An Overview of Provisions of Business & Profession

8/9/2019 An Overview of Provisions of Business & Profession

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The word business defined in section 2(13) to

include any trade, commerce or manufacture

or any adventure or concern in trade,

commerce or manufacture. Profession involves the idea of an

occupation requiring purely intellectual skill

or manual skill on the basis of some special

learning .


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The should be a business or profession ;

The business should be carried on by the

assessee;

The business or profession should be carriedon for some time during previous year;

The charge is in respect of the profits and

gains of the previous year of the business or

profession; and

The charge extends to any business or

profession carried on.


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A trading loss of business is deductible in computing

profit earned by the business even though there is no

specific provisions in the Act for allowances thereof.

Such trading losses can be claimed as a deduction

provided the following conditions are satisfied:

It should be a real loss ;

It should be revenue loss;

It must have actually arisen and have been incurred;

It should be incurred to the carrying on of the

business ;

The should be no prohibition in the Act, express or

implied against the deductibility thereof.


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The losses sustained before the commencementof business

Losses sustained in the closing down of thebusiness.

Losses due to damage of capital assets.

Losses which are not incidental to the carryingon of the business of the assessee.

Loss due to sale of securities held as investments

Loss cause by forfeiture of advance given forpurchase of capital assets.

Anticipated loss of subsequent years.

Expenses incurred as penalty for infraction oflaw is not deductible.


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For the purpose of taxation there is no

discrimination between legal and illegal

business. Profits from an illegal business

are subject to tax just as from legalbusiness.


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Rent, rates, taxes, repairs and insurance forbuilding(Sec. 30)

(a) where the premises are occupied by the assessee:

(i) as a tenant- the rent paid for such premisesand further amount paid for repairs.

(ii) otherwise than as a tenant- the amount paidbyhim for current repairs

(b) any sum paid as rates, land revenue or municipaltax

(c) any insurance premium paid.

Repairs and insurance of machinery, plant & furniture(Sec. 31)


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Depreciation is diminution in the value of an

asset due to normal wear and tear and due

to obsolescence. There are different

methods for calculation of depreciationunder financial accounting. The methods

commonly used are:

1. Straight Line Method

2. Written Down Value Method


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i. Depreciation is allowed on tangible as well as intangibleassets

ii. Allowed to the owner of the assets.

iii. It is allowed even if the asset is wholly or partly owned

by the assesseeiv. It is allowed only when the asset is used for the purpose

of business or profession

v. Allowed on the basis of actual cost to the owner

vi. Allowed on the system of Block of Assets, but not incase of electricity companies.

vii. Allowed on the basis of written down value method,except in the case of company engaged in the powergeneration & distribution.

viii. Computed on WDV of the asset as on the last day of theprevious year


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Block of Assets means a group of assets falling

within a class of assets comprising,-

a. Tangible assets, being building, machinery,

plant & furniture;b. Intangible assets, being know-how, patent,

copyright, trademark, licences, franchises or

any other business or commercial rights.

In respect of which same percentage ofdepreciation is prescribed.


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Assets eligible for depreciation have been classifiedinto four class:-

a. Building;

b. Plant & Machinery;

c. Furniture;

d. Intangible assets acquired on or after 1/04/08

Each class of assets other than intangible assets mayhave different blocks or groups on which separaterates of depreciation are prescribed and for eachsuch rate, separate block will be formed.

In the case of intangible assets there will be only oneblock as only one rate i.e. 25% has been prescribedfor all such intangible assets.


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W.D.V. of block of assets for purpose of charging depreciation of

current year means:

i. In the case of assets acquired before the P.Y., the actual cost

to the assessee of all the assets falling within the block less

all depreciation actually allowed to him;

ii. In the case of assets acquired in the P.Y. the actual cost to

the assessee

Computation of WDV if any asset of the block sold during the

year

In such cases to compute the W.D.V. of the block of the assetfollowing steps to be followed:

i. Determine the WDV of the entire block at the beginning of

the P. Y. which will be the WDV of that block of the asset in

the immediately preceding P.Y. as reduced by the

depreciation actually allowed in respect of that block of assetcontinued..


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ii. Add the actual cost of any asset falling within the block,acquired during the P.Y.

iii. Deduct the money payable (consideration) in respect of

the asset of the same block , which is sold or discarded

during the previous year together with the scrap value;

iv. The resultant figure will be WD

V of the block at the end ofthe year for the purpose of charging current year

depreciation .

Notes:

The deduction under step III cannot exceed the aggregate

amount of step I and step II. If it exceed such amount,there will be no WDV for the purpose of charging

depreciation. The excess amount is subject to provisons of

capital gains


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What is Slump Sale?

According to section 2(42C) of Income Tax Act 1961

slump sale means transfer of one or more

undertakings as a result of the sale for a lumps sumconsideration without values benign assigned to the

individual assets and liabilities in such sale

in order to come within the purview of the definition,

one should satisfy the following conditions

1. Taxpayer owns an undertaking;

2. He/she transfers undertaking by way of sale;

3. The transfer is for lump sum consideration without

assigning values to individual assets and liabilities.


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WDV of the block of assets in case of slum sale is to be

determined in following steps:

I. Determine the WDV of the entire block at the beginning

of the P. Y. which will be the WDV of that block of the

asset in the immediately preceding P.Y. as reduced bythe depreciation actually allowed in respect of that

block of asset

II. Add the actual cost of any asset falling within the block,

acquired during the P.Y

III. Deduct the money payable (consideration) in respect of

the asset of the same block , which is sold or discarded

during the previous year together with the scrap value;


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1. The amount of reduction under step 3 can not exceedthe value of assets computed under step 1 & 2

2. However in the case of slump sale, the following shall

be reduced from the value determined after step 2

Actual cost of assets falling in the block transferred by

slump sale

Less :

a) Depreciation actually allowed in respect of that asset

in respect of any previous year relevant to the

assessment year commencing before 1988-89;b) Depreciation that would have been allowable from

the Assessment year 1988-89 onward as if that asset

was the only asset in the relevant block of assets.


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An Overview of Provisions of Business & Profession

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