Tax Finance Info: Chargeability

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Chargeability of Income from Business and Profession</h2>
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<span lang="EN-US">We
come in contact with the words Business & Profession and other allied words
in our day to day life. These words are given a very deep and logical meaning
in the Income Tax Act, so that it becomes easy to calculate the income under
the head “Business & Profession”. It makes the calculation of tax very
easy. The term business is defined in section 2(13) of the Income Tax Act as
under:<o:p></o:p></span></div>
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<b><i><span lang="EN-US">2(13)</span></i></b><i><span lang="EN-US"> 
"business"  includes any
trade, commerce or manufacture or any adventure or concern in the nature of
trade, <o:p></o:p></span></i></div>
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<i><span lang="EN-US">commerce or manufacture.<o:p></o:p></span></i></div>
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<b><span lang="EN-US">Explanation:<o:p></o:p></span></b></div>
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<span lang="EN-US"><br /></span></div>
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<span lang="EN-US">Here
the word Profession nowhere exists in the definition but it has the meaning of
any occupation that requires some degree of learning. Examples of the same can
be a doctor, lawyer, etc. And section 2(36) states that:<o:p></o:p></span></div>
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<b><i><span lang="EN-US">2(36) </span></i></b><i><span lang="EN-US">"profession"
includes vocation.<o:p></o:p></span></i></div>
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<span lang="EN-US">Vocation is an occupation which is carried out
by personal skills of a person. Example of vocation are cobbler, carpenter etc.
Income from all such occupations is taxed under the same head. They are
chargeable under section 28 of the Income Tax Act as follows:<o:p></o:p></span></div>
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<b><span lang="EN-US">Section 28<o:p></o:p></span></b></div>
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<b><span lang="EN-US">Explanation:<o:p></o:p></span></b></div>
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<span lang="EN-US" style="font-family: Wingdings; mso-bidi-font-family: Wingdings; mso-fareast-font-family: Wingdings;">v<span style="font-family: 'Times New Roman'; font-size: 7pt;">  </span></span><span lang="EN-US">Mainly
there are three conditions derived to from the above section, for income to be
considered as income from business and profession are as follows:<o:p></o:p></span></div>
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<span lang="EN-US"><br /></span></div>
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<span lang="EN-US" style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">      ·<span style="font-family: 'Times New Roman'; font-size: 7pt;">        
</span></span><span lang="EN-US">Business or profession should exist.<o:p></o:p></span></div>
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<span lang="EN-US" style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">      ·<span style="font-family: 'Times New Roman'; font-size: 7pt;">        
</span></span><span lang="EN-US">It should be carried out by the
assessee in whose hand such income is chargeable to tax.<o:p></o:p></span></div>
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<span lang="EN-US" style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">      ·<span style="font-family: 'Times New Roman'; font-size: 7pt;">        
</span></span><span lang="EN-US">Business or profession should have
been carried out during the previous year by the assessee, if it is carried out
for a single day also than the income from the same is considered as the Income
from business & Profession.<o:p></o:p></span></div>
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<span lang="EN-US" style="font-family: Wingdings; mso-bidi-font-family: Wingdings; mso-fareast-font-family: Wingdings;">v<span style="font-family: 'Times New Roman'; font-size: 7pt;">  </span></span><span lang="EN-US">Income
will be derived as per the manner provided in the provisions of sections 30 to
37 of the Income Tax Act along with other specific disallowances, special
provisions and presumptive income as provided in sections 40 to 44AE.<o:p></o:p></span></div>
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<span lang="EN-US" style="font-family: Wingdings; mso-bidi-font-family: Wingdings; mso-fareast-font-family: Wingdings;">v<span style="font-family: 'Times New Roman'; font-size: 7pt;">  </span></span><span lang="EN-US">Many
a times there arises confusion about interest income. Whether it is to be
treated as business income or to be treated as Income from other source. So the
prime solution is that, if such interest is received as a part of income which
is described in the objective of the business, or such interest arises out of
basic business of the entity than such interest is to be treated as Income from
Business and Profession. But if such interest is earned from other allied
activities than it is to be treated as Income from Other Sources.<o:p></o:p></span></div>
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<span lang="EN-US" style="font-family: Wingdings; mso-bidi-font-family: Wingdings; mso-fareast-font-family: Wingdings;">v<span style="font-family: 'Times New Roman'; font-size: 7pt;">  </span></span><span lang="EN-US">Like
interest the other income is also doubted that is income from house property.
In general when a person lets out a house property or if he / she own more than
one house property than the one that is not used for residential purpose will
be deemed to be let out that the income so derived is chargeable under the head
“Income from House Property”. But confusion arises when the house property is a
part of stock in trade of an assesse’s business. The answer is such income will
be taxable under the head “Income from House Property” and not under the head
“Income from Business and Profession”. In case the business of the assessee is
letting out the property, income from such business is also taxable under the
head “Income from House Property”.<o:p></o:p></span></div>
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<span lang="EN-US" style="font-family: Wingdings; mso-bidi-font-family: Wingdings; mso-fareast-font-family: Wingdings;">v<span style="font-family: 'Times New Roman'; font-size: 7pt;">  </span></span><span lang="EN-US">Other
income as above that may lead to confusion is winning from lotteries, racing
horses, etc. Such income is not chargeable under the head “Income from Business
and Profession” even if such it is the business of assessee. It will be taxable
under the head “Income from Other Sources”.<o:p></o:p></span></div>
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<span lang="EN-US" style="font-family: Wingdings; mso-bidi-font-family: Wingdings; mso-fareast-font-family: Wingdings;">v<span style="font-family: 'Times New Roman'; font-size: 7pt;">  </span></span><span lang="EN-US">In
case where an assessee is carrying out more than one business and / or
profession, than the income from all such businesses will be taxable under the
head “Income from Business and Profession” except the income earned from
speculative business. <o:p></o:p></span></div>
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<span lang="EN-US" style="font-family: Wingdings; mso-bidi-font-family: Wingdings; mso-fareast-font-family: Wingdings;">v<span style="font-family: 'Times New Roman'; font-size: 7pt;">  </span></span><span lang="EN-US">The
other point to be considered while computing the income of an assessee is that,
even if the person is not an owner of the business even though he runs the
business to earn the income than such income is taxable in the hands of a
person who is carrying out the business. Thus in short it can be said that when
the actual business is carried out by the person other than the legal owner of
the business, than the person carrying out such business is known as the
beneficial owner of the business and income from such business and profession
is taxable in the hands of beneficial owner under the head “Income from
Business and Profession”.<o:p></o:p></span></div>
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<span lang="EN-US" style="font-family: Wingdings; mso-bidi-font-family: Wingdings; mso-fareast-font-family: Wingdings;">v<span style="font-family: 'Times New Roman'; font-size: 7pt;">  </span></span><span lang="EN-US">Even
if the assessee carries out any business that is illegal in nature as per the country’s
or state’s rules and regulations than also such income is chargeable to tax
under the head “Income from Business & Profession”. Example can be, if any
assessee is carrying out the business of trading wine in Gujarat (Which is
prohibited by State rules) than income from such business and profession is
chargeable to tax under the head “Income from Business and Profession”.<o:p></o:p></span></div>
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<span lang="EN-US" style="font-family: Wingdings; mso-bidi-font-family: Wingdings; mso-fareast-font-family: Wingdings;">v<span style="font-family: 'Times New Roman'; font-size: 7pt;">  </span></span><span lang="EN-US">While
calculating the income chargeable to tax under the head “Income from Business
and Profession”, potential losses such as Bad Debt Reserve are allowable as a
deduction but potential profits are not to be considered. But the accrued
profits are to be considered while deriving the income taxable under the head
“Income from Business and Profession”.<o:p></o:p></span></div>
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<span lang="EN-US" style="font-family: Wingdings; mso-bidi-font-family: Wingdings; mso-fareast-font-family: Wingdings;">v<span style="font-family: 'Times New Roman'; font-size: 7pt;">  </span></span><span lang="EN-US">When
some loss of income is recovered by the assessee in previous year than the same
is considered as income and is chargeable to tax under the head “Income from
Business and Profession”. Also when any expense was first claimed as deduction
and the same is recovered, the same is also chargeable to tax under the head
“Income from Business and Profession”.<o:p></o:p></span></div>
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<span lang="EN-US" style="font-family: Wingdings; mso-bidi-font-family: Wingdings; mso-fareast-font-family: Wingdings;">v<span style="font-family: 'Times New Roman'; font-size: 7pt;">  </span></span><span lang="EN-US">Profit
or loss of the business of an assessee is not derived as per the books
maintained by the assessee but the same is derived as per the manner described
in the Income Tax Act. So even if the books of accounts are manipulated by book
entry, the same will have any effect on the tax structure of an assessee.<o:p></o:p></span></div>
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<span lang="EN-US" style="font-family: Wingdings; mso-bidi-font-family: Wingdings; mso-fareast-font-family: Wingdings;">v<span style="font-family: 'Times New Roman'; font-size: 7pt;">  </span></span><span lang="EN-US">In
case of winding up of business, the income / profits so arise will be taxable
in two manners. The profits earned from the business activities carried out
while winding up will be taxable under the head “Income from Business and
Profession” and the part of profit that arises out of other winding up
procedure will be taxable under the head “Income from Capital Gains”.</span></div>
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Chargeability of Income from Business and Profession

Chargeability of Income from Business and Profession We come in contact with the words Business & Profession and other allied w...

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