Nature of the business under Tax Planning Considerations in Relation to Business :

Besides the form of organisation, the choice of the nature of the business also calls for appropriate planning with reference to the various special benefits available under the taxation laws to the particular kinds of industries which are not available to other kinds. Some of these benefits are of such a substantial nature that they constitute one of the major factors in the determination of the nature of the business.

Broadly, business for this purpose may be divided into two categories—trading and manufacturing business. There could be a third category involving combination of both. Deduction is available under section 10AA to newly established units in Special Economic Zones.

A taxpayer carrying on manufacturing or industrial activities would be in a position to avail of the various concessions such as depreciation allowance, benefi t of amortisation under section 32, 35ABB, 35D and 35E, tax holiday benefit under section 80-IA/IB/IC/ID/IE. An important aspect that requires consideration in this context is the decision regarding type of product to be manufactured. The manufacture of any of the non-priority items specified in the Eleventh Schedule to the Income-tax Act, 1961 might disentitle the assessees, excepting small-scale industrial undertakings, to the tax holiday benefit under the provisions of section 80-IB. This is a major factor to be considered while deciding the nature of the business that an assessee should engage in.

While deciding the nature of the business, the benefit of tax exemption or concessional treatment available in respect of certain types of income such as agricultural income, business income from hotel business, new industrial undertakings, ships, business of repairs to ocean going vessels, business of exploration, etc. of mineral oils, etc. should also be taken into account.