![WDV Value of block of assets at start of year +actual cost of acquired assets -moneys recd/receivable in respect of assets sold / discarded / demolished / destroyed during year AO not bound to accept the wdv for previous year[ karnani ind bank v Cit[1980]124 itr 482{mp}]](https://image.slidesharecdn.com/taxation-of-income-from-business-and-profession-in-india-20038/85/Taxation-of-income-from-Business-and-Profession-in-India-13-320.jpg)
![S 36 (1)(i] insurance premium (1)[ii] bonus/commission to employees (1)[iii]interest on borrowed capital](https://image.slidesharecdn.com/taxation-of-income-from-business-and-profession-in-india-20038/85/Taxation-of-income-from-Business-and-Profession-in-India-15-320.jpg)
![S 36[1][vii] Bad debts There must be a debt Incidental to the business of assessee Taken into a/c Actually written off Adjustment on recovery Live business](https://image.slidesharecdn.com/taxation-of-income-from-business-and-profession-in-india-20038/85/Taxation-of-income-from-Business-and-Profession-in-India-17-320.jpg)
![S 37[1] Residuary section Not capital nature Not personal expenditure Incurred in previous year Arising from business Wholly and exclusively for business purpose](https://image.slidesharecdn.com/taxation-of-income-from-business-and-profession-in-india-20038/85/Taxation-of-income-from-Business-and-Profession-in-India-18-320.jpg)
Taxation of income from Business and Profession in India
- 1. Income from business and profession
- 2. What is Business? S2(13) TRADE,COMMERCE,MANUFACTURE ADVENTURE/CONCERN PROFIT MOTIVE CONTROL
- 3. What is Profession? S 2(36) PROFESSION INCLUDES VOCATION SPECIAL KNOWLEDGE AND SKILL
- 4. SOME BUSINESSES Dealing in land Converting land into plots Dealing in shares Money lending
- 5. Is this a business receipt? Amt credited in books Land purchased but sold for want of finance Compensation for loss of earning? Exchange fluctuation Security/trade deposit recd? Value of excess stock declared to bank
- 6. Factors in assessment of business income Right to carry on the business Must be carried on during previous year Income of previous year taxable in AY Incidence on aggregate income Ownership Real vs notional profit Recovery of sums allowed as a deduction
- 7. Business losses Revenue losses Incurred during previous year incidental to business
- 8. S 30 Rent Rates Taxes Insurance Repairs current/capital
- 10. S 32 Depreciation BUSINESS ASSET Ownership Used for purpose of business Used during year
- 12. Building,Machinery and Plant Only superstructure (owned land &leased) mechanical contrivance Plant something which allows to carry on business Furniture
- 13. WDV Value of block of assets at start of year +actual cost of acquired assets -moneys recd/receivable in respect of assets sold / discarded / demolished / destroyed during year AO not bound to accept the wdv for previous year[ karnani ind bank v Cit[1980]124 itr 482{mp}]
- 14. Actual cost Actual cost to assessee +all expenses related to acquisition of asset, install and make fit to use,training,pre-production expenses -cost met directly/indirectly by any other person or authority
- 15. S 36 (1)(i] insurance premium (1)[ii] bonus/commission to employees (1)[iii]interest on borrowed capital
- 16. interest Must have borrowed capital Must be used for purpose of business No test of reasonableness
- 17. S 36[1][vii] Bad debts There must be a debt Incidental to the business of assessee Taken into a/c Actually written off Adjustment on recovery Live business
- 18. S 37[1] Residuary section Not capital nature Not personal expenditure Incurred in previous year Arising from business Wholly and exclusively for business purpose
- 19. Capital expenses Elimination of competition Procurement of license Shifting of a plant Construction of road Raising new shares Acquiring goodwill Abandoned project
- 20. Revenue expenses Renovation of office Payment to competititor Construction of school for employees Annual sum pd for use of goodwill Royalty pd for obtaining stock in trade Expenses on issue of debentures Technical fees for use of tech data without transfer of rights
- 21. Cash & mercantile system Choice exists with assessee to adopt a method only in case of “ profits & gains of business &profession ” and “ income from other sources ” In other heads the method is not relevant in computing taxable income.
- 22. Mercantile system Income expenses recorded at the time of occurrence during prv year Profit calculated is actually earned though not realised. Gives an idea of how the business is doing Does not allow for blatant manipulation
- 23. Cash system Receipts and expenses recorded only if recd during this year Excess of receipts over disbursements A cruder system shows cash flow of the business allows for manipulation
- 24. Choice of a/c method lies with assessee but once a particular method is followed he must follow it consistently. B.C.G.A(Punjab) ltd vs CIT(1937)5 ITR 279(Lahore) A/c practice cannot override any provision of the Act. Tuticorin Alkali Chemicals & Fertilizers ltd vs CIT(1997)227 ITR172
- 25. S 145 either cash or mercantile AO can invoke S144 if not satisfied about correctness and completeness of the a/c of the assessee Or where regular a/c practices Or a/c standards are not followed by the assessee.
- 26. A/c std notified u/s 145(2) Std 1 All policies to be disclosed Part of financial statements Disclosed at the same place Change having material effext in prv yr/s shall be disclosed.impact to be shown in he period/s. If change in future to be disclosed.
- 27. True and fair state of affairs Major considerations for selection of policy are Prudence –provide for all losses Substance over legal form Materiality 3 fundamental a/c assumptions are going concern Accrual consistency
- 28. A/c std II prior period items separately disclosed with nature and amounts extraordinary items disclosed that their relative impact can be perceived Change in a/c policies to be disclosed and quantified in respect of previous and subsequent years