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Unit 9: Income under the Head Business and Profession

Self Assessment Notes

State whether the following statements are true or false:
25. In computing income from business, one of the most important items of allowances is the
allowance for depreciation provided by Section 32 of the Income-tax Act.
26. The deduction towards depreciation is very essential to arrive at the income of the assessee
and also to amortise the capital cost of the amount invested in buildings, machinery, plant
and furniture.

27. 25 per cent depreciation is allowable in respect of the depreciable asset if the asset concerned
is sold, destroyed, discarded or demolished in the same year in which it was acquired.
28. Normal depreciation is calculated at the specified percentage on the written-down value
of block of assets.

Case Study Income from Trading of Shares

n this case there is no dispute that trading in shares is not the business of the assessee
as authorised by memorandum of association. It is also a fact that the assessee had
Idealt in futures and as well as traded in shares of other companies. Therefore, we have
to see the applicability of the Explanation to section 73 of the Act to the share trading
activities carried on by the assessee. As per Explanation to Section 73 where any part of
business of the company an assessee whose gross total income is not consisted mainly of
income which is chargeable under the heads “Interest on securities”, “Income from house
property”. “Capital gains” and “Income from other sources”, or a company the principal
business of which is the business or banking or the granting of loans and advances,
consists of the purchase and sale of shares of other companies, such company shall, for the
purposes of section 73, be deemed to be carrying on a speculation business to the extent to
winch the business consists of the purchase and sale of such shares. The provisions of
Explanation to section 73 do not distinguish between the transaction of trading in shares
on actual delivery or without delivery basis. Admittedly the assessee does not fall under
any of the exceptions provided in the Explanation and hence, the purchase and sale of
shares traded during the year under consideration is in nature of speculation business
within the meaning of proviso to section 73 of IT Act, 1961.
Hon’ble Madhya Pradesh High Court in the case of Intermetal Trade Ltd. (supra) has held
that the Explanation to section 73 does not apply to an investment company or a company
whose principal business is banking or money lending. If the business of a company
which does not fall within the excluded categories consists of purchase and sales of shares
of other company, than such a company shall be deemed to carrying in speculation business
for the purpose of section 73 to the extent to which the business consists of purchase and
sale of shares.
Hon’ble Calcutta High in the ease of Arvind investments Ltd. (supra) has also held the
similar view. In this case it has been held that the Explanation to section 73 applies to the
case of the assessee whose entire business consisted of dealing in shares. A loss incurred
by the assessee was a speculation loss.
In the case of Mysore Rolling Mills (supra) Hon’ble Karnataka High Court held that where
shares have been purchased as an investor, the provisions of Explanation to section 73
could not be applied.
Contd...

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