Decoding 'Business' in India's Legal Landscape

Decoding 'Business' in India's Legal Landscape

Business Under the GST Laws: Sec. 2(17)

- any trade, profession, or similar activity, regardless of profit

- related or supportive activities

- transactions for starting or closing a business, including buying or selling goods/services

- services by clubs and societies for members

- fee-based admission to premises

- services by race clubs or public authorities.

Top Five (5) questions answered.

Q1. “Does selling at a ‘cheaper rate’ still qualify as a business?

A1. YES

Charitable trust providing medicines from its medical store at a lower rate

Any trade carried out, whether for the pecuniary benefit or not, amounts to ‘business’

Sale of medicines from a Medical Store, even if supplied at a lower rate, amounts to taxable supply

Charitable Trust has to obtain registration when its aggregate exceeds the threshold limit

Gujarat High Court in NAGRI EYE RESEARCH FOUNDATION (2021) 54 GSTL 11

Q2. Is profit motive necessary?

A2.1 While the presence of a profit motive is typically associated with business, it is not an absolute requirement. Activities can still be classified as business even if they do not directly aim for profit, provided they are conducted on sound business principles and with reasonable continuity.

Delhi High Court in India Trade Promotion Organisation vs Director General of Income Tax (Exemptions)

(2015) 53 taxmann com 404 :: 2015 Supreme(Del) 101

A2.2 Appellant, a society of ex-servicemen providing the above service, contesting levy of Service Tax on the ground that it is not a commercial concern with a profit motive. HELD: The absence of a profit motive is not necessary for not imposing Service Tax under the service above.

Rajasthan High Court in RAJASTHAN EX-SERVICEMEN WELFARE COOPERATIVE SOCIETY LTD.

(2018) 15 GSTL 328

A2.3 The Punjab and Haryana High Court in the PUNJAB EX-SERVICEMEN CORPORATION case [(2012) 25 STR 122] held that a profit motive is not necessary to impose service tax.

Q3. Does ‘business’ include renting of premises but exclude ‘illegal’ occupation?

A3. ‘Business’ – Includes renting of premises but not ‘illegal’ occupation. No GST is payable on royalty paid as compensation for illegal occupation of premises since the payment doesn’t qualify as ‘supply’.

Bombay High Court in BAI MAMUBAI TRUST

(2019) 31 GSTL 193

Q4. Does ‘business’ require frequency for incidental activities to qualify?

A4. Incidental activity does not require frequency. Any transaction connected to or incidental to trade, commerce, manufacture, etc., counts as "business" regardless of its regularity or volume.

Madras High Court in Prakash Impex vs State of Tamil Nadu

(2019) 29 GSTL 705

Q5. Is the "Business" a broader term?

A5.1 The term "business" is broader than "trade" and includes professions, vocations, and occupations that occupy time, attention, and labor for the purpose of earning a livelihood.

Delhi High Court in Institute of Chartered Accountants of India vs Director General of Income Tax (Exemptions), Delhi

(2011) 202 Taxmann 1 :: (2012) 347 ITR 99

A5.2 Where dominant objective of ICAI was to regulate profession of Chartered Accountancy in India, it was a charitable institution and conducting coaching classes and campus placements for a fee could not be held as business as per section 2(15).

Delhi High Court in Institute of Chartered Accountants of India vs Director General of Income Tax (Exemptions), Delhi

(2013) 217 Taxmann 152 :: (2013) 260 CTR 1

A5.3 Western Railway Canteen/Catering Services a “dealer” and cannot claim exemption from indirect taxes imposed by State Government on the ground that it was owned by Union of India.

Bombay High Court in Union of India vs State of Maharashtra

(2018) 17 GSTL 408

A5.4 Union Government is liable to indirect taxes imposed by State governments - Exemption under Article 285 of Constitution of India is limited only to taxes directly on property of Union Government and it does not extend to Excise/Customs duty, Sales tax, etc. Therefore, Central Public Works Department (PWD) is a dealer for Indirect Taxes.

Supreme Court in Kayra Palak Engineer, CPWD, Bikaner

(2004) 177 ELT 3

Conclusion:

In summary, the definition of business in Indian law is comprehensive and includes various forms of economic activity characterized by continuity, regularity, and an organized effort to earn income. While profit motive is a common element, it is not strictly necessary for an activity to be classified as business. Tax Practitioners should consider the specific context and statutory provisions when determining whether an activity qualifies as business.

Thanks

Raja Abhishek

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