prpri Business Head : Income from profession V/s Business Income Business Head : Income from profession V/s Business Income

Mostly we use term profession in association with business and try to find it’s colour from the company it keeps. Most of the times it is not necessary to differentiate business from profession, since most provisions dealing with business and profession are same, but for some purposes distinction has to be established.

Section 2(36) says “Profession includes Vocation”.

Here profession has not been defined rather vocation has been made part of it which is an independent word having a separate meaning.

“Profession” demands specialized knowledge through formal education and/or experience, an organized body to control persons exercising profession that assure competence of professionals – society needs professionals due to skills one has acquired due to that knowledge and /or experience.

Vocation is self employment of any sort, which require skill, it is not expected to be as organized as profession. A person in self employment exercises profession if that employment is result of personal skill and not of goods on the other hand If goods or services are being provided and they don’t need any personal skill then surely these are covered under term business. Even business can be of service and every service cannot be termed as profession – tangible goods are not necessary to constitute business. Similarly income derived on account of inborn talent, skill and attributes cannot be considered as Professional Income Example –

Income derived on account of delivering discourse on Religion and Philosophy etc. The word profession is not rigid or static in it’s signification; it is undoubtedly progressive with the general progress of the community [Bradfield V/s Federal Taxation Commissioner (1924) CLR 1].

This distinction becomes necessary when applicability of section 44 AA & AB and 194 J has to be established. At times there remains a very thin line between profession and business.

Example – If a person work simply as freight and forwarding agent his receipt are business receipt because no personal skills is required on his part and his commission is result of ‘sale of his services’, similar case is with franchise of financial institutions and tour operators. On the other hand when the same person is also doing work of custom clearing and a license is needed from custom department before working as such this receipt may become professional receipt.

Section 44 AB says Every person, carrying on profession shall, if his gross receipts in profession exceed twenty-five lakh rupees in any previous year get his accounts of such previous year audited by an accountant before the specified date and furnish by that date the report of such audit in the prescribed form duly signed and verified by such accountant and setting forth such particulars as may be prescribed

Section 44 AA says that Every person carrying on legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or any other profession as is notified by the Board in the Official Gazette shall keep and maintain such books of account and other documents as may enable the Assessing Officer to compute his total income in accordance with the provisions of this Act. Rule 6 F further accomplishes the procedural duty and explain what has to be done in such cases ( only when receipts exceeds 150000) –

The books of account and other documents referred shall be —

I. a cash book,

II. a journal, if the accounts are maintained according to the mercantile system of accounting,

III. a ledger,

IV. carbon copies of bills, whether machine numbered or otherwise serially numbered, wherever such bills are issued by the person, and carbon copies or counterfoils of machine numbered or otherwise serially numbered receipts issued by him:

Provided that nothing shall apply in relation to sums not exceeding twenty-five rupees;],

V. original bills wherever issued to the person and receipts in respect of expenditure incurred by the person or, where such bills and receipts are not issued and the expenditure incurred does not exceed fifty rupees, payment vouchers prepared and signed by the person

[Provided that the requirements as to the preparation and signing of payment vouchers shall not apply in a case where the cash book maintained by the person contains adequate particulars in respect of the expenditure incurred by him.]

A person carrying on medical profession shall, in addition to the books of account and other documents specified above, keep and maintain a daily case register in Form No. 3C and an inventory [under broad heads,] as on the first and the last day of the previous year, of the stock of drugs, medicines and other consumable accessories used for the purpose of his profession

The books of account and other documents specified above [other than those relating to a previous year which has come to an end] shall be kept and maintained by the person at the place where he is carrying on the profession or, where the profession is carried on in more places than one, at the principal place of his profession:

Provided that where the person keeps and maintains separate books of account in respect of each place where the profession is carried on, such books of account and other documents may be kept and maintained at the respective places at which the profession is carried on.

In all other specified cases keep and maintain such books of account and other documents as may enable the Assessing Officer to compute his total income in accordance with the provisions of this Act.

Section 194 J also applies on professional Services here “professional services” means services rendered by a person in the course of carrying on legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or advertising or such other profession as is notified by the Board for the purposes of Section 44 AA or of section 194J;

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