INCOME FROM BUSINESS/PROFESSION
Business is an activity of purchase and sell of goods with the intention of making profit.
Profession is an occupation requiring intellectual skill. E.g. Doctor, Lawyer etc. Vocation is an
activity, which requires a special skill, which is used to earn income. e.g. Painter, Singer etc. For
income tax purpose there is no difference between business income, profession income and
vocation income.
Section 2 ( 13 ) : Business
Business includes any trade, commerce or manufacture or any adventure or concern in
the nature of trade, commerce or manufacture.
Explanation: Thus business is any activity carried out with the intention to earn profit, whether
such an activity is continuous or temporary is immaterial.
In determining whether a particular transaction is an adventure in the nature of trade or
not, total impression and effect of all relevant facts and circumstances of the transaction have
to be seen. To bring a transaction within the term business, the transaction must be a trade
or in the nature of trade. Hence everything depends upon the facts and
circumstances of the case. E.g. A person making investment of surplus funds in shares or
debentures cannot be deemed to be carrying on the business of trading in shares although
occasionally he may be selling some shares or debentures and making gains there-on.
METHODS OF COMPUTING TAXABLE INCOME
1. Gross Sales or Gross fees as the case may be are to be taken as the base if Receipt and
Payment A/c or cash Book is given. From this Gross income expenses which are specifically
allowed by the income tax act are deducted to arrive at taxable income.
2. If profit & loss a/c or income & expenditure a/c is given Net Profit or (Surplus) is taken as the
base and then following adjustments are made:
1
1) Expenses, which are debited, to profit & loss a/c, but disallowed by the Income Tax Act
and either fully or partially are added back.
2) Expenses, which are not debited, to profit & loss a/c but which are allowed by the
Income Tax Act are deducted.
3) Income that is credited to profit & loss a/c but not taxable at all or taxable under some
different head is to be deducted.
4) Income that is not credited to profit & loss a/c, but which is chargeable to tax as
business income is to be added.
BASIS OF CHARGE: SECTION 28
Under Section 28 following are the income chargeable to tax under the head Profits or Gains from
Business or profession:
1. Profits and Gains of any business or profession that is carried on by the assessee at any time
during the previous year.
2. Any compensation or other payment due to or received by an assessee for loss of agency due
to termination or modification of terms.
3. Income derived by a trade, professional or a similar association for specific servicesperformed
for its members.
4. Any profit on sale of a license granted under Imports (controls) Order 1955 made under
Imports & Exports (control) Act of 1947.
5. Any cash assistance (by whatever name called) received or receivable against exports under
any scheme of Government of India.
6. Any duty of customs or excise repaid or repayable as drawback to any person against exports
under the Customs and Central Excise Dutys Drawback Rules 1971.
7. Any profit on the transfer of the Duty entitlement pass book scheme under export import
policy.
8. Any profit on the transfer of the Duty free replenishment certificate under export import
policy.
9. The value of any benefit or perquisite whether convertible into money or not arising from
business or exercise of a profession e.g. A gift received by the lawyer from his client.
10. Any interest, salary, bonus, commission or remuneration due to or received by partner of a
firm from such firm.
11. Sum received or receivable in cash or in kind under an agreement for not carrying out any
activity in relation to any business or not sharing any know how, patent, copyright, trade
mark, license franchise or any other business or commercial right of similar nature or
information or technique likely to assist the manufacture or processing of goods or provision
of services.
12. Any sum received including bonus under Keyman Insurance Policy.
13. Any sum received (or receivable) in cash or kind, on account of any capital asset (other than
land or goodwill or financial instrument) being demolished, destroyed, discarded or
transferred, if the whole of the expenditure on such capital asset has been allowed as a
deduction under section 35AD.
14. Income from a speculative business.
DEDUCTIONS FOR EXPENSES SPECIFICALLY ALLOWED SECTION 30 TO SECTION 43D
1. Rent, rates, taxes, repairs and insurance of building (Section 30):
1) If assessee has occupied the premises as a tenant, rent of the premises and if he has
agreed to bear cost of repairs, such cost is allowed as deduction, provided it is not of
capital nature
