Meaning of Business and Profession

Business

The term "business" is defined under section 2(13) to include any trade, commerce, manufacture, or any adventure or concern in the nature of trade, commerce, or manufacture. It implies that business activities involve a continuous exercise of an activity, though even profit from a single venture related to trade may also be considered as business.

Profession

The term "profession" is not explicitly defined in the Act, but it generally refers to an occupation that requires some degree of learning or specialized knowledge. The term "profession" also encompasses "vocation" as per Section 2(36). Examples of professions include those of a painter, sculptor, author, auditor, lawyer, doctor, architect, or astrologer.

Both business and profession generate income that is treated similarly for taxation purposes, regardless of whether the activity is continuous or occurs as a single transaction.

Profits

• In Cash or in Kind: Profits can be realized either in cash or in kind. When profits are received in a form other than cash, their cash equivalent on the date of receipt should be considered as the value of the income.
• Capital Receipts: Capital receipts are generally not accounted for while computing profits under this head.
• Voluntary Receipts: Payments made voluntarily, where there was no obligation to pay, are considered income if received in the course of business or profession. For example, fees paid to a consultant providing free advice or a lawyer receiving payment from someone who is not a client but has benefited from the lawyer's services.
• Application of Gains: The use of profits, even if made for community benefits, does not exempt them from tax liability. The business, profession, or vocation should be carried on for some time during the accounting year, even if not continuously.
• Legality of Income: The legality of the business or profession does not affect the taxability of profits. Illegally obtained income is still subject to tax.
• Income from Distinct Businesses: Profits from each distinct business must be calculated separately. However, the total tax is based on the aggregate profits from all businesses carried on by the assessee.
• Computation of Profits: Profits should be calculated after deducting losses and expenses incurred to earn the income, unless explicitly disallowed by the Act. The tax is charged on the net profits, not on gross receipts.