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Income Tax Laws – I

Notes The profits and gains of business or profession are computed in accordance with the
provisions contained in Sections 30 to 43D. Sections 30 to 37 contain those deductions
which are expressly allowed while computing profits of business or profession.
Section 40 provides those expenses which are allowed on the basis of general commercial
principles while computing profits of business or profession. It is necessary to know those
principles before studying the deductions expressly allowed while computing profits of
business or profession.

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.

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. 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.

9.9 Keywords

Auditor: An official whose job it is to carefully check the accuracy of business records.
Building: It means the superstructure only and does not include site.
Business: It includes any trade, commerce or manufacture or any adventure or concern in the
nature of trade, commerce or manufacture.
Cash System of Accounting: It is an accounting system in which a record is kept of actual receipts
and actual payments of a particular year.
Mercantile System of Accounting: It is an accounting system in which net profit or loss is
calculated after taking into consideration all income and expenditure of a particular accounting
year irrespective of the fact whether income is not received or expenditure is not actually paid
during the accounting period.
Plant: It includes ships, vehicle, books (including technical know-how report), scientific apparatus
and surgical equipment used for the purpose of business or profession. It does not include tea
bushes or livestock or buildings or furniture and fittings.
Profession: It involves the concept of an occupation requiring either intellectual skill or manual
skill controlled and directed by the intellectual skill of the operator.

Scientific Research: It implies any activity for the extension of knowledge in the fields of natural
or applied sciences including agriculture, animal husbandry or fisheries.
Speculative Transaction: It is transaction in which a contract for the purchase or sale of any
commodity including stocks and shares is periodically or ultimately settled otherwise than by
the actual delivery or transfer of the commodity or scrips.

9.10 Review Questions

1. Define the concepts of business and profession.

2. What do you understand by continuity of business and profession?
3. Distinguish between Mercantile system of accounting and cash system of accounting.
4. What is meant by ‘block of assets’? Explain.

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