single instance of a transaction the onus is on the Income-tax Department to prove that the transaction was an adventure in the nature of trade.

Profession [Section 2(36)]

A profession is an occupation requiring purely intellectual skill or manual skill controlled by the intellectual skill of the operator, e.g., lawyer, accountant, engineer, surgeon, author etc. So profession refers to those activities where the livelihood is earned by the persons through their intellectual or manual skill. Under section 2(36) profession includes vocation.

Vocation simply means a way of living for which one has special fitness. A vocation does not involve any organized or systematic activity like business. So vocation simply means any type of activity in which a person is engaged and he earns his livelihood from such activity. The practice of a religion may also amount to vocation.1 Any gain or receipt arising out of vocation is certainly taxable under this head of income. Writing of articles in the magazines is also a vocation.2

Business or Professional Income [Section 28(i)]

The profits and gains of any business or profession which was carried on by the assessee at any time during the previous year are assessed under this head. The business or profession should be carried on in the previous year and it is not necessary that it should continue throughout the year. The owner of the business is to be charged under this section, whether he may carry business personally or through a manager, agent or servant.

Business outside India and Business in India stand on the same footing for the purposes of this section.

All revenue profits arising from business or profession are chargeable even if they are of a casual and non-recurring nature.

Illegality of the business or profession does not exempt its income from tax.
 
More Topics .... " Business or Profession"
Definition of the Head ' Business or Profession'-[Sec.-28]
Compensation Received as Business Income(Section-28(ii))]
Income of a Trade or Professional Association [Section 28(iii)]
Income from Export Incentives is chargeable to Income Tax
Any Amount Received Under certain Agreement for not to Carry on Business [Section 28(va)]
Speculation Business [Explanation to Section 28]
Profit Earned from an Illegal Business
Transfer of certain Assets Specified u/s 35AD in certain circumstances [Section 28(vii)]
Certain Incomes relating to business but not taxable under the head ‘Profits Gains of Business or Profession .
Computation of Income of Business or Profession - General Important Points
General Principles - for Deductions Allowed from Gross Income of Business and Professions
Deductions from Gross Income of Business or Profession [ Section 30 to 44DB]
Expressly Admissible Deductions from Gross Income from Business or Profession [Section 30-36]
Expenditure Incurred in the Field of Scientific Research [Section 35]
Expenses on Research Activities carried on by the assessee himself
Contribution to Approved Institutions to carry on Research is Allowed as Weighted Deductions for Calculating Profits and Gains of Business or Professions.
Expenditure incurred on the acquisition of Patents Rights or Copy Rights [Section 35A] [Applicable for expenditure incurred before 1-4-1998]
Expenditure on know-how [Section 35 AB] [Applicable for expenditure incurred before 1-4-1998]
Expenditure for obtaining License to operate Telecommunication Services [Section 35 ABB]
Expenditure on eligible projects or schemes [Section 35 AC]
Deduction in respect of expenditure incurred on setting up of a Specified Business [Sec. 35AD]
Any amount given to an institution or association [Section-35CCA]
Expenditure on Notified Agricultural Extension Project [Section-35 CCC] [w.e.f. A.Y. 2013-14]
Expenditure on Notified Skill development project [Section-35 CCD] [w.e.f. A.Y. 2013-14]
Amortisation of Certain Preliminary Expenses [Section 35D]
Expenditure on demerger or amalgamation [Section 35DD]
Amortisation of Expenditure Incurred Under Voluntary Retirement Scheme [Section 35DDA]
Expenditure on Prospecting etc., for certain Minerals [Section 35E]
Other Deductions Allowed to Compute Income from Business or Profession   [Section-36]
Interest on Borrowed Capital [Sec. 36(1)(iii)].
Deduction of discount on Zero Coupon Bond [Section 36(iiia)]
Contribution to Provident and Superannuation Fund [Sec. 36(1)(iv)].
Employee’s contribution towards staff welfare schemes [Sec. 36(1)(va)]
Bad debts [Sec. 36(1)(vii)]
Bad debts of Banks, financial institution and industrial investment corporation etc. [Section 36(1)(viia)]
Special Reserve Created and Maintained by Financial Corporation [Section 36(1)(viii)].
Expenditure on Family Planning [Section-36(1)(ix)].
General Or Allowable Deductions [Section 37]
Commission earned by the agents of Life Insurance Corporation, Unit Trust of India, Post Office or Mutual Funds
Legal Expenses in the Interest of Business are Allowable Expenses
Losses incidental to Business Allowed to be Debited.
Expenses Expressly Disallowed In the Case of any ‘Assessee’ [ Section-40a]
Expenses Expressly Disallowed In the Case of any Firm [Section 40(b)]
Expenses Expressly Disallowed In General Cases [Section 40(b)]
Disallowing of certain Expenses under certain circumstances like ‘Payments to Relatives’
Payments exceeding ` 20,000 by cash/bearer cheque [Section 40A (3)].
Provision for the Payment of Gratuity – [Section-40A(7)]
DEEMED PROFITS Under Profits and Gains of Business or Professions [Section 41]
VALUATION OF STOCK for Profit and Gains of Business or Professions
Deduction Of Certain Payments Only If Actually Paid [Section 43B]
Maintenance Of Accounts By Certain Persons Carrying On Profession Or Business. [Sec. 44AA]
Compulsory Audit For The Non-Corporate Assessees [Section-44 AB]
Computation of Income on Estimated Basis [Section 44AD]
Profit from the business of carriage of goods for truck owners [Section 44 AE]
Special provision for computation of income from royalties in case of nonresidents [Section 44DA]
Partly Agricultural and Partly Business Income
Adjustment In The Profit And Loss A/C Prepared By The Assessee
Computation of Profits and Gains of a Non-Resident from Shipping Business— [Section 44B]
Computation of Profits and Gains of business of Oil Exploration [Section 44BB]
Computation of Profits and Gains of the Business of operation of Aircrafts by Non-Resident [Section 44 BBA]
Computation of Profits of Foreign Enterprises [Section 44BBB]
Ceiling Limits in respect of Head Office Expenses [Section 440]
Special Provisions in case of Income of Public Financial Institutions etc. [Section 43D]
 
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