The word ‘business’ connotes some real, substantive and systematic or organized course of activity or conduct with a set purpose. In general, it is an activity of buying and selling goods, or providing services in order to make profit. Under the income tax law ‘business’ is defined in an another way.
Section 2(13) of the Income tax act 1961 defines that “business” includes any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture. The definition of business is inclusive and not exhaustive, and it does not limit the meaning of the term (CIT vs National Mutual file Assn 1 ITR 350). It is an activity carried on continuously in an organized manner with set of purpose and with to earn profit (CIT vs Bazzar 200 ITR 131 taxmann).
We went through many income tax judgements and find suitable judgements that may help you in decide, whether a particular set of activity or transaction is a business activity or will it fall under the other heads of incomes? To understand the meaning of ‘’business’’ it is first important to understand, why we are doing this when income tax is charged on the total income, including all heads of income.
Let us clear you the position about the heads of income under the income tax act. Income tax act has classified the ‘income’ earned from various sources into five different heads. These heads of incomes are as follow:
- Income from Salary
- Income from House Property
- Income for Business and Profession
- Income from Capital Gain
- Income from other Source
Whatever taxpayer earns in his independent capacity or by his work force by putting his efforts is termed as business. Taxpayer always wants to include that activity in business, so that he can deduct expenses incurred in relation to income earned from business. Scope of allowance of expenses as deduction is more in ‘’Business Head’’ than any other heads of income.
The frequency and repetition may be a one of a decisive factor but in many cases transactions though repeated, may not amount to a trade or an adventure. Conversely, a single and isolated transaction may be termed or may fall with-in the definition of business as defined under the income tax act. An activity carried on under strict statutory control may nevertheless be business (City board vs CIT).
As per the income tax law business” includes any trade, commerce or manufacture or any adventure.
Trade, Commerce or Manufacture: It is to be noted that manufacture is defined under section 2(29BA) of the income tax act but trade and commerce is not defined anywhere under the law. In common parlance ‘trade’ is action of selling goods and services in the ordinary course. Whereas Commerce refers to the buying and selling of goods and services on a large scale such as transportation services, exchange of currency and trade of commodities.
“Profession” is defined under section 2(36) of the income tax act and it includes vocation. The person carrying on business in a particular commodity must depend upon the volume, frequency, continuity and regularity and the transaction must ordinarily be entered into with a profit motive. On the other hand, the “profession” involves idea of occupation requiring special knowledge and skill, usually advanced education, on the basis of some special learning and there should be some special qualification of a person, apart from skill and ability, which is required for carrying any activity, which can be considered as “profession”.
it can be said that the word “business” on a wider interpretation can include within its scope profession for the purpose of the Income Tax Act. (CIT v. Smith Kline & French (India) Ltd).
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