BUSINESS VS PROFESSION

Section 44AB of the Income Tax Act, 1961 defines separate limit for business and profession, so it is essential to understand what is business and what is profession.

Tax Audit Series-2 - Business Vs. Profession

Business Profession

The term “business” is defined in section 2(13) of the Act, as under:

“Business” includes any trade, commerce, or manufacture or any adventure or concern in the nature of trade, commerce or manufacture.

The word `business’ is one of wide import and it means activity carried on continuously and systematically by a person by the application of his labour or skill with a view to earning an income. The expression

“business” does not necessarily mean trade or manufacture only – Barendra Prasad Ray v ITO [1981] 129 ITR 295 (SC).

Section 2(36) of the Act defines profession to include vocation. Profession is a word of wide import and includes “vocation” which is only a way of living. –Additional CIT v. Ram Kripal Tripathi [1980] 125 ITR 408 (All).
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. 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.

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 following activities have been held to be business :

A. Advertising agent

B. Clearing, forwarding and shipping agents

    • CIT v. Jeevanlal Lalloobhai & Co. [1994] 206 ITR 548 (Bom).

C. Couriers

D. Insurance agent

E. Nursing home

F. Stock and share broking and dealing in shares and securities – CIT v. Lallubhai Nagardas & Sons [1993] 204 ITR 93 (Bom).

G. Travel agent.

The following have been listed out as professions in section 44AA read with Rule 6F and other professions notified thereunder (Notifications No. 1620 SO18(E) dated 12.1.77, No. 9102SO 2675 dated 25.09.1992 and No.116 SO 385(E), dated 4.5.2001):

A. Accountancy

B. Architectural

C. Authorised Representative

D. Company Secretary

E. Engineering

F. Film Artists:

“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—

      • An actors,
      • A cameraman,
      • A director including an assistant director;
      • A music director, including an assistant music director,
      • An art director, including an assistant art director;
      • A dance director, including an assistant dance director;
      • A singer,
      • A story-writer,
      • A screen-play writer,
      • A dialogue writer; editor, lyricist and
      • A dress designer.

G. Interior Decoration

H. Legal

I. Medical

J. Technical Consultancy

K. Information Technology.

Whether a particular activity can be classified as `business’ or `profession’ will depend on the facts and circumstances of each case. 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 operation which is substantially the production or sale or arrangement for the production or sale of commodities.- CIT Vs. Manmohan Das (Deceased) [1966] 59 ITR 699 (SC), CIT v. Ram Kripal Tripathi [1980] 125 ITR 408 (All).
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.
It may be pertinent to mention that:-

  • “Company Secretary”was notified as a profession for the purpose of sub-section (1) of Section 44AA vide Notification S.O. 2675 dated 25th September, 1992 [No.9102/F.No.225/61/92-IT(A-II)]
  • “Information technology”was notified as a profession for the purpose of Section 44AA(1) vide Notification S.O.385 dated 4th May, 2001 [No.116/F.No.23/FB/2001- TPL]
  • The CBDT vide S.O.2085(E) dated 21st August, 2008, Notification No.88/2008/F.No.275/43/2008-IT(B), notified the services rendered by following persons in relation to the sports activities as ‘Professional Services’for the purpose of Section 194J :

a. Sports Persons

b. Umpires and Referees

c. Coaches & Trainers

d. Team Physicians and Physiotherapists

e. Event Managers

f. Commentators

g. Anchors, and

h. Sports Columnist

*****

Disclaimer: This update is not an advertisement or any form of solicitation. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we Endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in future. Readers should obtain appropriate professional advice.

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