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Business Income

Lottery/Gambling Activity--Whether Constitute Business

T.N. Pandey

In this write-up the learned author examines that whether engagement in lottery/gambling activity can constitute business. He also examines whether purchasing and selling of lottery tickets by a person can constitute business. He concludes that purchasing and selling of lottery tickets by a person can constitute business on his part and gains and loss arising therefrom assessed as such. He also concludes that the gains arising from lottery/gambling activities would constitute 'income' for the purposes of taxation under the Act, but such income would be assessable under the head "Income from other sources" not as income from business.

1. Introduction

Section 14 of the Income Tax Act, 1961 (Act, for short in later discussion) prescribes 5 heads under which incomes can be taxed under the Act. These are :--

(i) Salaries;

(ii) Income from house property;

(iii) Profits and gains of business or profession;

(iv) Capital gains; and

(vi) Income from other sources

In later paragraphs, some aspects concerning income from 'business' are being considered.

2. Business

The term 'business' has been defined in section 2(13) in the Act in an inclusive manner, to include every facet of an occupation/activity, which a person carries on with a view to earn profit. It includes (a) trade; (b) commerce; (c) manufacture or any adventure or concern in the nature of the activities stated earlier with intention to earn profits. In the Act, the word 'business' has been used in very broad/comprehensive manner and can be described in different connotations to earn profits.

Section 28 of the Act describes activities, which can constitute 'business' for income-tax levy. These are :-

(a) Profits and gains of any business or profession;

(b) Any compensation or other payments due to or received by any person specified in section 28(ii);

(c) Income derived by a trade, professional or similar association from specific services performed for its members;

(d) Profit on sale of import entitlement licences, incentive by way of cash compensatory support and drawback of duty;

(e) Any profit on transfer of the Duty Entitlement Pass Book (DEPB) Scheme;

(f) Any profit on the transfer of the Duty Replenishment Certificate;

(g) The value of any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession;

(h) Any interest, salary, bonus, commission or remuneration received by a partner of firm from such firm;

(i) Any sum whether received or receivable, in cash or kind, under an agreement for not carrying out any activity in relation to any business or not to share any know-how, patent, copyright, trademark, licence, franchise or any other business or commercial right of similar nature or information or technique likely to assist in the manufacture or processing of goods of provision for service;

(j) Any sum received under a key-man insurance policy (including bonus);

(k) Any sum received (or receivable) in cash or kind, on account of any capital asset (other than land or goodwill or financial instrument) being demolished, destroyed, discarded or transferred, if the whole of the expenditure on such capital asset has been slowed as a deduction under section 35AD; and

(l) Income from speculative transaction.

Income from the aforesaid activities for levy of income-tax is computed in accordance with the provisions laid down in the Act. These indicate that control and profit motive are two important activities that go to make an activity as business activity. Further, income under the Act is not taxable on 'gross' basis. It is taxed after deducting the expenses stated in the Act and also expenses, which the businessmen are required to incur as per the customs and practices prevalent in different categories of businesses. Courts have interpreted the word 'business' in a wider way saying that it covers every facet of an occupation carried on by a person with a view to earn profits. In Mazagon Dock Ltd. v. CIT (1958) 34 ITR 368 (SC), the Supreme Court has said that

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