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Business or profession carried on by the assessee –
Business or profession should be carried on by the assessee.
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Business or profession should be carried on during the previous year –
Income from business or profession is chargeable to tax under this head only if the business or profession is carried on by the assessee at any time during the previous year (not necessarily throughout the previous year). There are a few exceptions to this rule.
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Income of previous year is taxable during the following assessment year –
Income of business or profession carried on by the assessee during the previous year is chargeable to tax in the next following assessment year. There are, however, certain exceptions to this rule.
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Tax incidence arises in respect of all businesses or professions –
Profits and gains of different businesses or professions carried on by the assessee are not separately chargeable to tax. Tax incidence arises on aggregate income from all businesses or professions carried on by the assessee. If, therefore, an assessee earns profit in one business and sustains loss in another business, income chargeable to tax is the net balance after setting off loss against income. However, profits and losses of a speculative business are kept separately.
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Legal ownership vs. Beneficial ownership –
Under section 28, it is not only the legal ownership but also the beneficial ownership that has to be considered. The courts can go into the question of beneficial ownership and decide who should be held liable for the tax after taking into account the question as to who is, in fact, in receipt of the income which is going to be taxed.
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Real profit vs. Anticipated profit –
Anticipated or potential profits or losses, which may occur in future, are not considered for arriving at taxable income of a previous year. This rule is, however, subject to one exception: stock-in-trade may be valued on the basis of cost or market value, whichever is lower.
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Real profit vs. Notional profit –
The profits which are taxed under section 28 are the real profits and not notional profits. For instance, no person can make profit by trading with himself in another capacity.
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Recovery of sum already allowed as deduction –
Any sum recovered by the assessee during the previous year in respect of an amount or expenditure which was earlier allowed as deduction, is taxable as business income of the year in which it is recovered .
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Mode of book entries not relevant –
The mode or system of book-keeping cannot override the substantial character of a transaction.
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Illegal business –
The income-tax law is not concerned with the legality or illegality of a business or profession. It can, therefore, be said that income of illegal business or profession is not exempt from tax.
