9. Medical.
10. Technical Consultancy.
The terms Sales, Turnover and Gross receipts are not defined under the Income Tax Act, 1961. Section 44AB is applicable only if the Gross receipts/Sales/Turnover cross a certain threshold. Hence the definition of Gross Receipts becomes very crucial.
Considering that the words ‘Sales’, ‘Turnover’ andss="MsoBodyText" style="text-indent: -.45in; margin-left: .45in"> iii. A company.
iv. A firm.
v. An association of persons or a body of individuals, whether incorporated or not.
vi. A local authority.
vii. Every artificial juridical person, not falling within any of the preceding sub-clauses.
Explanation: For the purposes of this clause, an association of persons or a body of individuals or a local authority or an artificial juridical person shall be deemed to be a person, whether or not such person or body or authority or juridical person was formed or established or incorporated with the object of deriving income, profits or gains.
Ø ‘Individual’ where first used, must mean human being, because it is used as something distinct from a joint family, firm and company. One cannot give to the word ‘individuals’ in the expression ‘association of individuals’ a different meaning to that which the word ‘individuals’ bears where it appears in the same phrase—CIT v. Ahmedabad Millowners’ Association [1939] 7 ITR 369 (Bom).
Ø The expression ‘individual’ is now a unit of assessment and referable only to a natural person, i.e., a human being, a situation different from that in the 1922 Act—Udham Singh v. CIT [1987] 35 Taxman 275 (Ori.).
Ø It is now well-settled that the word ‘individual’ does not necessarily and invariably always refer to a single natural person. A group of individuals may as well come in for treatment as an individual under the tax laws if the context so requires—CIT v. Shri Krishna Bandar Trust [1993] 201 ITR 989 (Cal.).
Ø The expression ‘Hindu joint family’ in the Income-tax Act is used in the sense in which a Hindu joint family is understood under the various schools of Hindu law—C. Krishna Prasad v. CIT [1974] 97 ITR 493 (SC).
Ø The expression ‘Hindu undivided family’ finds reference in the provisions of the 1961 Act but that expression is not defined in the said Act. The reason of the omission evidently is that the expression has a well-known connotation under the Hindu Law and being aware of it, the Legislature did not want to define the expression separately in the Act. Therefore, the expression ‘Hindu undivided family’ must be construed in the sense in which it is understood under the Hindu Law—Surjit Lal Chhabda v. CIT [1975] 101 ITR 776 (SC).
Ø The word ‘Hindu’ preceding the words ‘undivided family’ signifies that the undivided family should be of those to whom Hindu law applies—CWT v. Smt. Champa Kumari Singhi [1972] 83 ITR 720 (SC).
Ø A ‘Hindu coparcenary’ is a much narrower body than the Hindu joint family; it includes only those persons who acquire by birth an interest in the joint or coparcenary property, these being the sons, grandsons and great grandsons of the holder of the joint property for the time being—N.V. Narendranath v. CWT [1969] 74 ITR 190 (SC).
Ø A Hindu coparcenary has six essential characteristics, namely: (1) that the lineal male descendants up to the third generation acquire an independent right of ownership by birth and not as representing their ancestors; (2) that the members of the coparcenary have the right to work out their rights by demanding partition; (3) that until partition, each member has got ownership extending over the entire property conjointly with the rest and so long as no partition takes place, it is difficult for any coparcener to predicate the share which he might receive; (4) that as a result of such co-ownership the possession and enjoyment of the property is common; (5) that there can be no alienation of the property without the concurrence of the other coparceners unless it is to be for legal necessity; and (6) that the interest of a deceased member lapses on his death and merges in the coparcenary property—CED v. Alladi Kuppuswamy [1977] 108 ITR 439 (SC).
Note: The last characteristic is subject to the provisions of the Hindu Succession Act, 1956 which assumes a notional partition if a Hindu coparcener governed by the Mitakshara School of law dies intestate and is survived by a female relative in Class I.
Ø ‘Family’ connotes a group of people related by blood or marriage. According to Shorter Oxford English Dictionary, 3rd edition, the word ‘family’ means the group consisting of parents and their children, whether living together or not; in a wider sense, all those who are nearly connected by blood or affinity; a person’s children regarded collectively; those descended or claiming descent from a common ancestor; a house, kindred, lineage; a race; a people or group of peoples. According to Aristotle’s Politics I, it is the characteristic of man that he alone has any sense of good and evil, or just and unjust, and the association of living beings who have this sense make a family and a State.
Ø The word ‘family’ always signifies a group. Plurality of persons is an essential attribute of a family. A single person, male or female, does not constitute a family. He or she would remain, what is inherent in the very nature of things, an individual, a lonely wayfarer till per chance he or she finds a mate. A family consisting of a single individual is a contradiction in terms. Section 2(31) of the 1961 Act treats a HUF as an entity distinct and different from an individual and it would be wrong not to keep that difference in view - C. Krishna Prasad v. CIT [1974] 97 ITR 493 (SC).
Ø ‘Firm’ is a collective noun, a compendious expression to designate an entity, not a person. In income-tax law a firm is a unit of assessment by special provisions but is not a full person—CIT v. R.M. Chidambaram Pillai [1977] 106 ITR 292 (SC).
Ø Under the Income-tax Act, ‘firm’, ‘partner’ and ‘partnership’ have been given the same meaning as assigned to them in the Indian Partnership Act. But the expression ‘partner’ has been extended to include any person who, being a minor, has been admitted to the benefits of a partnership. Only the members who have entered into partnership are to be regarded as partners. The position of the other members is no higher than sub-partnership—Rasik Lal & Co. v. CIT [1998] 96 Taxman 16 (SC).
Ø The word ‘associate’ means, according to the Oxford Dictionary, ‘to join in common purpose or to join in an action’. Therefore, an association of persons must be one in which two or more persons join in a common purpose or common action, and as the word occurs in section 3 of the 1922 Act, which imposes a tax on income, profits or gains, the association must be one the object of which is to produce income, profits or gains—CIT v. Indira Balkrishna [1960] 39 ITR 546 (SC).
Ø ‘Association of persons’ as used in section 2(31) means an association in which two or more persons join in a common purpose or common action, and as the words occur in a section which imposes a tax on income, the association must be one, the object of which is to produce income, profits or gains—N.V. Shanmugham & Co. v. CIT [1971] 81 ITR 310 (SC).
Ø For forming an ‘association of persons’ the members of the association must join together for the purpose of producing an income. An ‘association of persons’ can be formed only when two or more individuals voluntarily combine together for a certain purpose. Hence, volition on the part of the members of the association is an essential ingredient. Even a minor can join an ‘association of persons’ if his lawful guardian gives his consent. In the case of receiving dividends from shares, where there is no question of any management, it is difficult to draw an inference that two or more shareholders function as an ‘association of persons’ from the mere fact that they jointly own one or more shares, and jointly receive the dividends declared. Those circumstances do not by themselves go to show that they acted as an ‘association of persons’—G. Murugesan & Bros. v. CIT [1973] 88 ITR 432 (SC).
Ø To ‘associate’ is to join in a common purpose or action. ‘Association’ does necessitate the exercise of volition of those who form the association. The exercise of that volition can be by or on behalf of those who form the association—Estate of Khan Sahib Mohd. Oomer Sahib v. CIT [1958] 33 ITR 767 (Mad.).
Ø An association of persons does not mean any and every combination of persons. It is only when they associate themselves in an income-producing activity that they become an association of persons. They must combine to engage in such an activity; the engagement must be pursuant to the combined will of the persons constituting the association; there must be a meeting of the minds, so to speak. In a nutshell, there must be a common design to produce income. If there is no common design, there is no association. Common interest is not enough. Production of income is not enough. This interpretation of the expression ‘association of persons’ flows from the meaning of the word ‘association’—Deccan Wine & General Stores v. CIT [1977] 106 ITR 111 (AP).
Ø Joining together by the members of the association for the purpose of producing income is requisite for formation of an association of persons. Such coming together or combining is a consensual act and depends upon the volition of the parties. Merely because certain persons are constituted joint owners, such as by inheriting the property of a person on his death, they do not become an association of persons, for, in that event, the jointness is the result of operation of law and not of volition of parties—CIT v. T.V. Suresh Chandran [1980] 121 ITR 985 (Ker.).
Ø The expression ‘body of individuals’ should receive a wide interpretation, perhaps not wide enough to include a combination of individuals who merely receive income jointly without anything further as in the case of co-heirs inheriting shares or securities, but certainly wide enough to include a combination of individuals who have a unity of interest but who are not actuated by a common design, and one or more of whose members produce or help to produce income for the benefit of all—Deccan Wine & General Stores v. CIT [1976] 105 ITR 111 (AP).
Ø The body of individuals with which the Income-tax Act is concerned must be carrying on an activity with a view to earn income because it is only with such a body of individuals that the Income-tax Act is concerned and again the words ‘body of individuals’ derive colour from the context in which they occur, namely, an ‘association of persons’ and, therefore, the only course open as a matter of interpretation is to attribute the second meaning out of the three meanings set out hereinabove to the words ‘body of individuals’. The words ‘body of individuals’ occurring in the Income-tax Act in the definition of the word ‘person’ in section 2(31), therefore, could only mean a conglomeration of individuals who carry on some activity with the object of earning income—CIT v. Harivadan Tribhovandas [1977] 106 ITR 494 (Guj.).
Ø The expression ‘person’ has now been defined in section 2(31) which includes ‘an AOP or a BOI, whether incorporated or not’. The Legislature had definitely some purpose in mind while specifically including a BOI in the category of persons along with ‘AOP’. It will not be proper to say that ‘BOI’ must be given the same meaning as attributed to ‘AOP’ by the Supreme Court in CIT v. Indira Balkrishna [1960] 39 ITR 546. Doing so will render the entire exercise of defining the expression and incorporating specifically ‘BOI’ within the ambit of particular category of persons redundant. The expression ‘BOI’ must be given a definite meaning of its own. ‘AOP’ and ‘BOI’ convey two different combinations of persons and it will not be proper to try to apply the principle of ejusdem generis to give the same restricted meaning to the newly introduced expression ‘BOI’ as had been given by the Supreme Court to AOP on interpretation of the word ‘association’. The fact is that the expression ‘BOI’ must receive a wider interpretation than ‘AOP’—CIT v. Modu Timblo [1994] 206 ITR 647 (Bom.).
Ø The absence of a common design is what principally distinguishes a body of individuals from an association of persons. Another distinguishing feature is that the one refers to persons and the other to individuals—Deccan Wine & General Stores v. CIT [1977] 106 ITR 111 (AP).
It is possible to attribute any one of the following three meanings to the expression ‘body of individuals’ occurring in the Income-tax Act, 1961.
1. On the same basis as an ‘association of persons’, that is, the members of the body must have joined together for the purpose of producing income;
2. A conglomeration of individuals who happened to have come together but who carry on some activity with a view to earn income or profits or gains; and
3. Any conglomeration of individuals whatsoever irrespective of the object which brought them together and irrespective of the activities which they carry on.
It is clear that if the first meaning were to be adopted, that would be the narrowest meaning and adoption of that meaning would mean attributing tautology to the Legislature and there would be no difference between an ‘association of persons’ and ‘a body of individuals’. Acceptance of the meaning would mean that the Legislature had used the words ‘body of individuals’ in vain to describe one and the same group of individuals. On the other hand, if the third meaning is accepted, then the principle of noscitur a sociis would be lost sight of. Though the principle of ejusdem generis cannot be applied to the definition of the word ‘person’ occurring in section 2(31), since there is no specific genus to which an individual, a HUF, a company, a firm or an association of persons can be said to belong, the principle of noscitur a sociis can certainly apply in the facts of this case. The body of individuals with which the Income-tax Act is concerned must be carrying on an activity with a view to earn income because it is only with such a body of individuals that the Income-tax Act is concerned and again the words ‘body of individuals’ derive colour from the context in which they occur, namely, an ‘association of persons’ and, therefore, the only course open as a matter of interpretation is to attribute the second meaning out of the three meanings set out hereinabove to the words ‘body of individuals’. The words ‘body of individuals’ occurring in the Income-tax Act in the definition of the word ‘person’ in section 2(31), therefore, could only mean a conglomeration of individuals who carry on some activity with the object of earning income—CIT v. Harivadan Tribhovandas [1977] 106 ITR 494 (Guj.)
Section 2(13) of the Income tax Act, 1961 defines business: 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 Roy v ITO [1981] 129 ITR 295 (SC).
The word ‘business’ connotes some real, substantial and systematic or organized course of activity or conduct with a set purpose. The question, whether a particular source of income is business or not must be decided according to ordinary notions as to what a business is—Narain Swadeshi Wvg. Mills v. CEPT [1954] 26 ITR 765 (SC).
The word ‘business’ is one of wide import and in fiscal statutes, it must be construed in a broad rather than a restricted sense—Mazagaon Dock Ltd. v. CIT/CEPT [1958] 34 ITR 368 (SC).
The term ‘business’ is a word of very wide, scope though by no means determinate. It is neither practicable nor desirable to make any attempt at delimiting the ambit of its connotation. Each case has to be determined with reference to the particular kind of activity and occupation of the person concerned. Though ordinarily, ‘business’ implies continuous activity in carrying on a particular trade or vocation, it may also include an activity which may be called ‘quiescent’—CIT v. Calcutta National Bank Ltd. [1959] 37 ITR 171 (SC).
The word ‘business’ is not defined exhaustively in the Income-tax Act, but it denotes an activity with the object of earning profit. To say that a business is being carried on, means no more than that profit is to be earned by a process or production—Senairam Doongarmall v. CIT [1961] 42 ITR 392 (SC).
Business, as understood in the income-tax law, connotes some real, substantial and systematic or organized course of activity or conduct with a set purpose. This does not, however, mean that under no circumstances a single transaction can amount to a business transaction—CIT v. Prabhu Dayal [1971] 82 ITR 804 (SC).
The expression ‘business’ though extensively used in taxing statutes is a word of indefinite import. In taxing statutes, it is used in the sense of an occupation, or profession which occupies the time, attention and labour of a person, normally with the object of making profit. To regard an activity as business, there must be a course of dealings, either actually continued or contemplated to be continued with a profit motive, and not for sport or pleasure. Whether a person carries on business in a particular commodity must depend upon the volume, frequency, continuity and regularity of transactions of purchase and sale in a class of goods and the transactions must ordinarily be entered into with a profit motive. Business is an activity capable of producing a profit which can be taxed—Sole Trustee, Loka Shikshana Trust v. CIT [1975] 101 ITR 234 (SC).
The expression ‘business’ does not necessarily mean trade or manufacture only; it is being used as including within its scope professions, vocations and callings for a fairly long time. The word ‘business’ is one of wide import and it means an activity carried on continuously and systematically by a person by the application of his labour and skill with a view to earning an income—Barendra Prasad Ray v. ITO [1981] 129 ITR 295 (SC).
The word ‘business’ is of wide import, the underlying idea being of continuous exercise of an activity—CIT v. A. Dharma Reddy [1969] 73 ITR 75 (SC).
The definition of ‘business’ in section 2(13) is of wide amplitude and it can embrace within itself dealing in real property as also the activity of taking a property on lease, setting up a market thereon and letting out shops and stalls in the market—S.G. Mercantile Corpn. (P.) Ltd. v. CIT [1972] 83 ITR 700 (SC).
The expression ‘business’ is a well-known expression in income-tax law. It means some real, substantial and systematic or organized course of activity or conduct with a set purpose—CIT v. Distributors (Baroda) (P.) Ltd. [1972] 83 ITR 377 (SC)/Narain Swadeshi Wvg. Mills v. CEPT [1954] 26 ITR 765 (SC).
Business is nothing more than a continuous course of activities and all the activities which go to make up the business need not be started simultaneously in order that the business may commence. The business would commence when the activity which is first in point of time and which must necessarily precede the other activities is started—CIT v. Saurashtra Cement & Chemical Industries Ltd. [1973] 90 ITR 170 (Guj.).
The expression ‘business’ in ordinary parlance means any trading activity accompanied by regularity of transactions intended for the purpose of making profit. The word ‘business’ has been used from time to time with varying connotation. It means the state of being busily engaged in anything; that about which one is busy; function, occupation; stated occupation, profession or trade; trade, commercial transactions or engagements—Eclat Construction (P.) Ltd. v. CIT [1988] 172 ITR 84 (Pat.).
The word ‘business’ is one of large and indefinite import. However, it connotes something which occupies the labour and attention of a person, for the purpose of profit. Generally speaking, business is an activity of a commercial nature and means practically anything which is an occupation as distinguished from a pleasure. If the transaction is a trading transaction or an adventure in the nature of trade, it will amount to business, whether it results in loss or profit. It also includes adventure in the nature of trade. The object of the definition of ‘business’ in the Act is to treat the receipts from an adventure also to tax just as the receipts from the trade profits are brought to tax. In each case, however, one has to determine the nature of transaction, its volume, frequency, continuity and regularity. There is no hard and fast rule for application that particular transaction is a business. Any transaction, whether it is continuously undertaken or isolated transaction, can be treated alike to hold that a particular transaction is a business—CIT v. Hyderabad Race Club Charitable Trust [2003] 129 Taxman 788/262 ITR 194 (AP).
The following activities have been held to be business:
1. Advertising agent.
2. Clearing, forwarding and shipping agents—CIT v. Jeevanlal Lallubhai & Co. [1994] 206 ITR 548 (Bom).
3. Couriers.
4. Insurance agent.
5. Nursing home.
6. Stock and share broking and dealing in shares and securities—CIT v. Lallubhai Nagardas & Sons [1993] 204 ITR 93 (Bom).
7. Travel agent.
‘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 literal arts or learned professions or agriculture. The question whether trade is carried on by a person at a given place must be determined on a consideration of all the circumstances. No test or set of tests which is or are decisive for all cases can be evolved for determining whether a person carries on trade at a particular place—State of Punjab v. Bajaj Electricals Ltd. [1968] 70 ITR 730 (SC).
Ø There are certain elements in the adventure, which from the legal viewpoint, place it in the nature of trade or business.
Ø It is allied to transactions that constitute trade or business.
Ø It connotes chance and risk.
The expression ‘in the nature of trade’ appearing in the definition of ‘business’ in section 2(13) postulates the existence of certain elements in the adventure which in law would invest it with the character of trade or business—G. Venkataswami Naidu & Co. v. CIT [1959] 35 ITR 594 (SC).
When section 2(13) refers to an adventure in the nature of trade, it clearly suggests that the transaction cannot properly be regarded as trade or business. It is allied to transactions that constitute trade or business but may not be trade or business itself. It is characterized by some of the essential features that make up trade or business but not by all of them; and so, even an isolated transaction can satisfy the description of an adventure in the nature of trade—Estate Investment Co. Ltd. v. CIT [1980] 121 ITR 580 (Bom.).
The very word ‘venture’ connotes chance plus risk—CIT v. Smt. Minal Rameshchandra [1987] 30 Taxman 282/167 ITR 507 (Guj.).
Section 2(36) of the Income Tax Act, 1961 defines profession to include vocation.
Profession is a word of wide import and includes ‘vocation’ which is only a way of living—CIT v. Ram Kripal Tripathi [1980] 125 ITR 408 (All).
The word ‘vocation’ is a word of very wide meaning and is analogous to a calling. It means the way in which a person passes his life or the pursuit to which he devotes his time—Padmanabhan Krishna Menon v. CIT [1956] 29 ITR 954 (Trav.-Coch.).
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 v. Manmohan Das (Deceased) [1966] 59 ITR 699 (SC).
The following have been listed out as professions in section 44AA and notified there under (Notifications No. SO-17(E) dated 12.1.77 and No. SO 2675 dated 25.9.1992):
1. Accountancy.
2. Architectural.
3. Authorized Representative.
4. Company Secretary.
5. Engineering.
6. Film Artists/Actors, Cameraman, Director, Singer, Story-writer, etc.
7. Interior Decoration.
8. &nbs