Chargibility of LIC Commission
This query is : Resolved
06 November 2007
Whether the lic commission received is treated as "Business" or " Profession" in order to decide Tax Audit u/s 44AB.
Kinly give the reference for the same i.e.relevant case law, circuler etc.
Kinly give the reference for the same i.e.relevant case law, circuler etc.
06 November 2007
1
07 November 2007
Business - Connotation of
‘Business’ must be construed in broad sense - The word ‘business’ is one of wide import and in fiscal statutes, it must be construed in a broad rather than a restricted sense - Mazagaon Dock Ltd. v. CIT [1958] 34 ITR 368 (SC).
Generally, single transaction is not treated as business - The expression ‘business’ in ordinary parlance means any trading activity accompanies by regularity of transactions intended for the purpose of making profit. In general, a single transaction is not taken as business - Eclat Construction (P.) Ltd. v. CIT [1988] 172 ITR 84 (Pat.).
Activity must be real, substantial, systematic and organised - The expression ‘business’ is a well-known expression in income-tax law. It means some real, substantial and systematic or organised course of activity or conduct with a set purpose - CIT v. Distributors (Baroda) (P.) Ltd. [1972] 83 ITR 377 (SC)/Narain Swadeshi Wvg. Mills v. CEPT [1954] 26 ITR 765 (SC)/CIT v. Admiralty Flats Motel [1982] 133 ITR 895 (Mad.).
Activity can sometimes be quiescent - Though ordinarily, ‘business’ implies continuous activity in carrying on particular trade or vocation, it may also include an activity which may be called ‘quiescent’ - CIT v. Calcutta National Bank Ltd. [1959] 37 ITR 171 (SC).
Essential requisites for a business - Business activity or transaction necessarily implies the activity with an object to earn profit. Larger the risk, greater the margin of the profit. Uncertainty about the return to be received from the investment made in business also the facing of many imponderables and even the risk of losing the capital invested, are inherent in activity called ‘business’. Risk, uncertainty, foresightedness to visualise the imponderables and capacity to overcome the unforeseen hurdles are the essential requisites for business activity - CIT v. Smt. Minal Rameshchandra [1987] 167 ITR 507 (Guj.).
Object of activity is to earn profit - The word ‘business’ is not defined exhaustively in the Income-tax Act, but it denotes as activity with the object of earning profit. To say that a business is being carried on means no more than that profit is to be earned by a process of production - Senairam Doongarmall v. CIT [1961] 42 ITR 392 (SC)/Mahammad Faruq In re. [1938] 6 ITR 1 (All.).
Even any systematic and continuous activity involving labour and skill is ‘business’ - The expression ‘business’ does not necessarily mean trade or manufacture only: it is being used as including within its scope professions, vocations and callings for a fairly long time. The word ‘business’ is one of wide import and it means an activity carried on continuously and systematically by a person by the application his labour and skill with a view to earn income - Barendra Prasad Ray v. ITO [1981] 129 ITR 295 (SC).
There must be a course of dealings with continuity - The expression ‘business’, though extensively used in taxing statutes, is a word of indefinite import. In taxing statutes it is used in the sense of an occupation or profession which occupies the time, attention and labour of a person, normally with the object of making profit. To regard an activity as business there must be course of dealings either actually contained or contemplated to be contained with a profit motive, and not for sport or pleasure. Whether a person carried on business in a particular commodity must depend upon the volume, frequency, continuity and regularity of transactions of purchase and sale in a class of goods and the transaction must ordinarily be entered into with a profit motive - Sole Trustee, Loka Shikshana Trust v. CIT [1975] 101 ITR 234 (SC).
Motive to produce income is not necessary - It is well-established that it is not the motive of the person doing an act which decides whether the act done by him is the carrying on of a business, profession or vocation. If any business, profession or vocation in fact produces an income, that is taxable as income from business, irrespective of the fact that business was not carried on with any motive of producing any income - P. Krishna Menon v. CIT [1959] 35 ITR 48 (SC).
==============================================================================================
Profession
Intellectual/manual skill must be involved - Profession involves occupation requiring purely intellectual or manual skill - CIT v. Manmohan Das [1966] 59 ITR 699 (SC).
‘Profession’ is associated with intellectual/technical exercises based on learning/service - A profession is normally associated with the exercise of intellectual or technical equipment resulting from learning or service - CIT v. Bhagwan Broker Agency [1993] 70 Taxman 453 (Raj.).
Clearing and forwarding agency is not ‘profession’ - The activity of clearing, forwarding and shipping agents does not amount to a “profession” - CIT v. Jivanlal Lalloobhai & Co. [1994] 206 ITR 548 (Bom.).
Illustrative activities which constitute ‘profession’ - The word ‘profession’ now has a broader and more comprehensive meaning that formerly accorded to it, and its signification now extends far beyond the well-known classical professions of earlier days as the applications of science and learning are extended to other departments of affairs, other vocations, etc. The various other activities which have also now come to be termed as profession are enumerated in Corpus Juris Secundum (Vol. 72, p. 1219). These include, accountants, architects, chemists, editors, engineers, etc. The above enumeration is followed by list of persons who have been held not to be engaged in the practice of a profession. This list includes beauty culturists, brokers, insurance agents, undertakers and embalmers and various others. ‘Profession’ has to be distinguished even from ‘occupation’ which tantamounts to ‘business’, viz., an occupation which substantially the arrangement for sale of commodities - CIT v. Lallubhai Nagardas & Sons [1993] 204 ITR 93 (Bom.).
Stock-broking is not a profession - A stock broker cannot be said to be engaged in the practice of a profession. The real job of a stock broker is to make arrangements for sale of the shares or securities of others. Such activity clearly falls within the expression ‘business’ and not ‘profession’ - CIT v. Lallubhai Nagardas & Sons [1993] 204 ITR 93 (Bom.).
Politics is a profession - Politics is a profession or occupation - CET v. P.V.G. Raju [1975] 101 ITR 465 (SC).
Treasurership is not ‘profession’ - Occupation of a treasurer is not one of the recognised professions, nor can it be said that it partakes of the character of business or trade. Profession involves occupation requiring purely intellectual or manual skill - CIT v. Manmohan Das [1966] 59 ITR 699 (SC).
Betting on horses is not a profession or vocation - Betting on horses cannot constitute a profession or vocation - Janab A. Syed Jalal Sahib v. CIT [1960] 39 ITR 660 (Mad.).
‘Business’ must be construed in broad sense - The word ‘business’ is one of wide import and in fiscal statutes, it must be construed in a broad rather than a restricted sense - Mazagaon Dock Ltd. v. CIT [1958] 34 ITR 368 (SC).
Generally, single transaction is not treated as business - The expression ‘business’ in ordinary parlance means any trading activity accompanies by regularity of transactions intended for the purpose of making profit. In general, a single transaction is not taken as business - Eclat Construction (P.) Ltd. v. CIT [1988] 172 ITR 84 (Pat.).
Activity must be real, substantial, systematic and organised - The expression ‘business’ is a well-known expression in income-tax law. It means some real, substantial and systematic or organised course of activity or conduct with a set purpose - CIT v. Distributors (Baroda) (P.) Ltd. [1972] 83 ITR 377 (SC)/Narain Swadeshi Wvg. Mills v. CEPT [1954] 26 ITR 765 (SC)/CIT v. Admiralty Flats Motel [1982] 133 ITR 895 (Mad.).
Activity can sometimes be quiescent - Though ordinarily, ‘business’ implies continuous activity in carrying on particular trade or vocation, it may also include an activity which may be called ‘quiescent’ - CIT v. Calcutta National Bank Ltd. [1959] 37 ITR 171 (SC).
Essential requisites for a business - Business activity or transaction necessarily implies the activity with an object to earn profit. Larger the risk, greater the margin of the profit. Uncertainty about the return to be received from the investment made in business also the facing of many imponderables and even the risk of losing the capital invested, are inherent in activity called ‘business’. Risk, uncertainty, foresightedness to visualise the imponderables and capacity to overcome the unforeseen hurdles are the essential requisites for business activity - CIT v. Smt. Minal Rameshchandra [1987] 167 ITR 507 (Guj.).
Object of activity is to earn profit - The word ‘business’ is not defined exhaustively in the Income-tax Act, but it denotes as activity with the object of earning profit. To say that a business is being carried on means no more than that profit is to be earned by a process of production - Senairam Doongarmall v. CIT [1961] 42 ITR 392 (SC)/Mahammad Faruq In re. [1938] 6 ITR 1 (All.).
Even any systematic and continuous activity involving labour and skill is ‘business’ - The expression ‘business’ does not necessarily mean trade or manufacture only: it is being used as including within its scope professions, vocations and callings for a fairly long time. The word ‘business’ is one of wide import and it means an activity carried on continuously and systematically by a person by the application his labour and skill with a view to earn income - Barendra Prasad Ray v. ITO [1981] 129 ITR 295 (SC).
There must be a course of dealings with continuity - The expression ‘business’, though extensively used in taxing statutes, is a word of indefinite import. In taxing statutes it is used in the sense of an occupation or profession which occupies the time, attention and labour of a person, normally with the object of making profit. To regard an activity as business there must be course of dealings either actually contained or contemplated to be contained with a profit motive, and not for sport or pleasure. Whether a person carried on business in a particular commodity must depend upon the volume, frequency, continuity and regularity of transactions of purchase and sale in a class of goods and the transaction must ordinarily be entered into with a profit motive - Sole Trustee, Loka Shikshana Trust v. CIT [1975] 101 ITR 234 (SC).
Motive to produce income is not necessary - It is well-established that it is not the motive of the person doing an act which decides whether the act done by him is the carrying on of a business, profession or vocation. If any business, profession or vocation in fact produces an income, that is taxable as income from business, irrespective of the fact that business was not carried on with any motive of producing any income - P. Krishna Menon v. CIT [1959] 35 ITR 48 (SC).
==============================================================================================
Profession
Intellectual/manual skill must be involved - Profession involves occupation requiring purely intellectual or manual skill - CIT v. Manmohan Das [1966] 59 ITR 699 (SC).
‘Profession’ is associated with intellectual/technical exercises based on learning/service - A profession is normally associated with the exercise of intellectual or technical equipment resulting from learning or service - CIT v. Bhagwan Broker Agency [1993] 70 Taxman 453 (Raj.).
Clearing and forwarding agency is not ‘profession’ - The activity of clearing, forwarding and shipping agents does not amount to a “profession” - CIT v. Jivanlal Lalloobhai & Co. [1994] 206 ITR 548 (Bom.).
Illustrative activities which constitute ‘profession’ - The word ‘profession’ now has a broader and more comprehensive meaning that formerly accorded to it, and its signification now extends far beyond the well-known classical professions of earlier days as the applications of science and learning are extended to other departments of affairs, other vocations, etc. The various other activities which have also now come to be termed as profession are enumerated in Corpus Juris Secundum (Vol. 72, p. 1219). These include, accountants, architects, chemists, editors, engineers, etc. The above enumeration is followed by list of persons who have been held not to be engaged in the practice of a profession. This list includes beauty culturists, brokers, insurance agents, undertakers and embalmers and various others. ‘Profession’ has to be distinguished even from ‘occupation’ which tantamounts to ‘business’, viz., an occupation which substantially the arrangement for sale of commodities - CIT v. Lallubhai Nagardas & Sons [1993] 204 ITR 93 (Bom.).
Stock-broking is not a profession - A stock broker cannot be said to be engaged in the practice of a profession. The real job of a stock broker is to make arrangements for sale of the shares or securities of others. Such activity clearly falls within the expression ‘business’ and not ‘profession’ - CIT v. Lallubhai Nagardas & Sons [1993] 204 ITR 93 (Bom.).
Politics is a profession - Politics is a profession or occupation - CET v. P.V.G. Raju [1975] 101 ITR 465 (SC).
Treasurership is not ‘profession’ - Occupation of a treasurer is not one of the recognised professions, nor can it be said that it partakes of the character of business or trade. Profession involves occupation requiring purely intellectual or manual skill - CIT v. Manmohan Das [1966] 59 ITR 699 (SC).
Betting on horses is not a profession or vocation - Betting on horses cannot constitute a profession or vocation - Janab A. Syed Jalal Sahib v. CIT [1960] 39 ITR 660 (Mad.).
09 November 2007
As per Blacks Law Dictionary Business means"Activit or enterprise for gain,benefit,advanctage or livelihood it includes profession too.
Profession is defined as "A vocation or occupation requring special usually advanced education,knowledge or skill.
From this two definition,we can infer that,lic agent need not require any specialised knowledge except now he has to pass a examination conducted by IRDA.That one exam not qualify him as a professional.In my view profession or professional means a set regulation formulated by some higher body and monitered by some council or members or Govt.But I think there is no such regualtions for lic agents.
Thirdy the word commission normally prevailing in business not in professional .If it is professional one,income to be referred as fees but not as commission.
So lic agent commission to be treated as business income.
Profession is defined as "A vocation or occupation requring special usually advanced education,knowledge or skill.
From this two definition,we can infer that,lic agent need not require any specialised knowledge except now he has to pass a examination conducted by IRDA.That one exam not qualify him as a professional.In my view profession or professional means a set regulation formulated by some higher body and monitered by some council or members or Govt.But I think there is no such regualtions for lic agents.
Thirdy the word commission normally prevailing in business not in professional .If it is professional one,income to be referred as fees but not as commission.
So lic agent commission to be treated as business income.
12 November 2007
19 November 2007
IN PRINCIPAL I AGREE WITH THE PREVIOUS RESPONDENTS. AT THE SAME TIME I WOULD LIKE TO REMIND THAT CBDT IN ITS CIRCULAR, HAS TREATED THE SAME AS INCOME FROM OTHER SOURCES
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