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Unit 9: Income under the Head Business and Profession

ultimate result of the transaction may be such that the assessee had to incur loss. Thus, the Notes
assessability of profits and gains from business under this head does not in any way depend
upon the ultimate outcome of the venture or transaction yielding income or loss. A loss incurred
from business is as much assessable under this head as profit which is chargeable to tax.

Did u know? There may be cases where a tax payer may acquire an asset not with the idea
of selling it at a profit but to retain it as his own investment. In such cases the profit or gain
derived from the sale or other transfer of such an investment would constitute a capital
profit which cannot be charged to tax under the head ‘income from business or profession’.

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Caution However, if the same assessee who holds some investments, decides at a later
point of time to convert this investment into stock-in-trade and deals with them as part of
his business assets in the normal course of his business, the profit or gain derived from the
sale of the same asset in the ordinary course of the business would constitute income
assessable under this head.
The fact that the asset concerned was originally acquired without the idea of making profit on
sale is immaterial for the purpose of assessment. Where a taxpayer acquires an asset with the
sole object of making of profit by reselling the asset, but does not sell it for quite some time and
later on disposes off the asset at a profit, the profit derived from sale would still be assessable
under this head although the assessee had held the asset with him for quite some time.

Thus, the concept of business presupposes an operation consisting substantially of production
or sale or purchase and sale or making arrangements for the production, sale etc. of commodities.
Thus, an agency which does not involve actual purchases or sale but acts as intermediary would
also constitute the carrying on of a business. Therefore, the definition of business given in
Section 2(13) is so wide as to cover every case of transaction entered into with the idea of earning
income.
In most cases, the concept of business is based upon the idea of the continuous exercise of
activities of a series of a similar nature which taken together yield income. But the carrying on
of a business for a considerable length of time is not essential for attracting liability to tax under
this head because profit derived even from an isolated venture which is in the nature of trade
would still be taxable under this head even in cases where the adventure in the nature of trade
had come to end or the cost in respect of the venture had been fully recouped to the assessee.

Example: If a person purchases a piece of land, gets it surveyed, lays down a scheme of
development, divides it into a number of building plots and sells some of the plots from time to
time, he would be chargeable to tax not only on the notional profits made on individual sale of
plots but also on the surplus, if any, remaining after the sale of all plots and after the venture had
come to an end.

Notes Tax is chargeable on the income of the assessee arrived at after deducting from the
sale proceeds the cost of the plots and also the expenses which are incidental thereto.

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