Section 2(13) of the Income Tax Act
The decision most relied on for Section 2(13) is Shambhu Investment (P) Ltd. v. CIT (263 ITR 143), cited in 181 of the 92 judgments on BharatTax that turn on this section.
Leading authorities on Section 2(13)
Income derived from letting out property along with incidental use of furniture, fixtures, and common facilities is assessable as 'income from house property' and not 'business income' when the prime object is merely to let out and not to exploit the property as a business asset.
Income derived from letting out property is classified as business income only if the letting activity constitutes a business from a businessman's perspective, rather than mere exploitation of property by an owner. The company's object clause is not the sole determinative factor in this assessment.
Income from sources not falling under any other head of income under Section 14 of the Income Tax Act is taxed under the residuary head 'income from other sources'. If income cannot be taxed under Section 45 (capital gains), it cannot be taxed at all.
Disallowance under Section 14A of the Income-tax Act, 1961 cannot exceed the actual amount of exempt income earned by the assessee during the relevant previous year. This principle applies to assessment years prior to the amendment by Finance Bill 2022.
Income received by an assessee from leasing or letting out assets, whether categorized as lease amount, rent, or license fee, is a mixed question of law and fact to determine if it falls under 'Profits and gains of business or profession'. No precise test exists, and the determination must consider the perspective of a businessman, the specific facts, and the true interpretation of the letting agreement.
The definition of 'business' is of wide import, encompassing any trade, commerce, manufacture, or adventure in the nature of trade. Even a single and isolated transaction can constitute an 'adventure in the nature of trade' if it bears the clear indicia of trade, and no fixed formula can be evolved to determine the character of such isolated transactions.
Investments made by a holding company in its subsidiary can be considered a business activity, allowing related business expenditures to be deducted and not disallowed.
The determination of whether share transactions constitute a business activity or an investment depends on the facts of the case. Factors like volume, frequency, and regularity indicate business activity, irrespective of how such transactions are presented in accounts.
Expenditure incurred by a holding company for making investments in a subsidiary can be treated as business expenditure and is not disallowable, as such investment activity can itself constitute a business.
The character of a transaction as an adventure in the nature of trade, or not, depends on the totality of circumstances, and no single test is sufficient. Specifically, for land, the court will consider its use for agricultural purposes prior to transfer and the intended future use by the purchaser.
