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09
CHAPTER
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Business Defined
Section 18
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Business includes any trade, commerce or manufacture, profession, vocation or any adventure or concern in the nature of trade, commerce or manufacture. However, it does not include employment. This definition is inclusive/ flexible, it means other meanings can also be added. The definition starts with the word includes is always general.
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Meaning of Business
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Speculation Business
Section 19
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Speculation business means any business in which a contract for purchase and sale of any commodity (including stock and shares) is settled otherwise than by the actual delivery, but does not include a business in which:
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SPECULATION BUSINESS
Section 19
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A contract for purchase of material is entered into, for the manufacture or merchandizing and to safeguard against the price fluctuations entered into another contract. (This contract will not be a speculative activity). A contract in respect of stocks and shares entered into by a dealer or investor to guard against the loss in the persons holding of stocks and shares through price fluctuation.
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Why to show Speculative income separately from Non-Speculative business income? An Analysis
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Section 58 and 67 provides answer to this question. Section 58 --- set off and carry forward of losses. Section 67--- Apportionment of deductions on the basis of nature and size of the activities. Separate books of Accounts are maintained for speculative and nonspeculative businesses.
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Example - I
A B C Ltd, provided the following information about its income for the tax year 2010. Calculate total taxable income of the company. Income from normal business-A Rs 150,000 Income from normal business-B Income from speculative business 50,000 75,000
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Example - II
Continuing with the above example, suppose the ABC company Ltd, sustains a loss of Rs 75,000 from speculative business instead of profit.
Loss of Rs 75,000 will be carried forward to the next year to be adjusted against speculative profit.
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A. Expenses incurred in deriving income from business section 20(1) o o o o o o o o o o Examples. Cost of goods manufactured & sold Rent of premises used for business Any tax, cess or rate (other than income tax) Repair of business assets Bonus to employees. Bad Debts Expenditures an educational institute or hospitals for the benefit of employees and their dependents, Training of employees Annual subscription Expenditures on visits of trade delegations sponsored by the Federal Govt.
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D. Deduction on account of Financial costs Section 28(1) 1. Profit on debt paid 2. Lease rentals for a leased asset
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2 - DEDUCTIONS NOT ALLOWED Section 21 o o o o o o Non-Business/Personal Expenditure Capital Expenditure except depreciation/amortization. Entertainment Expenses over and above the prescribed limit. Personal Expenses of the trader. Taxes on Profit-Income Tax etc. Default of tax deductions on payment of: o Salary o Rent o Brokerage/commission o Profit on debt Profit on debt paid Lease rentals for a leased asset
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