Meaning of Business or Profession as per income tax act

In view of section 2(13) of income tax act business includes (a) trade, (b) commerce, (c) manufacture, or (d) any adventure or concern in the nature of trade, commerce or manufacture. Though the explanation  is not exhaustive, it covers every facet of an engagement or occupation carried on by a individual with a view to earning profit.

Business section 2(13) | Profession section 2(36) | Meaning of business and profession as per income tax act 1961

Significance of Profit motive: 

The word "business" is one of massive and indefinite import and connotes something which engagement or occupies attention and labour of a person for the purpose of profit.

Business cannot be carried on with oneself:

Business arises out of commercial transactions between two or more persons. One cannot admit into a business transaction with oneself.

Under income tax Section 2(13) business includes –

• any trade, commerce or manufacture; or 

• any adventuresome or concern in the nature of commerce, trade or manufacture.

Ordinarily, business proportion recurring economic or financial activity, but for income tax purpose an isolated activity may be termed as business depending upon facts and situation or circumstances. Following points shall be considered to judge a transaction as business transaction:

• Nature of commodity 

• Intention of the party 

• Efforts applied in transaction

• Periodicity of transaction 

• Nature of transaction (In case incidental to a business or not).

Section 2(36) of income tax act Profession includes vocation. Profession requires purely intellectual or knowledgeable  skill or manual skill on the basis of some special  learning or instructions  and qualification gathered through past training or experience example cost accountant, company secretary, chartered accountant, doctor, lawyer, etc. Professional skill can be obtained only after patient study (in a particular system either a educational institute or college, university) and application (i.e. experience).

Vocation implies natural ability of a person to do some particular work example art, singing, dancing, etc. The term “vocation” is different from the term “hobby, like fancy”. Vocation must have the earning feature. It can be treated as an earning or income source means by which a man passes his life. Unlike profession, vocation does not require a special degree course or special learning.

Notes:

1. Profit Motive: If the intention or motive of an activity is pleasure only, it shall not be treated as business activity or business income.

2. Business vs Profession: An income generating out of trade, commerce, manufacture, profession or vocation shall have the same treatment in Income tax Act 1961. However, a little segregation is required to be made between business and profession while applying section 44AA maintenance of books of account, section 44AB tax audit, section 40AD presumptive taxation scheme, section 44ADA professional income on presumptive basis etc.