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DEFINITION OF BUSINESS AND COMMERCE

This query is : Resolved 

24 September 2007 A charitable educational Institution is running schools without profit motive but for social service. Is it covered under the definition of business and commerce.

24 September 2007 Trust are formed for the purpose of ..

Relief to the poor, education, medical relief and any other object of General Public Utility.

CHAMBER OF COMMERCE :
Any Chamber of Commerce formed by the members of public for the benefit of members, without any restriction to any caste, religion or community, shall be treated as falling within the expression general public uility and entitled for exemption. Ex: Andhra Chamber of Commerce.

Trust carrying on business. (Sec 11(4A) of the IT act)
1) The business is incidental to the attainment of the object of the Trust.
2) Separate sets of books of accounts shall be maintained.
3) The AO shall have the power to determine the income of such business.

Now u would have understood whether it is business or commerce.

25 September 2007 We can not say continuous activity of collection of donations and subscriptions for spending on charitable activity as business. Like wise running a school out of the funds available from donations. Now running a school by charitable institution is a business or not.

25 September 2007 Business

The word ‘business’ connotes some real, substantial and systematic or organised 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).

n 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).

n 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).

n 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).

n Business, as understood in the income-tax law, connotes some real, substantial and systematic or organised 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).

n 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).

n 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).

n 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).

n 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).

n The expression ‘business’ is a well-known expression in income-tax law. It means some real, substantial and systematic or organised 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).

n 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.).

n 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.).

n Though the word ‘business’ is a word of wide import, it would not take in its ambit activities which may constitute ‘profession’. This is because the two expressions ‘business’ and ‘profession’ have been used in the Act in mutually exclusive sense. That being so, even if the word ‘business’, on a wider interpretation, can include within its scope ‘profession’, for the purpose of the Act, particularly the applicability of rate of tax/surcharge, ‘profession’ has to be understood as distinct and separate from ‘business’ - CIT v. Lallubhai Nagardas & Sons [1993] 204 ITR 93 (Bom.).

n 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 v. CIT [1947] 15 ITR 263 (All.).

n The term ‘business’ as used in the fiscal statutes cannot ordinarily be understood in its etymological sense. ‘Business’ has been defined in section 2(4) of the 1922 Act but not profession, though for fiscal purposes, a distinction is sought to be made in the Act. The definition of ‘business’, being an inclusive definition and not being exhaustive, is indicative of extension and expansion and not restriction. According to the Shorter Oxford Dictionary, ‘business’ includes a stated 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 by different paths’ - Dr. P. Vadamalayan v. CIT [1969] 74 ITR 94 (Mad.).

n Section 4 of the Partnership Act defines ‘partnership’ as the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all. While as a result of section 2(23) of the Act, the concept of the Partnership Act has been imported into the Income-tax Act, there is no provision in the Partnership Act which imports into it the concept of income-tax law. Therefore, because of the classification of the income under several heads under the Act, it cannot be stated that whatever is classified under the head ‘Business’ under the Income-tax Act alone could constitute business in the sense of the Partnership Act. So, the result is whatever may be the head of assessment under the Income-tax Act so long as what was carried on by the firm could be classified as business in the sense of the Partnership Act, the firm would be entitled to registration - CIT v. Admiralty Flats Motel [1982] 133 ITR 895 (Mad.).

n 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).


08 November 2007 Thanks Mr. Sampat Jain. Happy Diwali.



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