Meaning of Business and Profession: Section 2(13)/ 2(36) Income Tax

Income from both ‘Business’ and ‘Profession’ is chargeable to income-tax under the head “Profits and gains of business or profession” as per Section 28 of the Income Tax Act, 1961, however there are certain other provisions of IT Act/ Rules, which require distinction between these two terms.

Section 2(13) Income Tax: Meaning of ‘Business’

As per Section 2(13) of the Income Tax Act, 1961, unless the context otherwise requires, the term ‘business’ includes any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture.

The word `business’ is one of wide import and it means activity carried on continuously and systematically by a person by the application of his labour or skill with a view to earning an income. The expression “business” does not necessarily mean trade or manufacture only – Barendra Prasad Ray v ITO [1981] 129 ITR 295 (SC). The following activities have been held to be business:
(i) Advertising Agency,
(ii) Clearing, Forwarding and Shipping Agency,
(iii) Courier Agency,
(iv) Insurance Agency,
(v) Nursing Homes/ Hospitals,
(vi) Stock/ Share/ Securities broking and dealing,
(vii) Travel Agency, etc.

Section 2(36) Income Tax: Meaning of ‘Profession’

As per Section 2(36) of the Income Tax Act, 1961, unless the context otherwise requires, the term ‘profession’ includes vocation.

Profession is a word of wide import and includes “vocation” which is only a way of living. – Additional CIT v. Ram Kripal Tripathi [1980] 125 ITR 408 (All).

A particular activity can be classified as ‘business’ or ‘profession’, depending on the facts and circumstances of such case. The term “profession” indicates an occupation requiring intellectual skill or manual skill controlled by the intellectual skill of the operator, as distinguished from an operation which is substantially the production or sale or arrangement for the production or sale of commodities. – CIT Vs. Manmohan Das (Deceased) [1966] 59 ITR 699 (SC), CIT v. Ram Kripal Tripathi [1980] 125 ITR 408 (All).

Businesses can be of different types such as manufacturing, trading, service and so on. Similarly, there are different types of professions such as legal, medical, engineering and so on. Businesses can be undertaken by any individual while professions can be undertaken only by individuals who have the required qualifications. Businesses are usually governed by rules and regulations while professions are usually governed by code of ethics for respective profession. Different businesses and professions are taxed differently under the Income Tax Act, 1961. The rates of tax for different businesses and professions vary according to the nature and size of the business or profession.