1. BUSINESS AND PROFESSION

2. Business S.2 (13) defines the term business as “business includes any trade, commerce, or manufacture or any adventure or concern in the nature of trade, commerce or manufacture Comments Trade means exchange of goods for money or goods Commerce means a regular activity of trading on a large scale. It includes related activities (aids to trade) of transportation, storage, marketing and so on Manufacture means making of the articles by means of labor and/or machines. It denotes conversion of raw materials into finished goods Adventure or concern : any transactions with a profit motive can be called an adventure or concern in the nature of trade, commerce or manufacture and treated as business e.g. buying of shares or land as stock-in- trade(for resale) so as to earn profits. An adventure involves risks-a risk that the capital invested may be lost a risk that there may not be any regular return or even no return at all on the investment and so on

3. Profession or Vocation: Income from Profession or Vocation i.e. services is also taxed under the head- Profits and gains of business or profession. Profession means an occupation involving intellectual work requiring special knowledge and personal qualifications such as that of a lawyer, chartered accountant, doctor, engineer, architect and so on. Vocation means an occupation involving manual or technical work such as tailoring, hair cutting, typing, repair of any nature or a work using one’s natural abilities e.g. giving spiritual talks painting, preaching sermons etc. However the rules for computation of income are the same for a business, profession or vocation.

4. Depreciation 1.Provision According to S32 depreciation is allowed in respect of 2.a specified asset i.e. (i) tangible assets such as buildings, machinery, plant or furniture (ii) intangible assets such as know-how, patents, copyrights, trade marks, licenses, franchises or any other business or commercial rights of similar nature, acquired on or after 1-4-98 3.owned wholly or partly by the assessee 4.used for the purpose of his business or profession 5.at the prescribed rate 6.on the written down value 7.of the block of asset

5. thus, whether depreciation can be claimed depends on three conditions (1) Whether the asset is a specified asset (2) whether the asset is owned by the assessee (3) Whether the asset is used for the purpose of his business or profession in the previous year. How much depreciation can be claimed depends on three factors (1)the prescribed rate on (2)the written down value (3)the block of asset

6. Block of Assets- means “a group of assets in respect of which the same percentage of depreciation has been prescribed” (S.2 (11)) Types: All the assets are first divided into 2 main groups: Tangible and Intangible Classes Tangible assets are divided into following 3 classes (1) Building (2) Machinery or plant and (3) Furniture. Intangible assets(purchased after 1-4-98) are divided into following 7 classes-(1) know-how (2)patents(3)copyrights(4)trade marks(5)licenses(6) franchises(7) other similar rights

7. Written Down Value Step1: Ascertain the opening WDV of the block as on 1-4-12 Step2 Add the actual cost of any asset of that block acquired 2011-12 to above opening WDV Step3 Deduct the Moneys received or Receivable regarding any asset of that block sold discarded demolished or destroyed during 2011-12 from above This gives closing WDV of the assets as on 31-3-12 1) 50% depreciation for assets used for less than 180 days, if any asset is used for less than 180 days in the year of acquisition the depreciation rate will be only 50% of the normal rate the restriction is applicable only during the year of acquisition and not to the subsequent years 2) No depreciation when WDV of a block becomes negative

8. Examples of expenditure not allowable U/S 37 Sums payable outside India- in the form of interest, royalty fees for technical services salaries or other sum chargeable to tax on which no TDS have been deducted. Income tax Wealth tax Capital expenditure Payment exceeding Rs 20,000 (otherwise than by account payee cheque/ draft) is disallowed Sec 40A(3) Excess Payment made to relative Sec 40A(2) is disallowed.

9. Illustration: 1.Generally X pays salary to employees by account payee cheques. Salary of December 2011, paid to three employees A,B,C by bearer cheques (payment being Rs 6,000, Rs 20,000 and Rs 20,500 respectively) Solution: Rs 20,500 being 100% of salary paid by bearer cheque to C is disallowed. 2.X Ltd purchases goods on credit from Y Ltd on May 6,2010 for Rs 86,000 Which is paid as follows- a.Rs 15,000 in cash on May 11,2011 b. Rs 30,000 by a bearer cheque on May 31,2011 c. Rs 41,000 by an account cheque Solution: Rs 15,000 will not be disallowed.100% of Rs30,000 not will be disallowed. Rs 41,000 will not be disallowed.

10. 3. Z Ltd purchases goods on credit from A Ltd on May 10,2011 for Rs 16,000 and May 30,2011 for Rs 15,000.The total payment of Rs 31,000 is made by crossed cheque on June 1,2010 Solution: Though amount of payment exceeds 20,000 nothing shall be disallowed. 4. A Ltd purchases goods on credit from a relative of a director on June 20,2010 for Rs 50,000(market value Rs 42,000). Solution:.Out of payment of Rs 50,000, Rs 8,000 (being excess payment to relative) shall be disallowed under Sec 40A(2).

11. Deduction under sec 43 B: When payment should be paid Expenses During the relevant previous year or on or before the due date for filing return 1.tax, duty, cess or fee under any law 2.Bonus or commission to employees 3.Interest on loan from any public financial institution or a state financial corporation or a state industrial investment corporation or from scheduled bank 4.Sum due to employees in lieu of leave balance 5.Contribution payable by an employer to a provident/superannuation/gratuity/em ployee welfare fund