Advocate Akhilesh Kumar Sah
The Section 2(13) of the Income Tax Act, 1961, contains an inclusive definition of the term “business”. There are differences between the meaning of words “business” & “profession” in various English dictionaries. Also as per the terminology of income-tax difference has been made in the above words yet no demarcating line has been drawn in respect of these. It was observed by the Supreme Court in CIT vs. Manmohan Das (1966) 59 ITR 699 (SC) (at page 710) that a profession involves occupation requiring purely intellectual or manual skill. Also the Supreme Court in State of Punjab & another vs. Bajaj Electricals Ltd. (1968) 70 ITR 730 (SC) has held that “Trade” in its primary meaning is the exchanging of goods for goods or goods for money; in its secondary meaning it is repeated activity in the nature of business carried on with a profit motive, the activity being manual or mercantile, as distinguished from the liberal arts or learned professions or agriculture. We can easily distinguish the professions of Advocate, Architecture, Chartered Accountant, Doctor, Engineer From the business activities like purchase & sale etc. Yet, if an assessee, who is a professional and an expert, contemporaneously carries on a trade which is annexed to the exercise so such a profession and if, by doing so, he can take advantage of a provision in the fiscal Act by claiming an allowance or rebate, and if such a claim carries a lighter burden of tax, then he has the right to take advantage of the same (Dr. P. Vadamalaysn vs. CIT (1969) 74 ITR 94 (Mad)). In considering the question whether the activity was a business activity or it was a hobby, would depend upon the dominant intention of the assessee and the actual activity carried on by the assessee (Mrs. Kamala Muthia vs. CIT (2003) 175 Taxation 581 (Mad.). The Supreme Court in Chennai Properties & Investments Ltd vs. CIT 2015 (5) TMI 46 (SC) has observed that merely an entry in the object clause showing a particular object would not be the determinative factor to arrive at an conclusion whether the income is to be treated as income from business and such a question would depend upon the circumstances of each case, viz., whether a particular business is letting or not.
Following are some of professions as per Rule 6F of the I.T. Rules, 1962:
“Film artist” means any person engaged in his professional capacity in the production of a cinematograph film whether produced by him or by any other person, as—
(i) an actor,
(ii) a cameraman;
(iii) a director, including an assistant director;
(iv) a music director, including an assistant music director;
(v) an art director, including an assistant art director;
(vi) a dance director, including an assistant dance director;
(vii) an editor;
(viii) a singer;
(ix) a lyricist;
(x) a story writer;
(xi) a screen-play writer;
(xii) a dialogue writer; and
(xiii) a dress designer.
It was observed by the Madras High Court in reference to section 2(13) in the case of Dr. P. Vadamalayan vs. CIT (supra) that the definition of ‘business’, being an inclusive definition and not being exhaustive, is indicative of extension and expansion and not restriction.
The word “profession” & “vocation” have not been defined in the Act while as per section 2(36) of the Income Tax Act, 1961, “profession” includes vocation. The word “vocation” is a word of wider import than the word ‘profession”. The words “business” and “vocation” are not synonymous, Upon a proper construction of the words “business” and “vocation” in the context of the Indian Income-tax Act, there must be some real, substantive and systematic course of business or conduct before it can be said that a business or vocation exists the profits of which are taxable as such under the Act (Upper India Chamber of Commerce, Cawnpore vs. CIT (1947) 15 ITR 263 (All). Also it was observed in Addl CIT vs. Ram Kripal Tripathi (1980) 125 ITR 408 (All) that the expression “profession” involves the idea of an occupation requiring purely intellectual skill or manual skill controlled by the intellectual skill of the operator, as distinguished from an occupation or business which is substantially the production or sale, or arrangements for the production or sale, of commodities. “Profession” is a word of wide import and includes “vocation” which is only a way of living and a person can have more than one vocation, and the vocation need not be for livelihood nor for making any income nor need it involves systematic and organised activity. It was observed in Dr. P. Vadamalayan vs. CIT (supra) at page 96) that the term “business” as used in the fiscal statute cannot ordinarily be understood in its etymological sense. According to the Shorter Oxford Dictionary, “business” includes a state occupation, profession or trade; profession in a wide sense means any calling or occupation by which a person habitually earns his living. Even so, “trade” is explained as the practice of some occupation, business or profession habitually carried on. As is not unusual several jurists and eminent judges while attempting to define the limits of one or the other of the words “business”, profession and trade”, entered the “labyrinth together but made exits by different paths”. The Supreme Court in Narain Swadeshi Weaving Mills vs. Commissioner of Excess Profits Tax (1954) 26 ITR 765 (SC), said that the word “business” connotes some real, substantial and systematic or organised course of activity or conduct with a set purpose. Venkatarama Aiyar J.,speaking for the court in Mazagaon Dock Ltd. vs. CIT (1958) 34 ITR 368 at page 376 (SC), explained “business” as a word of wide import and in fiscal statutes it must be construed in a broad rather than a restricted sense. The Supreme Court in Lakshminarayan Ram Gopal and Son Ltd. vs. Government of Hyderabad (1954) 25 ITR 449 at page 459 held:
“The activities which constitute carrying on business need not necessarily consist of activities by way of trade, commerce or manufacture of activities in the exercise of a profession or vocation. They may even consist of rendering services to others which services may be of a variegated character.”
Even in the United Kingdom at one time, it was felt that if there was such an unison in the two, that is, business and profession, the income from each had to be separated by adopting an actual formula and dealt with as such and concessions granted. Such a doctrine of severability was noticed in Commissioner of Inland Revenue vs. Maxse (1919) 2 All ER 517 and Neild vs. Inland Revenue Commissioners (1948) 2 All ER 1071. But as the editor says in Webster vs. Commissioners of Inland Revenue (1942) 2 All ER 517.
“Now that we have the authority of the House of Lords that even professions have their trade unions, it is clear that the once cherished distinction between a profession and a trade is becoming somewhat blurred.”
The Legislature in enacting the 1922 Act as also the 1961 Act has shown great awareness about the distinction between the concept of a “business” and that of a ‘profession” and the expression “business” has been employed by the Legislature in order to emphasis the distinction between a business and a profession. [CIT vs. Dr. K. K. Shah (1982) 135 ITR 146 (Guj)].
The Allahabad High Court in P. Stanwill & Co. Vs. CIT (1952) 22 ITR 316 (All) observed that the main difference between ordinary commercial business and profession lies in the amount of knowledge or skill employed in carrying it on though that may not be the sole criterion. As it was pointed out by Rowlatt, J., inChristopher Barker & Sons vs. Inland Revenue Commissioners (1919) 2 KB 222.
“every business man has to use skill and ability in the conduct of his business and therefore, those qualities are not distinguishing marks of a profession.”
The learned Judge in attempting to point out the difference says:—
“All professions are businesses, but all businesses are not professions, and it is only some businesses which are taken out of the operation of the section, namely, those are professions, the profits of which are dependent mainly upon personal qualifications and in which nil capital expenditure is required or only capital expenditure of a comparatively small amount.”
In William Esplen, Son & Swainston, Limited vs. Commissioners of Inland Revenue (1919) 2 KB 731 the same learned Judge again said:—
“It is of the essence of a profession that the profits should be dependent mainly upon the personal qualification of the person by whom it is carried on…………….”
Scrutton, LJ, in Commissioners of Inland Revenue vs. Maxse (1919) 12 Tax Cas. 41 attempted, though with considerable diffidence, to define what is a “profession” and said:—
“I am very reluctant finally to propound a comprehensive definition. A set of facts not present to the mind of the judicial propounded, and not raised in the case before him, may immediately arise to confounds his proposition. But it seems to me, as at present advised, that a ‘profession’ in the present use of language involves the idea of an occupation requiring either purely intellectual skill or if any manual skill, as in painting and sculpture, or surgery, skill controlled by the intellectual skill or if any manual skill, as in painting and sculpture, or surgery, skill controlled by the intellectual skill of the operator as distinguished from an occupation which is substantially the production, or sale, or arrangements for the production or sale of commodities. The line of demarcation may vary from time to time. The word ‘profession’ used to be confined to the three learned professions—the Church, Medicine and Law. It has now, I think, a wider meaning…………”
The I.T. Act has provided an inclusive definition of the word “business” capable of wide application but it is certain that activities mentioned in the definition itself indicate the nature of term “business”. In the advanced learner’s dictionary of current English printed at the Oxford University Press the word “Profession” has been meant (among other meanings) as the occupation especially one requiring advanced education and special training (e.g. the law, architecture, medicine, the Church, often called the learned profession). The word “vocation” has been given the meaning (among other meanings) as a certain kind of work (esp. social or religious). In the absence of clear definition of ‘profession’ under the Income-tax Act, whether an activity will fall under the term of ‘business’ or ‘profession’ will depend upon the facts & circumstances of case in question. It was observed in P. Stanwill & Co. vs. CIT (supra) that a certain amount of skill and knowledge is required in every business; in a profession it is required in a larger degree though that may not be the sole criterion for judging whether a particular business is a profession or not.
Over the years there have come in many cases regarding whether an activity will under the term ‘business’ or ‘profession’, the above may help in respect of the issue.