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Chargeability - Section 28 - Income Tax - Ready Reckoner - Income TaxExtract Chargeability - Section 28 (i) Profits and gain of any business or profession carried on by the assesssee at any time during the previous year. Income earned from the exercise of any profession or vocation , which involves the idea of occupation requiring either purely intellectual skill or any manual skill, is taxable under this head . (ii) Any compensation or other payment due to or received by any person in connection with termination or modification of agreement or agency and in connection with vesting in the government. Exception: Any compensation received for not producing CFC and HCFC ( Chloroflourocarbons and Hydrochloroflourocarbons ) from Govt. of India is not taxable (iii) Income derived by a trade, profession or similar association from specific services performed for its members . ( iiia ) Profits on sale of a licence granted under the Imports (Control) Order, 1955, made under the Imports and Exports (Control) Act, 1947 ( iiib ) Cash assistance (by whatever name called) received or receivable by any person against exports under any scheme of the Government of India ; ( iiic ) Any duty of customs or excise re-paid or re-payable as drawback to any person against exports under the Customs and Central Excise Duties Drawback Rules, 1971 ; ( iiid ) Any profit on the transfer of the Duty Entitlement Pass Book Scheme, being the Duty Remission Scheme under the export and import policy formulated and announced under section 5 of the Foreign Trade (Development and Regulation) Act, 1992 ; ( iiie ) Any profit on the transfer of the Duty Free Replenishment Certificate, being the Duty Remission Scheme under the export and import policy formulated and announced under section 5 of the Foreign Trade (Development and Regulation) Act, 1992 ; (iv) the value of any benefit or perquisite arising from business or the exercise of a profession, whether (a) convertible into money or not; or (b) in cash or in kind or partly in cash and partly in kind; [ Earlier clause substituted vide Amendment as per FA, 2023 ] (v) Interest, salary, bonus commission or remuneration due to or received by a partner of a firm from such firm . Provided that where any interest, salary, bonus, commission or remuneration, by whatever name called, or any part thereof has not been allowed to be deducted under section 40 (b), the income under this clause shall be adjusted to the extent of the amount not so allowed to be deducted. (va) Any sum received for not carrying out any activity in relation to any business or profession or not to share any knowledge, patent, copyright, trademark ,etc. to assist in the manufacture or processing of goods or provision for services. (vi) Any sum received under a Keyman insurance policy including the sum by way of bonus on such policy. (via) The fair market value of inventory as on the date on which it is converted into, or treated as, a capital asset determined in the prescribed manner. (vii) Any sum received (or receivable) in cash or kind ,on account of any capital assets (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 allowed as a deduction under section 35AD . Explanation 2 : Speculative business to be distinct business. Where speculative transactions carried on by an assessee are of such a nature as to constitute a business, the business (hereinafter referred to as speculation business ) shall be deemed to be distinct and separate from any other business. Other Relevant Information - Section 28 Clause (iv) The benefit or perquisite arising from the business shall be in the form of benefit or perquisite other than in the shape of money. Waiver of loan is in the form of cash/money. It cannot be taxed u/s 28(iv). CIT vs. Mahindra and Mahindra Ltd. Thrg. M.D. 2018 (5) TMI 358 - Supreme Court Section 28 Clause (va) Whether a payment under an agreement not to compete (negative covenant agreement) is a capital receipt or a revenue receipt ? Supreme Court held that in case of Shiv Raj Gupta versus Commissioner of Income-Tax, Delhi-IV 2020 (7) TMI 544 - Supreme Court from the facts of the case payment to assessee having considerable knowledge, expertise and skills in the business may cause negative impact on the business after removing control, as he may start his own business or engage himself directly or indirectly providing his services to any business which may rise the competition and loss of market to the Company. There is a dichotomy between receipt of compensation by an assessee for the loss of agency and receipt of compensation attributable to the negative/restrictive covenant. The compensation received for the loss of agency is a revenue receipt whereas the compensation attributable to a negative/restrictive covenant is a capital receipt. Loss of Agency Means Acting Contrary to the Principal, which is here in case the Company . Negative/Restrictive Covenant Means the agreements prohibit employees from taking certain actions that may disadvantage their employer either during employment or post-employment. Temporary letting out of plant equipment is business income The court held that it was a part of the normal activities of the assessee s business to earn money by making use to tis machinery by either employing it in own manufacturing concern or temporarily letting it to others for making profit for that business when for the time being it could not itself run it. - Commissioner of Excess Profits Tax, Bombay City versus Shri Lakshmi Silk Mills Limited 1951 (9) TMI 1 - Supreme Court Relevant Case Laws Income form business carried on by promoters of company prior to dated of incorporation of company, cannot be taxed as income of company. it shall be taxable in the hand of promoter in the status of AOP/BOI. [ CIT v/s City Mills distributors Pvt. Ltd. 1996 (2) TMI 1 ] Assessee received commission and brokerage on (a) Share subscribed by public in IPO , Such commission income and brokerage on is taxable as P/G/BP (b) Share not subscribed by public in IPO which had to be subscribed by assessee on account which had to be subscribed by assessee on account of underwriting agreement, such commission and brokerage income has to be reduced from cost of acquisition of shares subscribed by assessee on account of underwriting. [ CIT vs U.P. State industrial Development Corporation 1997 (4) TMI 2 ] Where assessee in course of its business, purchased securities for its constituents on receiving certain percentage of face value called margin money in deposit and as constituents failed to pay balance amount of purchase value of securities at stipulated date fixed thereof, margin money was forfeited and securities become property of assessee, margin money so forfeited was to be assessed as business income from assessee. [ CIT V/S LAKSHMI VILAS BANK LIMITED 1996 (5) TMI 2 ] Outstanding dues on account of professional fees from practices as an advocate received by assessee after elevation to post of Judge would be taxable as income of the assessee. [ CIT VS JUSTICE ANIL R. DAVE 2015 (5) TMI 188 ] Clarify Issue of taxability of surplus on sale of shares and securities - Capital Gains or Business Income. [ Circular No.6/2016 Dated 29/02/2016 ]
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