Profits and Gains of Business and Profession

Profits and Gains of Business and Profession
Basic concepts that one must know
This is the largest head of income
It includes every body from a Panwala having a shop at the roadside to as high as the
biggest business owner of the country, Mr. Narayan Murty. This head of income covers
the largest number of persons who could be taxed under the act. This includes profits
and gains that are earned in practically every business activity known and hence has
the widest of the sections and provisions so that most of them are covered under the
act.
There are 2 main bodies involved in this head.
The tax paying body which is also known as the assessee and the tax collection body
which, is the income tax department
Requirements for claiming a business activity
It includes all activities, which are done with the intention of earning profits and are
distinguished from the activities that are done purely for drawing pleasure. Thus in order
to include any activity as a business the following conditions are to be satisfied.
1. It should include some kind of trade commerce or manufacture or any adventure in
the nature of trade commerce and manufacture.
2. There should be a profit motive
3. The assessee should have an absolute or major control over the activities of the
business so that so as to define any activity as business.
What is business?
Business as defined by section 2[17] of the income tax act is ‘’ an activity which includes
trade, commerce and manufacture and any adventure in the nature of trade commerce
and manufacture.
What is adventure in the nature of trade commerce and manufacture?
It means even a single activity can be also called as a business. So for business
definition it is not necessary that the activity should be carried out regularly and
continuously. Even if there is an isolated transaction then also it is liable to be called for
business.
Rendering of services is also termed as business
Even the rendering of services comes under the preview of business and need not
always be a manufacturing and processing activity.
Business cannot be carried out with one self
Business cannot be carried out with own self. It means that there has to be some
bilateral relations between two or more persons and business done with self does not
make sense and it therefore not entertained under law.
Entire income is not taxable
It means that what ever is the sales of the business is not taxed. Expenses that are
legitimate and related to the business are allowed as deduction and then the net income
is taxable.
Gross income – Expenses required for earning the income. = Net Income
Basis of charge section 28
This section deals with the various types of businesses that are included in the preview
of business and gains.
What income are business incomes but still not taxed as business incomes?
1. Any rent received from house property even if the same is kept in by the assessee as
stock in trade is liable for to be taxed as income from House Property and not income
from business.
2. Dividends received from companies, which are taxable under section 56, would be
liable to be taxed under income from other sources even if shares are maintained by the
assessee as stock for sale.
3. Winning from lotteries and races are termed as income from other sources even if the
person is in the business of engaging in lotteries and races