Meaning of “Business carried on”

The meaning of business carried on under section 70 to 79 of the Income Tax Act is not defined in the act itself. But we can take guidance from decisions by various high courts. Here are excerpts of courts orders in which the Hon’ble High Court tried to explain the meaning of business carried on.

Meaning of business carried on defined by court

The phrase ‘business carried on’ used in section 70 to 79 of the Income Tax Act came up before hon’ble Allahabad high court in CIT vs. Narain properties ltd. [2012] 21 Taxmann.Com 547/209 taxman 274/254 ctr 185 (All.) and it explained.

Meaning: The words ‘carried on’ mean actual carrying of the activity. The words ‘carried on’ has to be read in context of what actually was done by the company in the relevant year, rather than what was main object in the memorandum of association of the company.

Section 70 to 79 of Income Tax Act

Set off of loss from one source against income from another source under the same head of income.

70. (1) Save as otherwise provided in this Act, where the net result for any assessment year in respect of any source falling under any head of income, other than “Capital gains”, is a loss, the assessee shall be entitled to have the amount of such loss set off against his income from any other source under the same head.

(2) Where the result of the computation made for any assessment year under sections 48 to 55 in respect of any short-term capital asset is a loss, the assessee shall be entitled to have the amount of such loss set off against the income, if any, as arrived at under a similar computation made for the assessment year in respect of any other capital asset.

(3) Where the result of the computation made for any assessment year under sections 48 to 55 in respect of any capital asset (other than a short-term capital asset) is a loss, the assessee shall be entitled to have the amount of such loss set off against the income, if any, as arrived at under a similar computation made for the assessment year in respect of any other capital asset not being a short-term capital asset.

In this article, you can get guidance from high courts on the meaning of business carried on under section 70 to 79 of the Income Tax Act.

Updated up to Finance Act 2021