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Income Tax Laws – I

Notes Explain the Specific deductions under the Income Tax Act
Trace the Specific Disallowance
Analyse the concept of Depreciation

Introduction

The provisions for computation of Income from Business and Profession are covered under
sections 24 to 44D. This unit deals with the provisions for computation of Income from Business
and Profession. Section 28 defines the scope of income which can be taxed under this head.
Expenses or allowances expressly allowed by the Act are listed under sections 29 to 37, whereas
sections 40, 40A and 43B enumerate those expenses which are expressly disallowed while
computing taxable income.
The income from business and profession is known as profit and gains. While calculating the
profit and gains, we deduct various expenses from it. The expenses to be deducted for calculating
the gain are defined in the income tax act. Sections 30 to 37 cover expenses, which are expressly
allowed as deduction while computing business income, sections 40, 40A and 43B cover expenses
which are not deductible. Expenses deductions under section 30 to 37 are of two types. The first
is specific deductions which are covered under section 30 to 35 and second is general deductions
which are covered under section 36 and 37. Specific deductions are allowed only to some of the
businesses while general deductions are allowed to all the businesses. There are certain provisions
which allow an assessee to calculate the profit on the presumptive basis, i.e., the profit is presumed
on certain basis. These provisions are contained under section 44.

9.1 Definition of Business or Profession

The most important head of income is the head ‘Profits and gains of Business or Profession’.
While the provisions of Sections 28 to 44 D deals with the method of computing income under
head “Profits and Gains of Business or Profession”.

9.1.1 Meaning of Business

The meaning of the expression ‘Business’ has been defined in Section 2(13) of the Income-tax Act.
According to this definition, business includes any trade, commerce or manufacture or any
adventure or concern in the nature of trade, commerce or manufacture. The concept of business
presupposes the carrying on of any activity for profit, the definition of business given in the Act
does not make it essential for any taxpayer to carry on his activities constituting business for a
considerable length of time.
In other words, continuity of the business is not the deciding factor in determining whether an
assessee has been carrying on any business or not, for even a single or isolated transaction
entered into with the idea of making profit would be a business within the meaning of the
definition given in Section 2(13). So long as the activity or enterprise of the assessee can be
brought within the meaning of the expression ‘any adventure or concern in the nature of trade,
commerce or manufacture’, the assessee would be said to carry on a business and would
consequently be chargeable to tax under this head in respect of the profits and gains derived
therefrom.

The concept of business presupposes the existence of the assessee’s intention to make a profit out
of his transactions. The object to make profit must be inherent in the transaction although the

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